The Issue The issue presented is whether the application of Respondent Adventist Health System/Sunbelt, Inc. d/b/a East Pasco Medical Center for a certificate of need to add 24 acute care beds to its existing facility should be approved.
Findings Of Fact The Seventh Day Adventist Church owns Respondent Advent-ist Health System/Sunbelt, Inc. That corporation, which occupies a strong financial position, operates not-for-profit hospitals in several states, including Florida. One of the Florida hospitals is East Pasco Medical Center (East Pasco), located in Zephyrhills. Zephyrhills is in eastern Pasco County, which, for health planning purposes, is known as Subdistrict 2 of District 5. East Pasco is an 85-bed acute care hospital which provides most of the common services found in a community hospital. In addition to providing general acute care and obstetrics (OB), it has an intensive care unit (ICU) and offers neurosurgery and kidney dialysis services. East Pasco also has completed but not yet opened an 11-bed skilled nursing unit (SNU) and a 10-bed observation unit. The 11 beds in the SNU and the 10 beds in the observation unit are in addition to the 85 acute care beds for which East Pasco is licensed. For licensure purposes, acute care beds are not divided into types of service. East Pasco's current configuration for its 85 acute care beds is as follows: 68 medical-surgical beds, 8 ICU beds, and 9 OB beds. East Pasco has an active emergency room which experiences up to 30,000 visits per year. East Pasco obtains approximately 55 percent of its in-patient admissions through its emergency room. East Pasco is accredited by the Joint Commission for the Accreditation of Healthcare Organizations (JCAHO). Petitioner Humana of Florida, Inc. d/b/a Humana Hospital Pasco (Humana) is an existing 120-bed acute care hospital in Dade City. It is situated approximately 10 minutes away from East Pasco. Humana provides the same services that East Pasco provides, including medical-surgical, ICU/CCU, OB, kidney dialysis, and neurosurgery. Like East Pasco, Humana is accredited by the JCAHO. However, Humana's accreditation is "with commendation", the highest rating given by the JCAHO. Like East Pasco, Humana has a large medical staff, primarily consisting of physicians who have their offices located in Zephyrhills or Dade City. The medical staff rosters of Humana and East Pasco are virtually identical. Dade City is also located in east Pasco County, and the primary service areas of Humana and East Pasco are virtually identical. Like East Pasco, Humana serves the Medicaid and indigent patient populations. In its fiscal year 1991, Humana provided 6 percent of its patient days to Medicaid patients. In fiscal year 1992, that increased to 8.8 percent, the same as East Pasco. Humana's Medicaid patient days increased substantially with the introduction of OB services at Humana since Medicaid patients receive primarily OB services. East Pasco has been designated as a disproportionate share provider under the State's program to give economic incentives to hospitals serving a certain percentage of Medicaid patients. East Pasco also serves the indigent patient population pursuant to a contract between it and Pasco County. In September, 1991, East Pasco filed its application for a certificate of need (CON) requesting approval for 24 additional medical-surgical beds (acute care beds) for the July, 1996, planning horizon. In January, 1992, the Agency notified East Pasco of its intent to approve the application and issue to East Pasco CON No. 6783. Humana filed this challenge to the Agency's intent to grant the application, and this proceeding ensued. All parties subsequently stipulated that Humana has standing to initiate and maintain this proceeding and that Humana was not obligated to present evidence of its standing. East Pasco has proposed a new unit to house the 24 additional medical- surgical beds to be located on the third floor of a new three-story tower. That third floor would consist of 13,000 gross square feet (GSF), would cost $4,087,810, and would consist of only private rooms with three nurse stations. East Pasco proposes no new services, only additional beds. Construction of the three-story tower has not yet commenced but is awaiting the outcome of this proceeding. The first floor of the new tower will be a wellness center, a project which did not require CON review. The second floor will house a new ICU. East Pasco presented conflicting evidence as to the size of that new ICU. The Agency approved East Pasco's second floor ICU as a 12-bed ICU with a cost below the threshold cost which would have required CON review. In spite of the exemption from review obtained by East Pasco, it is specifically found that East Pasco intends to place a 16-bed ICU on the second floor of the yet-to-be-constructed tower. Thus, East Pasco would achieve its 16-bed ICU by relocating its existing 8-bed ICU and converting other beds to ICU beds. Thus, if the 24 new beds sought are approved they will produce 16 additional medical-surgical beds and 8 additional ICU beds. Resolution of the number of beds proposed for the second floor of the new tower is required in this proceeding for two reasons. First, the cost of this project is impacted. If 8 of the new beds are to be used as ICU beds rather than as medical-surgical beds, they will be more expensive to construct and equip. Second, corporate approval of corporate projects is a prerequisite in Florida's CON process. East Pasco's Board of Directors met on August 14, 1991, to authorize the filing of this application. This application proposes 24 medical-surgical beds, the corporate resolution filed with the Agency authorized 24 acute care beds, but the minutes of the Board's meeting reflect that the Board itself approved 24 beds for ICU and PCU services. Although ICU, PCU, and medical-surgical beds are all acute care beds, they are constructed, equipped, and staffed differently. For the reasons described below, there is no need in District 5 or in the east Pasco County Subdistrict for East Pasco's proposed 24 additional medical-surgical beds. Rule 59C-1.038, Florida Administrative Code, includes the numeric need methodology for projecting acute care bed need. Under that Rule, applications for acute care beds will "not normally" be approved unless there is numeric need. For the September, 1991, application batching cycle, the Agency published a fixed need of zero acute care beds needed in District 5, Subdistrict 2, which is composed of only East Pasco and Humana hospitals. This fixed and published need of zero was not challenged. Per paragraph (7)(d) of the Rule, additional acute care beds will "not normally" be approved unless the subdistrict occupancy is at or exceeds 75 percent. All parties agree that calendar year 1990 is the proper period to ascertain whether this standard is met. In 1990, the acute care bed occupancy rate in the Subdistrict was 55.33 percent. The parties agree that the Rule's occupancy standard is not met. Therefore, no additional beds should normally be approved. There is ample unused capacity in District 5 and in the Subdistrict to meet acute care demand. Humana's occupancy is well below 50 percent. In years and 2 for the proposed unit, East Pasco projects 1,042 and 1,760 patient days, respectively. Humana has sufficient unused capacity to accommodate that projected demand. Utilization trends support the lack of need shown by the need methodology and the occupancy standard. Acute care utilization in the Subdistrict has decreased since 1986. In 1986, the two Subdistrict hospitals generated 42,830 patient days, a 57.2 percent occupancy. In 1991, notwithstanding population growth in the Subdistrict, the two Subdistrict hospitals generated 41,756 patient days, a 55.8 percent occupancy. Clearly, then, there is no increased demand for acute care services, but only a reshuffling of market share between the two hospitals. Contrary to East Pasco's suggestion, first quarter utilization does not show need and has, in fact, been decreasing. For example, the first quarter (January-March) of 1986 generated 13,572 patient days in the Subdistrict, a 73.6 percent occupancy; in the first quarter of 1992, there were 12,482 patient days, a 66.9 percent occupancy, the lowest first quarter utilization in the last 6 years in the Subdistrict. Additionally, the average length of stay (ALOS) in the Subdistrict continues to decline. In the first quarter of 1991, the ALOS was 5.4 days; in the first quarter of 1992, the ALOS was 5.1 days. Accordingly, although East Pasco shows an increased number of admissions over the last several years, the continued decline in the ALOS has resulted in a decreasing number of patient days. The population growth in the Subdistrict is not so substantial as to demonstrate need. Humana relied upon population projections produced by a national firm specializing in demographic analyses. Such a population data source is generally more reliable than a county's own projections, relied upon by East Pasco. The Subdistrict is growing but not at an extraordinary pace. In comparison, the West Pasco Subdistrict is growing faster. There are no geographic access problems to receiving acute care services which would support a finding of need. There are many hospitals available and accessible to residents of the Subdistrict within 30 minutes travel time or less. The entire Subdistrict is within a 30-minute travel time of Humana and of East Pasco. Most of the Subdistrict is also within 30 minutes travel time to other acute care hospitals, including University Community Hospital in Tampa, Lakeland Regional Medical Center in Lakeland, and South Florida Baptist Hospital in Plant City. The Zephyrhills area in particular is within 30 minutes travel time to those other facilities. Humana is an available alternative to the proposed project. Humana is geographically accessible to the entire Subdistrict, provides all the services that East Pasco provides, and provides good quality of care. Humana's medical staff roster includes the same physicians that practice at East Pasco. Humana already serves the same geographic service area that East Pasco serves. Indeed, several East Pasco witnesses testified that patients are transferred to Humana when East Pasco is full, thereby acknowledging Humana as an alternative for Subdistrict residents. Hospitals situated outside the Subdistrict are also available and appropriate alternatives to the proposed project. These hospitals have unused capacity to accommodate the projected demand from the Subdistrict. Notably, residents of the Subdistrict have historically greatly utilized hospitals located outside the Subdistrict. In 1990, 63.7 percent of the Subdistrict's residents went to a hospital other than Humana or East Pasco. Thus, physicians and residents regard hospitals situated outside the Subdistrict as appropriate and viable alternatives. Since East Pasco does not propose to offer any new service, and since there is accessible unused capacity at Humana and these other facilities, there are better alternatives to adding new beds at East Pasco. In addition, although approving more beds at East Pasco would improve availability of services at East Pasco, such is not a planning consideration or a review criterion. East Pasco and Humana provide similar levels of Medicaid care. In calendar year 1991, Medicaid comprised 8.8 percent of all patient days at East Pasco, less than in 1990. From September, 1991, to August, 1992, 8.8 percent of all patient days at Humana were Medicaid days. The two hospitals also provide similar amounts of indigent care. Therefore, Humana is economically accessible to all residents of the Subdistrict. Facilities located outside the Subdistrict also are economically accessible. Physician preferences are not significant in formulating conclusions of need on a District or Subdistrict basis. Physicians may well have their own reasons for doing things which may be contrary to sound health care planning principles. Further, physicians' personal preferences are not relevant to ascertaining how existing resources can be best and most efficiently used. The acute care bed Rule provides that additional beds "may" be approved at a specific facility if its occupancy exceeds 75 percent even though no beds can be authorized pursuant to the mathematical calculations established by the Rule. While East Pasco achieved an occupancy rate of 78.78 percent in calendar year 1990, that statistic merely "opens the door" for an evaluation of whether there are compelling circumstances to justify the approval of beds at a specific facility despite the absence of need demonstrated by the acute bed methodology. There are no factors or circumstances which would justify the approval of 24 additional medical-surgical beds at East Pasco pursuant to the specific facility provision. First, there are accessible and available alternatives for meeting projected demand. The majority of east Pasco County residents outmigrate even when beds are available at East Pasco. There is an excess capacity in the Subdistrict and in the District. Second, East Pasco's application discusses seasonal overcrowding due, in large part, to using in-patient beds for "observation" patients. Observation patients are those with a hospital stay of less than 24 hours. East Pasco has recently completed a new 10-bed observation unit. In 1991, East Pasco averaged observation patients per day; therefore, this new 10-bed unit will ease the strain on East Pasco's in-patient beds. Third, East Pasco's application relies on the "overflow" of patients in the winter season to justify its proposed bed addition. The actual amount of "overflow" is reflected in East Pasco's transfer log, which shows that there were not that many patients transferred in 1991. In fact, there were several months in which there were zero transfers. Fourth, the proposed beds are only intended to handle "seasonal" population demands. The proposed unit would not be open year-round. East Pasco was below 75 percent occupancy from May to October, 1991. East Pasco acknowledges that the proposed beds are only for part of the year and are intended to accommodate the demands of the seasonal population, who are not necessarily residents of the Subdistrict. East Pasco's application in reality requests approval for adding 24 beds at a cost of over $4,000,000 to accommodate, by East Pasco's own projections, an average daily census of three patients the first year and five patients the second year in a unit that would be closed at least six months out of each year. That is an excessive expenditure to provide access to relatively few people, where access to nearby facilities exists. Although East Pasco has shown that on certain days it has exceeded its OB capacity, and although East Pasco maintains that its most common capacity problem is the lack of available ICU beds, East Pasco's application itself does not suggest that it intends to increase the number of OB or ICU beds. Further, although on certain days East Pasco has experienced over 100 percent occupancy and has placed patients in the hallways, that situation can be obviated by referring patients to other hospitals, and the situation will be alleviated when East Pasco soon opens its additional 10-bed observation unit and 11-bed SNU. East Pasco has, therefore, shown that it has an occupancy rate sufficient to entitle it to review despite the lack of need under the acute care bed Rule, but it has shown no other reasons why its application should be approved. The Florida State Health Plan includes various preferences for reviewing CON applications. On balance, the East Pasco application is not consistent with that Plan. The first group of preferences relates to the addition of hospital beds. The first item in that group provides that no additional beds should generally be approved unless the subdistrict occupancy is at or exceeds 75 percent or unless the applicant-facility is at 80 percent. Since calendar year 1990 data was used to calculate the need formula and Subdistrict occupancy standard, it is appropriate to use that same data to determine East Pasco's occupancy for evaluating this preference, rather than using two different time periods as the Agency did. In 1990, the Subdistrict was below 75 percent, and East Pasco's occupancy was below 80 percent. Therefore, this preference is not met. The second item under this group provides that "in the event that acute care bed need is shown", preference shall be given to an applicant who provides a disproportionate share of Medicaid and indigent services in the Subdistrict. This preference is not met since no "acute care bed need is shown". The next group of preferences is entitled "transfer and conversion of acute care beds". Because East Pasco does not propose to transfer or convert acute care beds, East Pasco does not satisfy any of the preferences included under this grouping. The next group of preferences is entitled "indigent care". The first item provides that preference shall be given to an applicant who provides a disproportionate share of Medicaid and charity care in relation to other hospitals in the District or Subdistrict. This preference is not met. Although East Pasco has historically provided more Medicaid and indigent care than Humana, there is no showing that East Pasco will provide disproportionately more Medicaid and indigent care for medical-surgical services specifically. Most of East Pasco's Medicaid participation is for OB and newborn services, not medical- surgical services. Both Humana and East Pasco provide less than 1 percent of their gross revenues for indigent care. Given that most of the Subdistrict population is elderly, indigent care is not a major issue. Also, it was stipulated that East Pasco does not know how much indigent care it provides for medical-surgical services only. The second item under this group relates to whether CON approval would negatively affect the financial viability of a disproportionate share hospital. This preference is not relevant to East Pasco's application. The third group of preferences is entitled "emergency services". The first item relates to the applicant's record of accepting indigent patients for emergency care. East Pasco presented no information on this in its application except for its proof that it has a contractual obligation to do so. The second item relates to whether the facility/applicant is a trauma center. East Pasco is not a designated trauma center. The third item relates to whether the applicant demonstrates a full range of emergency services. East Pasco did not address this in its application. The fourth item addresses whether the facility has ever been fined by HRS for violations of emergency services statutes. East Pasco did not address this item in its application. Therefore, East Pasco does not meet the preferences in this group. The fourth group of preferences is entitled "teaching, research, and referral hospitals". The application does not address these particular preferences, and East Pasco does not hold itself out as a teaching, research or referral hospital. Therefore, East Pasco does not satisfy the items under this grouping. The fifth group of preferences is entitled "specialized services". East Pasco does not propose to provide any specialized services and, therefore, items under this grouping are not satisfied. The District 5 Local Health Plan includes recommendations for reviewing CON applications. On balance, the East Pasco application does not satisfy that plan. The first preference relates to whether the applicant provides a disproportionate share of Medicaid and charity care. For the reasons indicated above regarding the State Health Plan, this preference is not met. Further, East Pasco's application does not suggest that the 24 medical-surgical beds sought will enhance its Medicaid or indigent participation. The second recommendation provides that "if a numeric bed need exists as shown by the state bed methodology", preference is given to an applicant who has generated certain occupancy levels. Because no numeric bed need was shown per the Rule methodology, this recommendation is not met. The third recommendation relates to the transfer of existing acute care beds. Because East Pasco does not propose a transfer of beds, its application is not consistent with this recommendation. The fourth recommendation gives preference to applicants who document the cost-effectiveness and efficiency of their project. East Pasco does not satisfy this preference. East Pasco failed to show any cost efficiencies for its project. East Pasco proposes to spend over $4 million to serve, on the average, 3 to 5 patients per day in years 1 and 2. That is cost-inefficient. East Pasco did not prove that the charges or costs of providing medical-surgical services would be any less than what it currently charges. East Pasco's application includes two pro formas: a hospital-wide pro forma and an incremental pro forma for the proposed 24-bed unit. The person who prepared those pro formas did not testify, and the person who did testify did not participate in preparing the pro formas. Further, the witness only testified to the reasonableness of the incremental pro forma; he did not testify, directly or indirectly, regarding the hospital-wide pro forma. An incremental pro forma alone does not demonstrate long-term financial feasibility, even if the incremental pro forma were reasonable. An incremental pro forma alone does not reflect the project as a whole. At East Pasco, there are several projects and activities on-going or planned that must be evaluated. In addition to the existing 85 beds, East Pasco has underway: (1) opening a 10-bed observation unit; (2) opening an 11-bed SNU; (3) a planned wellness center on the first floor of the proposed 3-story tower; and (4) the planned relocation and enlargement of its ICU to the second floor of the proposed tower. Those projects add expenses, put strains on cash, and require debt. Without considering all the activity at the hospital, one cannot reasonably ascertain whether the proposed $4.1 Million third-floor project is financially feasible. For example, a small project could show an incremental profit but the hospital as a whole could lose money. East Pasco simply assumes that its 24-bed unit will be financially feasible in 1994 and 1995, years 1 and 2 of the project. The health care field is too dynamic and volatile for such assumptions. For example, East Pasco had an operating loss in 1990 but did well in 1991. By not analyzing the hospital-wide pro forma and proving its reasonableness, East Pasco did not show the required financial feasibility. It only demonstrated the results of one component of an entire operation. East Pasco has left unanswered the question of whether the facility as a whole will be able to finance this project in conjunction with all its other requirements. Further, the application lacked sufficient and clear presentation of the assumptions underlying the hospital-wide pro forma. Restated, the hospital-wide pro forma is not self-explanatory. The incremental pro forma, showing the proposed revenues and expenses for the 24-bed medical-surgical unit for years 1994 and 1995, is not reasonable. The projected revenues are overstated, and the projected expenses are understated. The assumptions underlying the financial projections are unreasonable. Further, the profit projections are unrealistic; in year two, East Pasco projects a profit of about $615,000 on an average daily census of less than 5 patients per day. On its face, that is unrealistic. In 1991, East Pasco generated 24,517 patient days, which was virtually the same as its 1990 utilization. In 1993, East Pasco projects 26,220 days. In year 1 of this project (1994), East Pasco projects 27,262 days hospital-wide, including the 1,042 incremental days associated with this project. Thus, in just a 3-year period, East Pasco projects almost 3,000 additional patient days, and even more for year 2 (1995). It is not reasonable to assume such an increase in utilization since utilization during the first quarter of 1992 declined from first quarter 1991. Therefore, patient day projections are overstated, thereby causing overstated projected gross revenue. East Pasco's projected daily charge is based on the hospital-wide average charge. It is not based on historical charges for medical-surgical services specifically. It is unreasonable to use charges for hospital services as a whole when the proposed project is for medical-surgical services only. Because the underlying assumption is invalid, projected revenues lack credibility. In calculating deductions from gross revenues, East Pasco assumed the hospital-wide payor mix and did not specifically ascertain the payor mix (and, therefore, the deductions) for medical-surgical services specifically. Again, this is an unreasonable assumption. Deductions from gross revenue should have been analyzed for medical-surgical services specifically. Due to the invalid assumption, the deductions from revenue figures lack credibility. East Pasco projects 5.8 FTEs for year 1 and 6.0 FTEs for year 2. East Pasco proposes to operate the 24-bed unit as an independent unit. These staffing levels are insufficient. East Pasco's proposed utilization equates to a 4.8 average daily census, which requires two nurses at all times. By East Pasco's admission, to staff a unit with two persons at all times throughout the year requires 9.2 paid nursing FTEs in addition to ward clerks and other support personnel. If the volume fluctuated and the census exceeded 7 or 8, more than two nurses would be needed. Thus, the 5.8 and the 6.0 FTE numbers are too low. The proposed staffing does not allow one RN to be on the floor at all times. To maintain one RN on the floor at all times throughout the year requires 4.2 FTEs; East Pasco budgeted for one. East Pasco does not have excess RNs available from its existing staff to cover the proposed addition. The supplies expense shown on the incremental pro forma was based on a hospital-wide average. The proposed project is for a specific service, and one cannot reasonably use a hospital-wide average instead. Accordingly, the calculation of expense for supplies is not reasonable. The pro forma includes an expense item entitled "other". East Pasco offered no explanation for that expense. Also, the pro forma did not include a line-item for the HCCCB indigent care tax, which is 1.5 percent of net revenue. East Pasco's proposed 24-bed medical-surgical unit will cover 13,000 GSF and will cost more than $4.1 million. All rooms will be private. The unit will have three nurse stations. According to East Pasco, the unit is to be a basic medical-surgical floor and is not intended to be a progressive care unit (PCU). This proposed design is not reasonable and is excessively large by at least 30 percent. This design is inefficient and, in reality, is not the design of a basic medical-surgical unit, but is instead the design of a PCU. There are three main reasons why the design is excessive. First, it is not necessary or reasonable to have all private rooms. A regular medical- surgical unit should have about an equal split of semi-private rooms. Notably, East Pasco's new 11-bed SNU has 5 private and 3 semi-private rooms for patients who will require hospitalization for up to 90 days. Second, these private rooms are almost twice the minimum size required by state licensure regulations. Third, three nurse stations are unnecessary; only one nurse station is needed for a basic 24-bed medial-surgical unit. East Pasco currently has 68 medical- surgical beds on 2 units, and each such unit has only 1 nurse station. The existing 68 medical-surgical beds at East Pasco average about 360 GSF per bed. The proposed 24 beds will average 542 GSF per bed. All private rooms and 3 nurse stations are, clearly, the design for a PCU. A PCU is a step- down unit from an ICU, which has high staff-to-patient ratios thereby requiring more nurse stations. East Pasco's projected construction cost for the 24-bed medical- surgical unit is $142.91 per GSF. This is unreasonably understated. It is uncontroverted that an SNU is less costly to construct than a medical-surgical unit. According to its projections, East Pasco's 11-bed SNU cost $171 per GSF in 1992. Clearly, that SNU cost is substantially greater than East Pasco's projected construction cost at issue. This inconsistency was never explained by competent evidence. In evaluating East Pasco's estimates, the Agency's architect relied upon 1991 Means construction cost data. He averaged the Means' medium figure ($123 per GSF) with the high figure ($172 per GSF) to derive a 1991 estimate of $147.50 per GSF. To that, one must add a 10 percent contingency factor, inflation, and an architectural fee. That totals $187.69 per GSF. The $187.69 projected figure is consistent with the 1992 SNU cost figure of $171. Thus, for construction costs alone, East Pasco underestimated by $44.77 per square foot, which is about $582,000. East Pasco proposed to construct a three-story tower; the third floor will house the proposed 24 medical-surgical beds. The second floor will house a 16-bed ICU, comprised of relocating the existing 8 ICU beds and converting 8 other acute care beds. East Pasco's application project costs only cover the third floor; East Pasco maintains the second floor is exempt from CON review and thus its cost is not relevant. As described below, East Pasco unreasonably failed to include costs of the second floor in its application. A hospital project costing $1,000,000 or more (other than an out- patient project) requires CON review. In its letter for exemption East Pasco states that the second floor would contain 12 ICU beds and cost $975,000 (calculated by multiplying 6,500 GSF by $150/foot). That letter is erroneous for several reasons: (1) the $150/foot is in 1992 dollars and does not include inflation; (2) the $150/foot does not include a 10 percent construction contingency fee, which is necessary and reasonable; (3) the $150/foot does not include an 8.4 percent architectural/engineering fee, which is necessary and reasonable; and (4) the $150/foot does not include any debt or financing fee. Including these necessary amounts alone shows that the second floor, in truth, exceeds the $1,000,000 threshold. Also, the cost for equipping an ICU bed is $45,000 per bed; for 16 beds, that is $720,000 for equipment. Surely the size and cost of a 16-bed ICU is different from and greater than a 12-bed ICU. East Pasco stated in its exemption request letter that the second floor would have 12 beds even though East Pasco intends 16 beds. East Pasco and the Agency correctly argue that the exemption given to East Pasco by the Agency for its second-floor ICU project is not part of the instant application and cannot be considered in this proceeding. However, the accuracy and reasonableness of the costs projected by East Pasco attendant to the 24 additional beds it seeks are an integral part of this proceeding, as is the scope of the project being reviewed and challenged. The second and third floor projects are, in truth, one project. It is East Pasco's intention to add 16 medical-surgical beds and 8 ICU beds to its facility. To establish the 16-bed ICU unit, East Pasco needs additional acute care beds; East Pasco does not have 8 available beds among its existing bed complement to convert to ICU purposes. The OB beds often run at 100 percent occupancy and, during the peak season, the medical-surgical beds run high occupancy. Thus, East Pasco cannot fully implement the second floor without approval of the proposed 24 new beds. There will be no community benefits in terms of charges if this application is approved. "Net revenues" must be the basis for comparing charges between facilities. Net revenues refers to what third party payors (such as Medicare, Medicaid, HMO/PPOs and most insurors) actually pay for hospital services as opposed to what hospitals charge. Few patients ever pay gross charges, particularly in the elderly East Pasco Subdistrict. In 1991, Humana's average net revenue per day was lower than East Pasco's. Humana's actual net revenue per admission in its fiscal year 1992 was $4,180. East Pasco's projected 1992 net revenue per admission is $5,301. Thus, for 1992, third party payors paid, on behalf of their patients, less per admission at Humana than at East Pasco. In its application, East Pasco projects an 8 percent per year increase in charges. An annual increase of 8 percent is not promoting charge-efficiency. East Pasco's application did not demonstrate cost-efficiencies resulting from approval, but rather, cost-inefficiencies. First, Humana would lose patient volume should East Pasco be approved. Humana currently receives transfers and direct admissions when East Pasco is full. Loss of patient volume would increase operating costs per patient day at Humana. Second, there is no need for additional beds in the Subdistrict. There is already excess capacity in the Subdistrict. Exacerbating excess capacity promotes cost-inefficiency. East Pasco admits the unit will not even be open six months out of the year because there is no need for it then. Third, East Pasco projects very low census in years 1 and 2, about 3 patients per day in year 1 and less than 5 patients per day in year 2. Spending over $4,000,000 to accommodate such low utilization is inefficient and unreasonable. Approval of East Pasco's application would not promote positive competition. There is competition now in the Subdistrict between Humana and East Pasco. East Pasco already captures a larger market share of the Subdistrict than Humana. Approving this application would only tip the scales more in favor of East Pasco and would adversely impact Humana's already poor financial condition. The quality of care delivered at Humana is very good. The JCAHO rates all acute care hospitals, and its rating is widely recognized in the hospital industry. The JCAHO evaluates many factors and components of a hospital. Humana is accredited "with commendation", the highest rating given. Only 5-6 percent of all acute care hospital in the country receive that highest ranking. Humana maintains a good utilization management program. Humana implements an excellent quality improvement plan, including soliciting and reviewing patient satisfaction comments. Mortality statistics cannot, by themselves, meaningfully measure the quality of care delivered at a hospital. Although the Health Care Finance Administration (HCFA) produces such a report for Medicare patients, the report itself represents that it is not intended to measure quality of care, and the American Hospital Association does not view HCFA mortality statistics as a measure of quality of care. There are many factors which influence mortality statistics at a hospital and, even more importantly, mortality is only one clinical outcome resulting from a hospital admission. When East Pasco is full, there is no medical problem or complication resulting from transferring patients to Humana or from directly admitting patients at Humana. There is no diminution of care or loss of continuity of care in transferring to or directly admitting to Humana. Emergency medical services are available in the Subdistrict, and, therefore, transfer is not a problem. Also, driving to Humana or to a hospital outside the Subdistrict is neither a problem nor an unusual circumstance. The large seasonal population drive to Florida in the winter, and, therefore, it is a mobile patient population. Most of its residents seeking hospital services receive them outside the Subdistrict. Subdistrict residents currently leave the Subdistrict to receive a variety of hospital services, including: in-patient cardiac cath, open heart surgery, Level II NICU, psychiatric services, substance abuse services, and comprehensive rehabilitation services. Thus, there is no merit to the suggestion that transferring patients from East Pasco to Humana or elsewhere is problematic. There would not be community benefits regarding Medicaid/indigent care by approving this application. As indicated, for all hospital services, Humana and East Pasco provide similar amounts of Medicaid and indigent care, although indigent care at both facilities is relatively insignificant. Therefore, access to Medicaid and indigent care does not provide a basis for approving East Pasco's application. Also, East Pasco's payor mix in its application was based on hospital-wide averages. East Pasco has not shown the amount of Medicaid or indigent care which would be specifically provided to, or which is needed for, medical-surgical patients. Finally, East Pasco's Policy and Procedure Manual includes several provisions requiring deposits upon in-patient admission absent verification of third party payor coverage. Such provisions are inconsistent with the proposition that East Pasco accepts all patients regardless of ability to pay. In Florida, an application for a CON must include a certified copy of an authorizing resolution of the applicant's Board of Directors. East Pasco included its corporate resolution in its CON application, that resolution being adopted at an August 14, 1991, meeting. That resolution clearly states, among other things, authorization to file an application for up to 24 additional acute care beds. The minutes of that meeting clearly reflect the Board's approval for 24 beds for ICU and PCU. The application itself requests approval of 24 medical-surgical beds. PCU, ICU, and medical-surgical beds are all types of acute care beds. Accordingly, East Pasco did file a proper corporate resolution consistent with the minutes and consistent with the application. The minutes and the application, however, are inconsistent. Although the corporation resolution is technically correct and fulfills the requirements for a CON application, the inconsistency among the corporate resolution, the minutes, and the application raised questions about the actual intent of East Pasco. The intent became more questionable during the final hearing when East Pasco's witnesses contradicted each other as to the number of beds to be placed in the to-be-constructed ICU on the second floor of the to-be-constructed 3-story tower. It is clear that the Agency only approved the construction of a 12-bed ICU on the second floor. It is also clear that East Pasco in fact intends to construct a 16-bed ICU on that second floor. It is also clear that East Pasco intends to construct a "medical-surgical" unit on the third floor in accordance with a design for a PCU. While the corporate resolution technically complies with the requirements for a CON application, the questionable nature of its accuracy, when considered in conjunction with the conflicting evidence of the scope of this project, raises concern as to East Pasco's projections regarding revenue, expenses, staffing, and the actual services to be made available in the Subdistrict. The lack of clarity as to East Pasco's proposal is a compelling reason to deny East Pasco's application. East Pasco's occupancy rate is quite high. It is higher even during the "peak season," i.e., November through April. The projections contained in East Pasco's application are based upon the historic high occupancy rate experienced at East Pasco. Those projections, however, do not take into account, nor did the Agency consider in reviewing East Pasco's application, the fact that East Pasco now has more than the 85 beds which formed the basis for its historic occupancy rate and its projections related to this project. Construction has been completed on the 10-bed observation unit and the 11-bed SNU. East Pasco already has an expanded capacity in place which should alleviate some of its occupancy problems. For example, East Pasco has experienced an increased number of out-patient observation days. With its new observation unit, the beds previously used for observation days are now available for in-patients which, in turn, will likely alleviate East Pasco's most common capacity problem-the lack of available ICU beds. Similarly, the SNU beds will also be available for in-patients.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED that a Final Order be entered denying East Pasco's application for Certificate of Need No. 6783. DONE and ENTERED this 9th day of February, 1993, at Tallahassee, Florida. LINDA M. RIGOT 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 9th day of February, 1993. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 92-1497 Petitioner's proposed findings of fact numbered 1-32, 34-82, and 84-96 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed finding of fact numbered 83 has been rejected as being unnecessary for determination of the issues herein. Petitioner's proposed findings of fact numbered 33 and 97 have been rejected as not constituting findings of fact but rather as constituting recitation of the testimony, argument of counsel, or conclusions of law. The Agency's proposed findings of fact numbered 2-6, 8, 13, 14, 27, 28, 31-33, 37, 40, 41, 43, 44, 47, 49, 51, and 90 have been adopted either verbatim or in substance in this Recommended Order. The Agency's proposed findings of fact numbered 20, 21, 34, 45, 52, 54, 56-58, 68, 71, 73, 82, and 89 have been rejected as being unnecessary for determination of the issues herein. The Agency's proposed finding of fact numbered 1 has been rejected as not constituting a finding of fact but rather as constituting recitation of the testimony, argument of counsel, or a conclusion of law. The Agency's proposed findings of fact numbered 7, 9, 19, 26, 48, 59, 61, 62, and 64 have been rejected as being irrelevant to the issues under consideration herein. The Agency's proposed finding of fact numbered 46 has been rejected as being subordinate to the issues involved in this proceeding. The Agency's proposed findings of fact numbered 10-12, 15-18, 22-25, 29, 30, 35, 36, 38, 39, 42, 50, 53, 55, 60, 63, 65-67, 69, 70, 72, 74-81, 83-88, and 91-93 have been rejected as not being supported by the weight of the credible, competent evidence in this cause. East Pasco's proposed findings of fact numbered 1-3, 5-7, 10, 13, 16- 18, 20, 22-24, 37, 38, 40, 45, 46, 48, 62, 63, 66-69, 73, 78, 79, 81, 82, 85, 89, 118, 119, 131, 135, 140, 174, 178-180, and 192 have been adopted either verbatim or in substance in this Recommended Order. East Pasco's proposed findings of fact numbered 15, 25, 26, 55, 56, 70, 83, 90, 92, 94, 95, 100, 121, 127-129, 145, 146, 163, 164, 171-173, 176, 177, 184-189, 191, and 194 have been rejected as being unnecessary for determination of the issues herein. East Pasco's proposed findings of fact numbered 19, 87, and 88 have been rejected as not constituting findings of fact but rather as constituting recitation of the testimony, argument of counsel, or conclusions of law. East Pasco's proposed findings of fact numbered 4, 8, 9, 11, 12, 14, 21, 30, 31, 33-36, 39, 41, 51, 61, 86, 96-98, 102, 103, 105, and 154 have been rejected as being irrelevant to the issues under consideration herein. East Pasco's proposed finding of fact numbered 84 has been rejected as being subordinate to the issues involved in this proceeding. East Pasco's proposed findings of fact numbered 27-29, 32, 42-44, 47, 49, 50, 52-54, 57-60, 64, 65, 71, 72, 74-77, 80, 91, 93, 99, 101, 104, 106-117, 120, 122-126, 130, 132-134, 136-139, 141-144, 147-153, 155-162, 165-170, 175, 181-183, 190, and 193 have been rejected as not being supported by the weight of the credible, competent evidence in this cause. COPIES FURNISHED: Edward G. Labrador, Esquire Agency for Health Care Administration 2727 Mahan Drive, Suite 103 Tallahassee, Florida 32308 James C. Hauser, Esquire Messer, Vickers, Caparello, Madsen, Lewis, Goldman & Metz Post Office Box 1876 Tallahassee, Florida 32302-1876 Darrell White, Esquire William Wiley, Esquire McFarlain, Wiley, Cassedy & Jones 215 South Monroe Street Suite 600 Tallahassee, Florida 32301 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303
Findings Of Fact In October of 1975 the Respondent, Joseph Victor, the administrator of Lee Convalescent Center, came upon an elderly gentlemen in the lobby of the center. Victor saw the man enter and inquired of him what he was doing there. Apparently, Victor did not get a straight answer or one that was satisfactory to him and after consulting with Dorothy Nobles, the admitting secretary, came to the conclusion that this gentlemen was a vagrant. In actuality he was David Kernaghan, a patient at the center. Apparently, Mr. Kernaghan did not have identification bracelets on him at the time and was staggering and incoherent. Mr. Victor did not make an inquiry as to whether Kernaghan was in fact a patient at the convalescent center even though many patients were permitted to be ambulatory and to "wander" around the convalescent center. Victor called the police who took Mr. Kernaghan to the Lee County Hospital . About two hours later his identity was learned and he was returned to the convalescent center. In January of 1976 a patient by the name of Charles E. Whitaker was being extremely unruly in his room which he shared with two other patients. The patient had been noisy, disruptive and behaving in such a disorderly manner that the other patients were being deprived of their sleep. Mr. Whitaker would continually disrobe and expose himself and had been publicly masturbating in his room. The nurses on the floor, after repeated efforts to clam down Mr. Whitaker, wheeled him into what had been described as the supervised bathroom. Whitaker was kept in his bed in this bathroom where he could be observed and isolated from the other patients. At the time this was done all the other isolation rooms where patients would normally be brought to be isolated were being used. The room in which he was brought was heated and except for being a shower room or bathroom it was not in any way demonstrated to be an unsatisfactory room in which to isolate a patient. No evidence was presented that at the time this was done Mr. Victor knew of this action taken by the floor nurses. Furthermore, no evidence was presented that isolating the patient Whitaker in this manner was in any way detrimental to his health or was an unprofessional decision. Testimony was given by Mr. Whitaker's daughter-in-law to the effect that he had been threatened by a nurse with being isolated in this bathroom several days before this happened but such testimony was pure hearsay and cannot be the basis for a finding of fact. Furthermore, in the opinion of this Hearing Officer, the isolation of the patient Whitaker, under the circumstances above described and in the manner in which it was done, was perfectly justified. With regard to Count III, considerable testimony was given by nurses who work at the Lee Convalescent Center that Respondent, Victor, often inquired as to whether patients that were continuously wandering around the convalescent center could be given something to calm or quiet them down. It was the clear impression of many of these witnesses that Victor was advocating the indiscriminate tranquilizing of the patients. If that indeed was his intention the evidence is not sufficiently clear to make such a finding. Victor, as all these witnesses acknowledged, did not have the authority to order the administration of drugs to a patient without the consent of the patient's doctor, nor was there any evidence that he attempted to so do. Comments made by Whitaker appear to have been no more than a half-hearted attempt on his part to suggest to nurses on duty to consider getting a doctor's permission to sedate a patient. This is not what is charged in the Complaint, which is that the Respondent ordered the sedation of "wandering patients". Further, it is significant that in the examples that were testified to at the hearing none of the nurses followed Victor's "suggestions" and Victor did not make any attempt to follow-up to see if any patients had been sedated. In all other respects no other evidence was submitted regarding the other allegations in Count III and it is specifically entered as a finding of fact herein that such other allegations were not proven. Evidence was presented that for about a period of one month during the time in question the orange juice at the convalescent center was watered down. No evidence was presented that Mr. Victor was aware that the orange juice had been watered down and no evidence was presented that this was in any way intentional or was done with Mr. Victor's permission. Victor himself testified that when he discovered the orange juice was not being mixed at the proper strength he told those responsible to correct the situation. He also expressed the opinion that the kitchen staff inadvertently misread the directions on the orange juice concentrates. All other testimony with regard to Count IV indicated that the meals at the center met all nutritional standards and always passed inspections performed by state regulatory agencies. With regard to Count V, which deals with providing the patient Amy Miller with the required itemized statement listing the specific charges incurred at the convalescent center, the evidence indicates that it was the practice of the convalescent center to refer to prescription charges by a number which would be verified by consulting the pharmacists issuing the medication. In addition, the convalescent center added a $2.00 charge for all physician services, and the billing to the patient did not reflect this surcharge. Victor claimed this was a reasonable charge for processing a doctor's bill. Furthermore, the convalescent center received a discount for medications which discount was not passed on to the patient. With regard to Counts VI and VII, testimony was received from Janet Sue Welch who worked at the Lee Convalescent Center for nine months in the administrative offices. She testified that she observed several items being charged to patients merely because those items had been missing from the inventory of the center. She further testified that admitting papers for patients were forged upon the arrival of several patients. Ms. Welch stated she had no personal knowledge that Respondent Victor was aware of these practices, but assumed that he was. She stated most of the items were charged to patients who were for the most part incompetent. Ms. Nobles, the admitting secretary, testified that there had been occasions where patients had been readmitted to the convalescent center and had no legal representative to sign them in. She said in those cases she did trace their signatures on to the re-admission papers. She believed this was authorized because the patient had previously been admitted to the convalescent center. Also, Nobles testified that to her knowledge Victor was unaware of this practice. From the above it is concluded that occasionally items were charged to patients by the convalescent center without being used by that patient. It is also found that on occasion patients were admitted without proper authorization. However, no evidence was presented which would indicate the Respondent, Victor, was responsible for or even aware of this practice. Nor was any evidence presented that he should have been aware of this practice. Count VIII involves the allegation that patients received negligent care with disregard to their health, safety or welfare. The only evidence which was presented which might have a bearing on this charge was that on a few occasions patients were observed in soiled bed clothes without a nurse or other attendant to help them. No evidence was presented that patients at the convalescent center received negligent care and on the occasions above described testimony was very general and gave no indication how long the patients in question were without a nurse's attention. From the evidence presented in this case, it is clear that a convalescent center cannot be run with a nurse or attendant in constant contact with each patient. Times will arise where nurses must attend to patients on a priority basis. The instances where patients were described to be lacking attention were not the type of situations where it could be said anyone was at fault or that the patients suffered any threat to their health, safety or welfare. The patients may have experienced a certain degree of discomfort, but nothing was presented which would even remotely indicate a breach of professional responsibility. In fact the overwhelming evidence at this proceeding strongly indicates that the quality of health care given at the Lee Convalescent Center was quite good. Numerous state investigators of the Department of Health and Rehabilitative Services and other agencies and several physicians all indicated that the convalescent center was a well-run establishment that satisfactorily cared for its patients. With regard to the last count in the Complaint, Count IX, some testimony was presented that the Respondent, Mr. Victor, has expressed displeasure with certain employees allegedly because they were black and that he did not like them. Testimony on this point is conflicting because Mr. Victor alleged that he observed the employees in question breaking rules of the hospital such as eating food from patients' plates and admitting unauthorized visitors. Apparently, these employees were fired by Mr. Victor. It is hard to see, however, how the evidence indicates a discriminatory practice on behalf of Mr. Victor for all of the employees in the department where the two in question worked were black. It is hard to imagine how an individual could practice racial discrimination on such a selective basis. On the other hand, as the administrator of the hospital, Mr. Victor certainly had the prerogative to fire employees he felt were not performing adequately. Other evidence of racial discrimination involved the "coding" of employment applications. Mr. Victor told Janet Sue Welch to mark employment applications in pencil with a "B" or "W" to indicate the particular race of the applicant. Aside from the marking of the employment applications (done in pencil to that they could be erased at a later time), no evidence was presented as to whether the applications were used in a discriminatory manner or that other discriminatory practices were put into effect by the Respondent. There was no indication on the record as to whether during the period of time that the applications were coded that the Respondent hired a greater proportion of whites or did anything of a discriminatory nature. With regard to the coding of employment applications it is certainly apparent that by marking or having marked employment applications to indicate the race of the applicant one could easily engage in discriminatory hiring practices. However, there was no evidence presented which would indicate this was done. At all times relevant to the issues in this hearing, it is clear that the center had a very high percentage of minority employees on the staff. Also, there was no indicating of Victor hiring in a discriminatory manner. In fact, there was direct evidence given of a promotion given to a black employee over others among whom were white applicants. Therefore, Victor is found not guilty of discriminatory hiring practices.
Findings Of Fact Background On July 31, 1987, the Department of Health and Rehabilitative Services (HRS) published in the Florida Administrative Weekly an announcement of the fixed need pools for the subject batching cycle, which pertained to the planning horizon of July, 1992. According to the notice, the fixed need pool, which was calculated pursuant to Rules 10-5.008(6) and 10-5.011(m), (n), (o), and (q), Florida Administrative Code, was adjusted according to the occupancy rate thresholds as prescribed by said rules. The net adjusted need for short-term psychiatric beds in District 7 was zero. By letter to HRS dated August 12, 1987, the North Brevard County Hospital District, doing business as Jess Parrish Memorial Hospital (Jess Parrish), provided notice of its intent to apply for a certificate of need to convert 16 beds from medical/surgical to psychiatric. By Application for Certificate of Need dated September 14, 1987, Jess Parrish requested that HRS grant a certificate of need for the conversion of 16 medical/surgical beds to 16 adult short-term psychiatric beds at a cost of $46,100. Jess Parrish is a tax-exempt organization whose board of directors have been authorized by law to levy ad valorem taxes in a special tax district in north Brevard County for the support of the hospital. The main hospital is located at 951 North Washington Avenue in Titusville, which is in north Brevard County. Brevard County is located in HRS District 7. By letter to Jess Parrish dated October 5, 1987, HRS requested additional information. By response dated November 9, 1987, Jess Parrish supplied the requested responses to omissions. By letter dated November 18, 1987, Jess Parrish provided additional information desired by HRS. By letter dated December 22, 1987, Wuesthoff Hospital (Wuesthoff) informed HRS that it objected to the above-described application because of absence of need. The letter states that Wuesthoff maintained an occupancy rate of 74% during the past year in its 25 short-term psychiatric beds. Wuesthoff is located in Rockledge, which is in central Brevard County. By letter and State Agency Action Report dated January 25, 1988, HRS informed Jess Parrish of its intent to issue the requested certificate of need for the conversion of the 16 beds. By Petition for Formal Administrative Hearing filed February 23, 1988, Wuesthoff challenged the intent to award the certificate of need to Jess Parrish and requested a formal hearing. The Application and Approval Process The application for the certificate of need states that Jess Parrish has a total of 210 beds, consisting of 172 medical/surgical beds, 10 obstetric beds, 20 pediatric beds, and 8 intensive care unit beds. The application contains all elements required by law, including a resolution authorizing the application and financial statements. The application and omissions response state that Jess Parrish admitted about 100 psychiatric patients in fiscal year ending 1987. The omissions response adds that Jess Parrish would offer the following programs for its short-term psychiatric patients: continual evaluation, screening, and admissions; individual, family, and group therapy; occupational, recreational, and vocational therapy; psychological and psychiatric testing and evaluation; day hospital and day clinic; family and friends education and support groups; and specialized treatment programs for geriatric psychiatric patients. The omissions response reports that the only facility with adult short-term psychiatric beds within 45 minutes of Jess Parrish is Wuesthoff. The omissions response states that Wuesthoff had experienced the following occupancy rates in its adult short-term psychiatric program: 1984--59%; 1985--66%; 1986-- 7l%; and first three quarters of 1987--71%. The omissions response acknowledges that Jess Parrish and Circles of Care, Inc. (Circles of Care) had jointly prepared the application and that Jess Parrish "plans to employ by contract, Circles of Care, Inc. to operate and manage our unit" if the application is approved. The omissions response includes a letter to HRS dated November 10, 1987, from James B. Whitaker, as president of Circles of Care. The letter describes the 12-year relationship between the two parties, which began when Circles of Care leased its first 12 beds from Jess Parrish between 1974 and 1980. Mr. Whitaker states that the two parties thus "work[ed] out a management agreement; for the new sixteen bed unit that Jess Parrish has requested." In the State Agency Action Report, HRS notes that the project does not conform with Policy 4 of the applicable District 7 Local Health Plan. This policy provides that additional short-term inpatient psychiatric beds may be approved when the average annual occupancy rate for all existing facilities in the planning area equals or exceeds the following rates: adult--75% and adolescents/children--70%. HRS reports a similar discrepancy as to the occupancy standard in the State Health Plan, which incorporates at Objective 1.2 the same 70%/75% standards. HRS states in the State Agency Action Report that the 1986 occupancy rates for short-term psychiatric beds, which averaged 69.98% in Brevard County, were 87% at Circles of Care, 70.6% at Wuesthoff, and 14% at a new facility, C. P. C.--Palm Bay. In addition, for the first six months of 1987, the report states that the occupancy rates, which averaged 63.5% in Brevard County, were 76% at Circles of Care, 71.5% at Wuesthoff, and 43% at C. P. C.--Palm Bay. In calculating numeric need under the rule, HRS concludes that there was a net need for a total of 547 beds in the district, consisting of 312 in specialty hospitals and 235 in general hospitals. Addressing the provision of the District 7 Local Health Plan focusing upon need at the county level, HRS finds that there was a net need for a total of 38 beds. Recognizing the "sub- standard utilization" of existing short-term psychiatric beds, HRS states that the application was justified "mainly because of the enhanced access to services that the project would provide." All of the other criteria were fully satisfied with one irrelevant exception, and the State Agency Action Report concludes: Although the district and county utilization of short-term psychiatric beds falls below the 70% [sic) adult standard, this project merits a Certificate of Need because there exists numeric need in the service area and because the project affords greater access and availability to psychiatric services for underserved groups. Need District and State Health Plans Part 3 of the 1985 District 7 Local Health Plan, published by The Local Health Council of East Central Florida, Inc., sets forth policies and priorities for inpatient psychiatric services. Policy 1 establishes each of the four counties of District 7 as a subdistrict for purposes of planning inpatient psychiatric services. Policy 3 of the 1985 District 7 Local Health Plan provides a specific methodology to allocate beds when the numeric need rule methodology indicates a need for inpatient psychiatric beds. A minimum of .15 beds per 1000 projected population should be allocated to hospitals holding a general license. A total of .20 beds per 1000 projected population may be located in specialty hospitals or hospitals holding a general license. The population projections are for five years into the future. Policy 4 of the 1985 District 7 Local Health Plan provides that additional short-term inpatient psychiatric beds may be approved when the average annual occupancy rates for all existing facilities in the planning area equal or exceed 75% for adult facilities and 70% for adolescents/children facilities. The policy concludes: Additional beds should not be added to the health system' until the existing facilities are operating at acceptable levels of occupancy. Good utilization of existing facilities prior to adding beds aids in cost containment by preventing unnecessary duplication. The 1988 District 7 Local Health Plan, although inapplicable to the subject proceeding, refers to the pending application of Jess Parrish. The plan states: [T]he residents of District 7 appear to be well-served by the existing providers with only a few exceptions. First, residents of north Brevard County (Titusville area) currently have no access to any certified, short-term, inpatient psych services in less than 22 miles. In many driving situations this distance takes longer than 30-45 minutes to traverse. . . . If [the CON that has been tentatively approved] is sustained through litigation and the unit is finally opened availability of these 16 beds should ameliorate, to a large degree, the potential geographic access problems for north Brevard adult/geriatric patients at least. Objective 1.1 of the 1985-1987 State Health Plan states that the ratio of short-term inpatient hospital psychiatric beds to population should not exceed .35 beds to 1000 population. Objective 1.2 states that, through 1987, additional short-term psychiatric beds should not normally be approved unless the service districts has an average annual occupancy of 75% for existing and approved adult beds and 70% for existing and approved adolescents/children beds. Numeric Need Pursuant to HRS Rules Net Need Rule 10-5.011(1)(o)4., Florida Administrative Code, sets forth the HRS numeric need methodology. The rule provides that the projected number of beds shall be determined by applying the ratio of .35 beds to 1000 population to the projected population in five years, as estimated by the Executive Office of the Governor. The relevant projected population for District 7 is 1,564,098 persons. Applying the ratio, the gross number of beds needed in District 7 is 547. The total number of existing and approved short-term psychiatric beds in District 7 in 1987 was 410. There is therefore a net need for 137 short-term psychiatric beds in District 7. The relevant projected population for Brevard County is 441,593 persons. Applying the ratio, the gross number of beds needed in Brevard County is 155. The total number of existing and approved short-term psychiatric beds in Brevard County in 1987 was 117. There is therefore a net need for 38 short- term psychiatric beds in Brevard County. A minimum of .15 beds per 1000 population should be located in hospitals holding a general license, and .20 beds per 1000 population may be located in specialty hospitals or hospitals holding a general license. The calculations disclose that, for District 7, there is a net need of 73 beds in the former category and 65 beds in the latter category. As to Brevard County, the respective numbers are 41 and 4. Rule 10-5.011(1)(o)4.d., Florida Administrative Code, provides that new facilities for adults must be able to project a 70% occupancy rate for the first year and 80% occupancy rate for the third year. Jess Parrish projects that its short-term psychiatric program will experience a utilization rate of 66% at the end of the first complete year of operation and 82% at the end of the third complete year of operation. These projections are reasonable and substantially conform with the requirements of the rule. Rule 10-5.011(1)(o)4.e., Florida Administrative Code, provides that no additional short-term inpatient beds shall normally be approved unless the average annual occupancy rate for the preceding 12 months in a "service district" is at least 75% for all existing adult short-term inpatient psychiatric beds and at least 70% for all adolescents/children short-term inpatient psychiatric beds. HRS considered the 70%/75% occupancy standards in making the July, 1987, announcement of a zero fixed need pool for short-term psychiatric beds in Brevard County. The determination of zero fixed need was a reflection that, although numeric need existed, the occupancy standards had not been satisfied. The incorporation of the occupancy standard into the July, 1987, fixed need calculation represented a deviation from nonrule policy deferring computation of the occupancy levels until the application-review process. The prior announcement of a fixed need pool on February 27, 1987, stated that a number of beds were needed even though the occupancy situation in District 7 was about the same. Subsequent announcements likewise deferred consideration of the occupancy standard. HRS has explicated its nonrule policy of excluding occupancy standards from the calculation of numeric need when publishing fixed need pools. Unlike the relatively simple task of determining the relevant population projection and multiplying it by the proper ratio, application of the occupancy standards, especially at the time in question, required numerous determinations and calculations. By attempting to incorporate the occupancy standards into the calculations upon which the fixed need pool were based, HRS increased the potential for error, which occurred in this case, rather than increased the reliability of the information. Although adequate reason exists for revising the July, 1987, published fixed need pool, Rule 10-5.008(2)(a), Florida Administrative Code, prohibits revisions to a fixed need pool based upon a change in need methodologies, population estimates, bed inventories, or other factors leading to a different projection of need, if retroactively applied. However, the revision of the July, 1987, fixed need pool does not represent a change in need methodologies, population estimates, bed inventories, or other factors leading to a different projection of need, if retroactively applied. The revision to the fixed need pool, which did not represent a change in need methodology or underlying facts, was a result of three legitimate considerations. First, HRS revised the fixed need pool to implement its policy decision to limit the fixed need pool to the numeric need calculation and reserve the calculations of occupancy standards to the application-review process. This consideration does not involve a change in the methodology of determining numeric need or applying occupancy standards. Second, HRS revised the fixed need pool to correct earlier, erroneous calculations. This consideration does not involve a change in the underlying facts, but merely in the computations based upon the same facts. Third, HRS revised the fixed need pool to reflect developing policy in the application of the occupancy standards. HRS decided to apply the more liberal 70% occupancy standard to facilities serving both adults and adolescents/children, exclude from the determination of occupancy levels any facilities serving only age cohorts not served by the applicant, and restrict the 75% occupancy standard to facilities serving adults only. HRS made these changes, which it felt would not harm existing providers, in recognition of the failure of data provided by health-care suppliers to distinguish between adult and adolescents/children admissions and patient days. These considerations approximate a change in methodology, but the revision resulting from such considerations does not violate the rule because HRS already has shown that consideration of the occupancy standards should not take place until after publication of the fixed need pool. In the present case, two facilities in District 7 serve only adolescents/children. These facilities are C. P. C.-- Palm Bay and Laurel Oaks, which is in Orange County. Eliminating their occupancy rates, the district occupancy rate in the year ending June 30, 1987, was 71.9%. Removing the occupancy rate of C. P. C.--Palm Bay from Brevard County, the county occupancy rate during the same period was over 75%. Under the revised policies, Brevard County had a net need of 38 short- term psychiatric beds, applicable occupancy standards in the county and district were satisfied, and the July, 1987, publication of a fixed need pool of zero did not preclude the finding of need under other than "not normal" circumstances. Accessibility Financial Accessibility The primary service area of Jess Parrish is north Brevard County. A higher percentage of the population of this area lives below the poverty level than does the population of any other sub-region of Brevard County. According to the 1980 Census data, the applicable percentages of area residents living below the poverty level were 12.7% in north Brevard County, 10% in central Brevard County, 8.4% in south Brevard County, and 9.6% in Brevard County overall. Partly as a reflection of the different sub-regions and partly as a reflection of the commitment of Jess Parrish to provide access to underserved populations, Jess Parrish provides considerably more services to Medicaid patients than does either of the other major general hospitals in central and south Brevard County. In 1987, 11.5% of the admissions and 8.9% of the patient days at Jess Parrish were Medicaid. The respective numbers are 7% and 6% for Wuesthoff and 5.8% and 3.9% for Holmes Regional Medical Center, which is in Melbourne. A key component of financial accessibility is the effect of the proposed program on Circles of Care. About 55% of the patients of Circles of Care are indigent. Another 17% of its patients earn between the minimum wage and $15,000 annually. Circles of Care has participated in all phases of the application process on behalf of Jess Parrish. The approval of the new program would not have an adverse effect on Circles of Care. To the contrary, the new program at Jess Parrish would provide Circles of Care with more treatment options, especially with respect to indigent patients, whose need for short-term psychiatric services has proven at times difficult to meet. These options are especially valuable at a time when there is no net need in Brevard County for any more short-term psychiatric beds in specialty hospitals, such as Circles of Care. The 52 psychiatric beds licensed to Circles of Care are in two different units contained within a single hospital facility located in Melbourne, which is in south Brevard County. Sheridan Oaks is a 24-bed, private unit, which cannot accept many Baker Act patients without adversely affecting the other patients and the psychiatrists who refer private-pay patients to this unit. The other unit is a public Baker Act receiving facility with 28 beds, for which Circles of Care receives state funds. Unlike Sheridan Oaks, the public receiving facility employs the psychiatrists who work there. About 85-90% of all Baker Act patients in Brevard County come through this public receiving facility, whose occupancy rate was 98% in the year ending June 30, 1987. In addition to these units, Circles of Care operates a mental health outpatient clinic in Titusville, an outpatient/inpatient treatment center in the Rockledge/Cocoa area, numerous social clubs throughout Brevard County for the chronic mentally ill, and numerous public education and awareness programs concerning the treatability of mental illness. Another limitation of being a specialty hospital is that Circles of Care does not qualify for Medicaid reimbursement. Jess Parrish, as a general hospital, qualifies for such reimbursement and projects in its application that 39% of its patient days will be Medicaid and 9% of its patient days will be indigent. Geographic Access Jess Parrish is located at the north end of Brevard County, which runs about 80 miles north-south. Wuesthoff is about 25 miles south of Jess Parrish, and Titusville is about 40 miles north of Melbourne. Intercity north-south traffic uses Interstate 95, which is west of the above-described cities, and U.S. Route 1, which runs through the center of each of these cities. Rule 10-5.011(1)(o)5.g., Florida Administrative Code, provides that short-term inpatient psychiatric services should be located within a maximum travel time of 45 minutes under average travel conditions for at least 90% of the population of the service area. This criterion is presently met without the addition of short-term psychiatric beds at Jess Parrish. This factor is outweighed, however, by another factor in this case. Jess Parrish projects about half of its patients will be indigent or Medicaid, and north Brevard County has a disproportionate share of the county's impoverished residents. Average travel conditions for these persons require public transportation, which, in north Brevard County, is limited to Greyhound/Trailways and local taxi companies. Exclusive of time waiting for the bus and traveling to and from the bus stations, the time for the 25-mile trip between Titusville and Rockledge, of which there are three or four trips daily (excluding off-hour trips), ranges from 25-35 minutes. There is evidence in the record that mentally ill bus passengers do not always make it to their intended destinations by way of intercity buses. The use of available public transportation is therefore problematic, but in any event adds considerable time to the travel time to Wuesthoff for those individuals who do not own a motor vehicle. Effect on Wuesthoff The effect of the conversion of medical/surgical beds to short-term psychiatric beds will have no material effect on Wuesthoff, even though it did reduce the number of short-term psychiatric beds from 30 to 25 in 1986. The occupancy rate for Wuesthoff's short-term psychiatric unit in 1987 was 70.6%. The prime service areas of Wuesthoff and Jess Parrish as to psychiatric admissions do not substantially overlap. Although Jess Parrish may be expected to draw more patients from Wuesthoff's prime service area following commencement of the new operation, many of Jess Parrish's patients will be from the indigent and Medicaid payor classes for which the competition is not intense. The addition of a 16-bed short-term psychiatric unit at Jess Parrish will not materially influence the availability of qualified personnel for Wuesthoff. It appears that Jess Parrish will be able to staff the relatively small 16-bed unit without employing significant numbers of professional employees of Wuesthoff. Some of the relatively few patients whom Wuesthoff can be expected to lose to Jess Parrish involve referrals from Titusville-area physicians, psychiatrists, and psychologists, who will place their patients in the closer facility once it is opened. The negative impact upon Wuesthoff is outweighed in these cases by gains for the patients in continuity of care and community support. Financial Feasibility The short-term financial feasibility is good. Jess Parrish has available to it sufficient funds to undertake the relatively modest capital outlay in constructing the facility, which will consist of about 8000 square feet on an existing floor of the hospital. The long-term financial feasibility is generally good. The financial projections are based on reasonable assumptions, which are largely derived from the actual experience of Circles of Care. The projections accurately estimate revenue sources and expenses. Jess Parrish reasonably projects an adequate supply of patients from a combination of sources, including Circles of Care, existing patients whose diagnoses include psychiatric components, and numerous health-care professionals in north Brevard County. The financial projections contemplate a material contribution by Circles of Care, but project no compensating expenditures. However, this deficiency is largely offset by the likelihood that the financial participation of Circles of Care will be restricted to a share of any excess of revenues over expenses of the new project, possibly excluding reimbursement of fairly minor expenses. If that is the case, the effect of any management agreement would be only to reduce the excess of revenues over expenses enjoyed by Jess Parrish from the operation of the short-term psychiatric unit. The management agreement would not expose Jess Parrish to losses that would not have otherwise existed but for the agreement to make payments to Circles of Care. Under these circumstances, the omission of the information, although material, does not seriously cast into doubt the long-term financial feasibility of the project. Quality of Care The quality of hospital care offered by Jess Parrish is excellent. The quality of the various psychiatric services offered by Circles of Care is also excellent. Both facilities are accredited by the Joint Commission on the Accreditation of Hospitals. The issue in this case involves the quality of care to be expected in the 16-bed short-term psychiatric unit for which Jess Parrish seeks a certificate of need. Circles of Care and Jess Parrish have agreed that Circles of Care will be responsible for recruiting most of the personnel for the new program and will employ the program's medical director, who will be responsible for treatment decisions. In addition, Circles of Care will advise Jess Parrish as to the adoption of policy, which will remain ultimately the responsibility of Jess Parrish. Jess Parrish will employ the head nurse and all other full-time professional staff working in the unit. The tentativeness of the arrangement between Circles of Care and Jess Parrish is partly explained by the desire of both parties to avoid the time and expense of negotiating an agreement in every detail prior to obtaining final approval of the certificate of need. In addition, both organizations were devoting substantial time to the subject litigation, for which Circles of Care was paying a portion of the expenses. In the final analysis, the failure to work out the agreement, although not a positive feature of the application, is not a serious problem for two reasons. First, Circles of Care and Jess Parrish have a long history of mutual cooperation. The relationship began when Jess Parrish leased Circles of Care 16 hospital beds for psychiatric use. Although the arrangement ended several years ago when Circles of Care constructed its Melbourne facility, the two organizations have since cooperated in several less intensive ways. Second, although Circles of Care has superior expertise in the area of mental health, Jess Parrish qualifies by itself to operate the proposed facility. Circles of Care has already provided much of the necessary technical information required for the preparation of budgets and pro formas. Recruiting would probably take somewhat longer without Circles of Care, but the modest construction budget obviously does not involve significant debt service, so that the delay would not be costly. Perhaps the most significant loss from a quality-of-care perspective would be the medical director, whose expertise will be critical. Again, this would be largely a problem of delay only, as Jess Parrish would have to find a replacement, although it appears likely that the director may be Dr. David Greenblum, who is already a member of the active medical staff at Jess Parrish. Given the quality of care provided by Jess Parrish in the past, there is no basis for any concern that, in the unlikely event that the parties fail to negotiate an agreement, Jess Parrish would jeopardize its reputation as a quality 200-bed general hospital in order to commence prematurely a 16-bed short- term psychiatric unit. Other Factors The record does not demonstrate that there are less costly, more efficient, or more appropriate alternatives to the inpatient services proposed in the subject application. There are no crisis stabilization units or short-term residential treatment programs available in Brevard County. The proposed project will have a measurable impact only upon Circles of Care, whose existing inpatient facilities will be enhanced, and Wuesthoff, whose existing inpatient facilities will not be materially affected. In general, these existing services are being used in an appropriate and efficient manner. On the other hand, the beds that Jess Parrish seeks to convert are underutilized in their present designation. The medical/surgical beds at Jess Parrish have been utilized at a rate of less than 60% over the past three years. There are no feasible alternatives to renovation of the existing facilities. The costs and methods of proposed construction are reasonable and appropriate. The approval of the application will foster healthy competition in the area of short-term psychiatric services and promote quality assurance.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Health and Rehabilitative Services enter a Final Order granting the application of Jess Parrish for a certificate of need to convert 16 medical/surgical beds to 16 short-term adult psychiatric beds. DONE and ENTERED this 30th day of June, 1989, in Tallahassee, Florida. ROBERT E. MEALE 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 30th day of June, 1989. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-1220 Treatment Accorded Proposed Findings of Jess Parrish 1-6 Adopted or adopted in substance. 7-8 Rejected as irrelevant. 9-10 Adopted or adopted in substance. 11 Rejected as recitation of testimony and subordinate. 12-13 Adopted or adopted in substance. Rejected as irrelevant. Adopted to the extent of the finding in the Recommended Order that there likely will be an agreement between Circles of Care and Jess Parrish. Rejected as unsupported by the evidence that such an agreement exists already. Also rejected as unnecessary insofar as the application can stand on its own without the participation of Circles of Care. 15a Adopted or adopted in substance. 15b-15c Rejected as irrelevant. 15d-15g Adopted in substance, although certain proposed facts rejected as subordinate. However, the first sentence of Paragraph 15f is rejected as against the greater weight of the evidence. 15h Rejected as recitation of testimony. 16-18 Adopted or adopted in substance except that all but the last sentence of Paragraph 18g. is rejected as against the greater weight of the evidence and legal argument. 19 First sentence adopted. 19 (remainder) -22. Rejected as subordinate and recitation of evidence. Generally adopted, although most of the facts are rejected as subordinate in the overall finding and cumulative. Adopted except that sixth sentence is rejected as against the greater weight of the evidence and the seventh sentence is rejected as subordinate. Adopted in substance. First sentence adopted. Remainder rejected as irrelevant. Rejected as irrelevant. Adopted. 28a Rejected as unsupported by the greater weight of the evidence. 28b-28d Adopted or adopted in substance. and 31 Rejected as subordinate. Rejected as unnecessary. 32-50 Adopted or adopted in substance. Treatment Accorded Proposed Findings of HRS 1-11 Adopted or adopted in substance. & 14 Rejected as irrelevant. & 15-16 Adopted. 17 Rejected as unnecessary. 18-74 See rulings on Paragraphs 16-50 in preceding section. Treatment Accorded Proposed Findings of Wuesthoff 1-3 Adopted or adopted in substance. Rejected as irrelevant. Rejected as against the greater weight of the evidence and legal argument. 6-10 & 12 Adopted or adopted in substance. 11 Rejected as against the greater weight of the evidence. Rejected as recitation of testimony and cumulative. Rejected as cumulative except that second sentence is adopted. Rejected as recitation of testimony. Rejected as cumulative, subordinate, and legal argument. Rejected as cumulative except that second sentence is adopted. First clause rejected as against the greater weight of the evidence. Remainder rejected as irrelevant. Rejected as cumulative and subordinate. 20-23 Rejected as irrelevant and unnecessary. Rejected as against the greater weight of the evidence. Rejected as irrelevant and unnecessary. Rejected as cumulative. 27-28 Rejected as irrelevant and unnecessary. 29 Rejected as legal argument. 30-32 Rejected as irrelevant. 33-41 Rejected as against the greater weight of the evidence and subordinate. 42 and 51 Rejected as recitation of evidence. 43-45 Rejected as against the greater weight of the evidence. 46 Rejected as legal argument. 47-50 and 52-54 Rejected as subordinate. 55 Rejected as against the greater weight of the evidence. 56-59 Rejected as irrelevant. 60-66 Rejected as subordinate and recitation of testimony. 67-69 Rejected as against the greater weight of the evidence. 70-73 Rejected as against the greater weight of the evidence and subordinate. 74-78 Adopted. 79 Rejected as against the greater weight of the evidence. 80-82 Adopted. 83-85 Rejected as against the greater weight of the evidence. 86 Rejected as subordinate and against the greater weight of the evidence. 87-91 Adopted or adopted in substance. 92 Rejected as against the greater weight of he evidence. 93-94 Rejected as subordinate. Rejected as against the greater weight of the evidence. Rejected as irrelevant. 97-98 Rejected as against the greater weight of the evidence. Rejected as irrelevant. Rejected as subordinate. 101-102 Rejected as against the greater weight of the evidence. Rejected as partly cumulative and partly legal argument. Rejected as against the greater weight of the 105 evidence Rejected and irrelevant. as against the greater weight of the 106-108 evidence. Rejected as subordinate. 109 110-113 Rejected evidence. Rejected as against the greater weight of as subordinate. the 114-117 118-120 Rejected evidence. Rejected as against the greater weight of as irrelevant and subordinate. the 121-122 Rejected as subordinate. 123 124-125 First sentence adopted in substance. Remainder rejected as subordinate. Rejected as subordinate. 126-129 Rejected as unsupported by the greater weight of evidence. the COPIES FURNISHED: Anthony Cleveland W. David Watkins Oertel, Hoffman, Fernandez & Cole, P.A. Post Office Box 6507 Tallahassee, Florida 32314-6507 John Rodriguez 1323 Winewood Boulevard Building 1, Room 407 Tallahassee, Florida 32399-0700 William B. Wiley Darrell White McFarlain, Sternstein, Wiley & Cassedy, P.A. Post Office Box 2174 Tallahassee, Florida 32316-2174 Stephen M. Presnell MacFarlane, Ferguson, Allison & Kelly Post Office Box 82 Tallahassee, Florida 32302 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================
The Issue This case concerns four Certificate of Need ("CON") applications ("CONs 9891, 9992, 9893, and 9894") that seek to establish long-term acute care hospitals ("LTCHs") in Miami-Dade County (the "County" or "Miami-Dade County"), a part of AHCA District 11 (along with Monroe County). Promise Healthcare of Florida XI, Inc. ("Promise") in CON 9891, Select Specialty Hospital-Dade, Inc. ("Select-Dade") in CON 9892, and Kindred Hospitals East, L.L.C. ("Kindred"), in CON 9894, seek to construct and operate a 60-bed freestanding LTCH in the County. Miami Jewish Home and Hospital for the Aged, Inc. ("MJH"), in CON 9893, seeks to establish a 30-bed hospital within a hospital ("HIH") on its existing campus in the County. In its State Agency Action Report (the "SAAR"), AHCA concluded that all of the need methodologies presented by the applicants were unreliable. Accordingly, AHCA staff recommended denial of the four applications. The recommendation was adopted by the Agency when it issued the SAAR. The Agency maintained throughout the final hearing that all four applications should be denied, although of the four, if any were to be granted, it professed a preference for MJH on the basis, among other reasons, of a more reliable need methodology. Since the hearing the Agency has changed its position with regard to MJH. In its proposed recommended order, AHCA supports approval of MJH's application. MJH and Promise agree with the AHCA that there is need for the 30 LTCH beds proposed by MJH for its HIH and that MJH otherwise meets the criteria for approval of its application. MJH seeks approval of its application only. Likewise, the Agency supports approval of only MJH's application. Promise, on the other hand, contends that there is need for a 60-bed facility as well as MJH's HIH and that between Promise, Select- Dade and Kindred, based on comparative review, its application should be approved along with MJH's application. Although Promise's need methodology supports need for more LTCH beds than would be provided by approval of its application and MJH's, its support for approval is limited to its application and that of MJH. Like Promise's methodology, Select-Dade and Kindred's need methodologies project need for many more beds than would be provided by the 60 beds each of them seek. Unlike Promise, however, neither Select-Dade nor Kindred supports approval of MJH's application. Each proposes its application to be superior to the other applications; each advocates approval of its respective application alone. Given the positions of the parties reflected in their proposed recommended orders, whether there is need for at least an additional 30 LTCH beds in District 11 is not at issue. Rather, the issues are as follows. What is the extent of the need for additional LTCH beds in District 11? If the need is for at least 30 beds but less than 60 beds, does MJH meet the criteria for approval of its application? If the need is for 60 beds or more, what application or applications should be approved depends on what applications meet CON review criteria and on the number of beds needed (60 but less than 90, 90 but less than 120, 120 but less than 150, 150 but less than 180, 180 but less than 210, and 210 or more) and whether there is health- planning basis not to grant an application even if the approval would meet a bed need and all four applicants otherwise meet review criteria. Finally, based on comparative review, what is the order of approval among the applications that meet CON need criteria? Ultimately, the issue in the case is which if any of the four applications should be approved?
Findings Of Fact The Parties "[D]esignated as the state health planning agency for purposes of federal law," Section 408.034(1), Florida Statutes, AHCA is responsible for the administration of the CON program and laws in Florida. See §§ 408.031, Fla. Stat., et seq. As such, it is also designated as "the single state agency to issue, revoke, or deny certificates of need . . . in accordance with present and future federal and state statutes." § 408.034(1), Fla. Stat. Promise Healthcare of Florida XI, Inc. ("Promise") is a wholly-owned subsidiary of Promise Healthcare, Inc. The applicant for CON 9891, Promise proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. Select-Dade, the applicant for CON 9892, proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. It is a wholly-owned subsidiary of Select Medical Corporation ("SMC"). The largest operator of LTCHs in the country, SMC operates 96 LTCHs in 24 states. The Miami Jewish Home and Hospital for the Aged is an existing not-for-profit provider of comprehensive health and social services in Miami-Dade County. The applicant for CON 9893, MJH proposes the creation of a 30-bed hospital within a hospital (HIH) LTCH by the renovation of a former acute care hospital building on its existing campus in Miami-Dade County, Florida. Kindred is the applicant for CON 9894 and proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. Kindred is a wholly-owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 85 LTCHs in the country, eight of which are in the State of Florida. One of the eight is in Miami-Dade County. Twenty-three of Kindred Healthcare's LTCHs are operated by Kindred as well as seven of the eight Florida LTCHs. Kindred has also received CON approval for another LTCH in Florida. It is to be located in Palm Beach County in LTCH District 9. The District and its LTCHs Miami-Dade and Monroe Counties comprise AHCA District The population of Monroe County is 80,000 and of Miami-Dade County, 2.4 million. As to be expected from the population's distribution in the District, the vast majority of the District's health services are located in Miami-Dade County. The greater part of the County's population is in the eastern portion of Miami-Dade County, with population densities there 3-4 times higher than in the western portion of the County. But there is little to no space remaining for development in the eastern portion of the County. Miami-Dade County has an urban development boundary that shields the Everglades from development in the western portion of the County. Still, the bulk of population growth that has occurred recently is in the west and that trend is expected to continue. While the growth rate on a percentage basis is higher in the more-recently developed western areas of the County, the great majority of the population is and will continue to be within five miles of the sea coast on the County's eastern edge. At the time of hearing, there were three LTCHs operating in the District with a total of 122 beds: Kindred- Coral Gables, Select-Miami, and Sister Emmanuel. All three are clustered within a radius of six miles of each other in or not far from downtown Miami. The three existing LTCHs in the District are utilized at high occupancy levels. Kindred's 53-bed facility receives most of its referrals from a within a 10 mile radius. It has operated for the 11-year period beginning in 1995 with an occupancy level from a low of 82.08 percent to a high of 92.86 percent. The occupancy levels for 2004 (82.08 percent) and 2005 (84.90 percent) show occupancy recently at a relatively stable level within the range of optimal functional capacity which tends to be between 80 and 85 percent when facilities are equipped with semi-private rooms. With gender and infection issues in a facility with semi-private rooms, admissions to those facilities are usually restricted above 85 percent. Select operates a 40-bed LTCH on one floor of a health care service condominium building in downtown Miami. It began operation in 2003 as part of legislatively-created special Medicaid demonstration project. Its occupancy levels for the two calendar years of 2004 and 2005 were 83.39 percent and 95.10 percent. Sister Emmanuel Hospital for Continuing Care ("Sister Emmanuel") is a 29-bed HIH located at Mercy Hospital in Miami. It became operational in 2004 with an occupancy level of 82.64 percent, and attained an occupancy level of 85.46 percent in 2005. Kindred's Broward County LTCHs Kindred operates two LTCHs in Broward County (outside of District 11); one is in Ft. Lauderdale, the other in Hollywood. From 1995 to 2003, Kindred-Hollywood's occupancy rate ranged from a low of 65.17 percent to a high of 72.73 percent, generally lower than the state-wide occupancy rate. For the same period, Kindred-Ft. Lauderdale's rate was significantly higher, between 83.69 percent and 91.65 percent. Both LTCHs have experienced occupancy rates significantly lower than the state-wide rates in 2004 and 2005. Kindred-Ft. Lauderdale's occupancy in 2004 fell substantially from earlier years to 66.41 percent and then even farther in 2005 to 57.73 percent. Kindred-Hollywood's rates for these two years were also well below the state's at 59.74 percent and 58.04 percent, respectively. Historically used by residents of District 11, the Hollywood facility served 4,292 patients from Miami-Dade County in the eleven year period from 1995 through 2005. For the same period, the Ft. Lauderdale facility served 275 Miami-Dade residents. Kindred assigns its clinical liaisons to hospitals in a territorial manner to minimize competition for referrals between its two facilities in Broward County and Kindred-Coral Gables. LTCHs A "Long-term care hospital" means a general hospital licensed under Chapter 395, which meets the requirements of 42 C.F.R. Section 412.23(e) and seeks exclusion from the acute care Medicare prospective payment system for inpatient hospital services. § 408.032(13), Fla. Stat. (2005), and Fla. Admin. Code R. 59C-1.002(28). Under federal rules, an LTCH must have an average Medicare length of stay (LOS) greater than 25 days. LTCHs typically furnish extended medical and rehabilitation care for patients who are clinically complex and have multiple acute or chronic conditions. Patients appropriate for LTCH services represent a small but discrete sub-set of all patients. They are differentiated from other hospital patients in that, by definition, they have multiple co-morbidities that require concurrent treatment. Patients appropriate for LTCH services tend to be elderly, frail, and medically complex and are usually regarded as catastrophically ill although some are young, typically victims of severe trauma. Approximately 85 percent of LTCH patients qualify for Medicare. Generally, Medicare patients admitted to LTCHs have been transferred from general acute care hospitals and receive a range of services at LTCHs, including cardiac monitoring, ventilator support and wound care. In 2004, statewide, 92 percent of LTCH patients were transferred from short-term acute care hospitals. That figure was 98 percent for District 11 during the same period of time. The single most common factor associated with the use of long-term care hospitals are patients who have pulmonary and respiratory conditions such as tracheotomies, and require the use of ventilators. There are three other general categories of LTCH patients as explained by Dr. Muldoon in his deposition: The second group is wound care where patients who are at the extreme end of complexity in wound care would come to [an] LTCH if their wounds cannot be managed by nurses in skilled nursing facilities or by home health care. The third category would be cardiovascular diseases where patients compromise[d by] injury or illness related to the circulatory system would come [to an LTCH.] And the fourth is the severe end of the rehabilitation group where, in addition to rehabilitation needs, there's a background of multiple medical conditions that also require active management. (Kindred Ex. 8 at 10-11). Effective October 1, 2002, the federal Centers for Medicare and Medicaid Services ("CMS") established a new prospective payment system for long term care hospital providers. Through this system, CMS recognizes the patient population of LTCHs as separate and distinct from the populations treated by short-term acute care hospitals and by other post acute care providers, such as Skilled Nursing Facilities ("SNFs") and Comprehensive Rehabilitation Hospitals ("CMRs"). The implementation by CMS of categories of payment designed specifically for LTCHs, the "LTC-DRG," indicates that CMS and the federal government recognize the differences between general hospitals and LTCHs when it comes to patient population, costs of care, resources consumed by the patients and health care delivery. Under the LTCH reimbursement system, each patient is assigned a Diagnosis Related Group or "DRG" with a corresponding payment rate that is weighted based upon the patient's diagnosis. The LTCH is reimbursed the predetermined payment rate for that DRG, regardless of the costs of care. These rates are higher than what CMS provides for other traditional post-acute care providers. Since the establishment of the prospective pay system for LTCHs, concerns about the high reimbursement rate for LTCHs, as well as about the appropriateness of the patients treated in LTCHs, have been raised by the Medicare Payment Advisory Committee ("MedPAC") and the Centers for Medicaid and Medicare Services. CMS administers the Medicare payment program for LTCHs, as well as the reimbursement programs for acute care hospitals, SNFs, and CMRs. MedPAC's role is to help formulate federal policy on Medicare regarding services provided to Medicare beneficiaries (patients) and the appropriate reimbursement rates to be paid to health care providers. The 2006 MedPAC report reported that LTCHs were making a good margin or profit, and recommended against an annual increase in the Medicare reimbursement rate for the upcoming fiscal year. In 2006, CMS adopted a reimbursement rate rule for LTCHs for 2007 that did not raise the base rate, and made other changes that reflect the ongoing concerns of CMS regarding LTCHs. 42 C.F.R. Part 412, May 12, 2006. In that rule, CMS found that approximately 37 percent of LTCH discharges are paid under the short-stay outliers, raising concerns that inappropriate patients may be being admitted to LTCHs. CMS made other changes to the reimbursement system which, taken as a whole, actually reduced the reimbursement that LTCHs will receive for 2007. Even with the concerns raised by MedPAC and CMS and recent changes in federal fiscal policy related to LTCHs, the distinction between general hospitals and LTCHs and the legitimate place for LTCHs in the continuum of care continues to be recognized by the federal government. One way of looking at recent developments at the federal level was articulated at hearing by Mr. Kornblat. Federal regulatory changes will reduce the reimbursement LTCHs receive when treating short-term patients (short-term outliers). "On the other end of the spectrum, there are patients who stay significantly longer than would be expected on average, long- stay outliers, and the reimbursement for those patients was also modified." Tr. 163. There have been other changes with regard to LTCH patients who require surgery the LTCHs cannot provide and patients with a primary psychiatric diagnosis or a primary rehab diagnosis. Requiring the LTCH to "foot the bill" for surgery that it cannot provide for its patients and the elimination from LTCHs of patients with a primary psychiatric or rehab diagnosis send a strong signal to the LTCH industry specifically and those who interact with it: LTCHs should admit only the medically complex and severely acutely ill patient who can be appropriately treated at an LTCH. Despite recent changes at the federal level and the clear recognition by the federal government that LTCHs have a place in the continuum of health care services, AHCA remains concerned about LTCHs in Florida. AHCA's Concerns Regarding LTCHs In deciding on whether to approve or deny new health care facilities, the Agency is responsible for the "coordinated planning of health care services in the state." § 408.033(3)(a), Fla. Stat. In carrying out this responsibility, AHCA looks to federal rules and reports to assist in making health care planning decisions for the state. Regarding LTCHs, MedPAC has reported, and CMS has noted that, nationwide, there has been a recent, rapid increase in the number of LTCHs: "It [LTCHs] represents a growth industry of the last ten years." Nationwide there has also been a huge increase in Medicare spending for LTCH care from $398 million in 1993 to $3.3 billion in 2004. AHCA has also become concerned about the recent rapid increase in LTCH applications in Florida. From 1997 through 2001 there were 8 LTCHs in the state. Starting in 2002, there was a marked increase in the number of applications for LTCHs and the number of approved LTCHs rose quickly to the current 14 in 2006. In addition, 9 new LTCHs have been approved and are expected to be licensed in the next 1-3 years. When all of the approved hospitals are licensed the number of available beds will rise from 876 to 1,351 (adding the approved 475 beds), over a 50 percent increase in LTCH beds statewide. In addition, AHCA is concerned that the occupancy level of LTCHs over the entire state appears to be falling over the last 11 years. In response to the rise in LTCH applications over the last several years, and given the decrease in occupancy of the current LTCHs, the Agency has consistently voiced concerns about lack of identification of the patients that appropriately comprise the LTCH patient population. Because of a lack of specific data from applicants with regard to the composition and acuity level of LTCH patient populations, AHCA is not convinced that there is a need for additional LTCHs in the state or in District 11. There are several reasons for this concern. First, AHCA believes, like MedPAC, that there may be an overlap between the LTCH patient populations and the population of patients served in other health care settings, such as SNFs and CMRs. Kindred's expert, Dr. Muldoon, noted that length of stay in the general acute care hospital has been shortened over the last few years because there are new more effective medical treatments, and because the "post-acute sector has emerged as the place to carry out the treatment plan that 20 years ago may been provided in its entirety in the short-term hospital." (Kindred Ex. 8 at 23). To AHCA, what patients enter what facilities in this "post-acute sector" is unclear. In the absence of the applicants better identifying the acuity of the LTCH patient population, AHCA has reached the conclusion that there may be other options available to those patients targeted by the LTCH applicants. In support of this view, AHCA presented a chart showing SNFs in District 11 that offer to treat patients who need dialysis, tracheotomy or ventilator care. These conditions are typically treated in LTCHs. In addition, AHCA believes that some long-stay patients can be appropriately served in the short-stay acute care hospitals, rather than requiring LTCH care. The length of stay in 2005 for the typical acute care hospital for most patients is five to six days. (Kindred Ex. 8, Dr. Muldoon Depo, at 23). Some hospital patients, however, are in need of acute care services on a long-term basis, that is, much longer than the average lengths of stay for most patients. Thus, patients who may need LTCH services often have lengths of stay in the acute care hospitals that exceed the typical stay. AHCA believes that these long-stay patients can be as appropriately served in the short stay acute care hospitals as in LTCHs. AHCA'S Denial of the Four Applications and Change of Position with regard to MJH On December 15, 2005, the Agency issued its SAAR after review of the applications. The SAAR recommended denial of all four applications based primarily on the Agency's determination that none had adequately demonstrated need for its proposed LTCH in District 11. In denying the four applications, AHCA relied in part on reports issued the Congress annually by MedPAC that discuss the placement of Medicare patients in appropriate post-acute settings. Appropriate use of long term care hospital services is an underlying concern that we [AHCA] have and had the federal government has as evidenced by their MedPAC reports and the CMS information in its most recent proposed rule on the subject. (Tr. 2486). The June 2004 MedPAC report states the following about LTCHs: Using qualitative and quantitative methods, we find the LTCH's role is to provide post- acute care to a small number of medically complex patients. We also find that the supply of LTCHs is a strong predictor of their use and those acute hospitals and skilled nursing facilities are the principal alternatives to LTCHs. We find that, in general, LTCH patients cost Medicare more than similar patients using alternative settings but that if LTCH care is targeted to patients of the highest severity, the cost is comparable. Given these concerns, AHCA looked to the four applicants to prove need through a needs methodology that provides sufficient information on the patient severity criteria to better define the patients that would mostly likely be appropriate candidates for LTCHs. AHCA found the need methodologies of three of the four applicants (Kindred, Promise, and Select) "incomplete" because they lacked specific information on the severity level of the patients the applicants plans to admit, and therefore they "overstate need." AHCA pointed to a former LTCH provider that did provide detailed useful information on the acuity level of its patients, and the acuity level of its patients in reference to similar patients in SNFs. Other then MJH, the applicants presented approaches to projecting need that are based, in one way or another, on long- stay patients in existing acute care hospitals. In the Agency's view these methods "significantly overstate need." The method creates a "candidate pool" for the future long-term care hospital users. But it does not include enough information on severity of illness of the patients, in AHCA's view, to give a sense of who might be expected to appropriately use the service. Further, the Agency sees no reason to believe that all long-stay patients in acute care short-stay hospitals are appropriate candidates for long-term hospital services. Lastly, AHCA believes that LTCH applicants should develop an "acuity coefficient or an acuity factor," tr. 2627, to be considered as part of an LTCH need methodology. The need methodology employed by MJH differed substantially from the methodologies of the other three applicants. Because it is more conservative and yields a need "approximately a tenth of what the other three propose," tr. 2500, at the time of hearing AHCA was much more comfortable with MJH's need methodology. By the time AHCA filed its PRO, its comfort with MJH's need methodology had solidified and improved to the point that AHCA changed its position with regard to MJH. Describing MJH's "use rate model" as conservative, see Agency for Health Care Administration Proposed Recommended Order, at 24, AHCA proposed the following finding of fact in support of its conclusion that MJH's application be approved: "Miami Jewish Home projected a reasonably reliable bed need using approved, conservative, but detailed and supportable, need methodologies." Id. at 25. MJH MJH, is an existing not-for-profit provider of comprehensive health and social services in Miami-Dade County. As recited in the Omissions Response to CON 9893: [MJH's] mission is to be the premier multi- component, not-for-profit charitable health care system in South Florida, guided by traditional Jewish values, dedicated to effectively and efficiently serving a non- sectarian population of elderly, mentally ill, disabled, and chronically ill people with a broad range of the highest quality institutionally-based, community-based and ambulatory care services. MJH Ex. 1. Originally founded in 1945 to provide residential care for Jewish persons unable to access services elsewhere, MJH is now in its 62nd year of operation. MJH enjoys a good reputation within its community. MJH is located at Northeast Second Avenue and 2nd Street in north-central Miami in one of the most densely populated areas of the County. Known as “Little Haiti,” the surrounding community is primarily low income, and is a federally designated “medically underserved area.” A “safety net” provider of health care services, MJH's SNF is the largest provider of Medicaid skilled nursing services in the State of Florida. MJH assists its patients/residents in filing Medicaid applications, and also assists individuals in applying for Medicaid for community-based services. This same kind of assistance will also be provided to patients of the MJH LTCH. A 2004 study conducted by the Center on Aging at Florida International University identified unmet needs among elders living within the zip codes surrounding MJH. The study notes that the greatest predictors of need for home and community-based services are poverty, disability, living alone, and old age. Several of the zip codes within the MJH PSA were found to have relatively large numbers of at risk elders due to poverty and dramatic community changes. The study has assisted MJH in identifying service gaps within the community, and in focusing its efforts to serve this at-risk population. Following its most recent JCAHO accreditation survey, both MJH’s hospital and SNF received a three-year “accreditation without condition,” which is the highest certification awarded by JCAHO. MJH is a national leader in the provision of comprehensive long-term care services. MJH has been recognized on numerous occasions for its innovative long-term and post- acute care programs. The awards and recognitions include the Gold Seal Award for Excellence in Long Term Care, the "Best Nursing Home" Award from Florida Medical Business and "Decade of Excellence Award" from Florida Health Care Association. An indicator of quality of care, AHCA’s “Gold Seal” designation is especially significant. Of the 780 nursing homes in Florida, only 13, including MJH, have met the criteria to be designated as Gold Seal facilities. MJH operates Florida's only Teaching Nursing Home Program. Medical students, interns, and other health professionals rotate through the service program in the nursing home and hospital on a regular basis. Specifically, MJH serves as a student and resident training site for the University of Miami and Nova Southeastern University Medical Schools, and the Barry University, FIU, and University of Miami nursing schools. The LTCH would enhance these capabilities and give physicians in training additional opportunities. Not only will this enhance their education, but also will contribute to the high quality of care to be provided in the MJH LTCH. MJH has been the site and sponsor of many studies to enhance the delivery of social and health services to elderly and disabled persons. Most recently, MJH was awarded a grant to do research on fall prevention in the nursing home. MJH is committed to continue research on the most effective means of delivering rehabilitative and long-term care services to a growing dependent population. The development of an LTCH at MJH will enhance the opportunities for this research. MJH operates Florida’s first and only PACE Center (Program of All-inclusive Care for the Elderly) located on the main Douglas Gardens campus. The program provides comprehensive care (preventive, primary, acute and long-term) to nursing home eligible seniors with chronic care needs while enabling them to continue to reside in their own home as long as possible. MJH was recently approved by the Governor and Legislature to open a second PACE site, to be located in Hialeah. The proposed 30-bed LTCH will be located on MJH’s Douglas Gardens Campus. The Douglas Gardens Campus is the site of a broad array of health and social services that span the continuum of care. These programs include community outreach services, independent and assisted living facilities, nursing home diversion services, chronic illness services, outpatient health services, acute care hospital services, rehabilitation, post-acute services, Alzheimer’s disease services, pain management, skilled nursing and hospice. LTCH services, however, are not currently available at MJH. Fred Stock, the Chief Operating Officer of MJH is responsible for the day-to-day operation of the MJH nursing home and hospital and has 24 years experience in the administration of long-term care facilities. An example of Mr. Stock’s leadership is that when he came to MJH, its hospice program had management issues. He assessed the situation and then made a management change which has resulted in a successful turnaround of the program. There are now 462 skilled nursing beds licensed and operated by MJH at the Douglas Garden’s Campus. All of these beds are certified by Medicare. Community hospitals have come to rely on these skilled nursing beds as a placement alternative for their sickest and most difficult-to-place, post-acute patients. The discharges of post-acute patients in the SNF at Douglas Gardens more than doubled from 350 in FY 2002 to 769 in FY 2005. Dr. Tanira Ferreira is the Medical Director of the MJH ventilator unit. Dr. Ferreira is board-certified in the specialties of Internal Medicine, Pulmonary Diseases, Critical Care Medicine, and Sleep Disorders. Dr. Ferreira will be the Medical Director of the MJH LTCH. In addition to Dr. Ferreira, MJH has five other pulmonologists on its staff. MJH also employs: a full-time Medical Director (Dr. Michael Silverman); three full-time physicians whose practices are restricted to MJH hospital and SNF patients; and four full-time nurse practitioners whose practices are restricted to residents of the SNF. MJH employs two full-time psychiatrists, two full-time psychologists, and seven full-time Master’s level social workers. The MJH medical staff also includes many specialist physicians such as cardiologists, surgeons, orthopedists, nephrologists and opthamologists, and other specialists are called for a consultation as needed. A number of the MJH patients/residents are non-English speakers. However, many of the MJH employees, including all of its medical staff, are bilingual. Among the languages spoken by MJH staff are Haitian, Spanish, Russian, Yiddish, French, and Portuguese. This multi-language capability greatly enhances patient/resident communication and enhances MJH’s ability to provide supportive services. The proposed project is the development of a 30-bed LTCH in Miami-Dade County. The LTCH will be located in renovated space in an existing facility and will conform to all the physical plant and operating standards for a general hospital in Florida. The estimated project cost is $5,315,672. The first patient is expected to be admitted by July 1, 2007. The LTCH will be considered an HIH under Federal regulations 42 CFR Section 412.22(e). The LTCH will comply with these requirements including a separate governing body, separate chief medical officer, separate medical staff, and chief executive officer. The LTCH will perform the hospital functions required in the Medicare Conditions of Participation set forth at 42 CFR Section 482. In addition, fewer than 25 percent of the admissions to the LTCH will originate from the MJH acute care hospital, and less than 15 percent of the LTCH operating expenses will be through contracted services with any other MJH affiliate, including the acute care hospital. The separate LTCH governing body will be legally responsible for the conduct of the LTCH as an institution and will not be under the control of the MJH acute care hospital. Finally, less than five percent of the annual MJH LTCH admissions will be re-admissions of patients who are referred from the MJH SNF or the MJH hospital. Each referral to the LTCH will be carefully assessed using the InterQual level-of-care criteria to ensure that the most appropriate setting is chosen. MJH is also a member of the ECIN (Extended Care Information Network) system. As a member of this system, MJH is able to make referrals and place patients who may not be appropriate for its own programs. Only those patients who are medically and functionally appropriate for the LTCH will be admitted to the LTCH program. Many patients admitted to the MJH LTCH will have complex medical conditions and/or multiple-system diagnoses in one or more of the following categories: Respiratory disorders care (including mechanical ventilation or tracheostomy care) Surgical wound or skin ulcer care Cardiac Care Renal disease care Cancer care Infectious diseases care Stroke care The patient and family will be the focus of the interdisciplinary care provided by the MJH LTCH. The interdisciplinary care team will include the following disciplines: physicians, nurses, social workers, psychologists, spiritual counselors, respiratory therapists, physical therapists, speech therapists, occupational therapists, pharmacists, and dietitians. MJH uses a collaborative care model that will be replicated in the LTCH and will enhance the effectiveness of the interdisciplinary team. The direct care professionals in the LTCH will maintain an integrated medical record, so that each member of the care team will have ready access to all the information and assessments from the other disciplines. Nursing staff will provide at least nine hours of nursing care per patient per day. Seventy-five percent of the nursing staff hours will be RN and LPN hours. Therapists (respiratory, physical, speech and occupational) will provide at least three hours of care per patient day. The MJH medical staff includes a wide array of specialty consultants that will be available to LTCH patients. The specialties of pulmonology, internal medicine, geriatrics and psychiatry will be available to each patient on a daily basis. A complete listing of all of the medical specialties available to MJH patients was included with its application. The interdisciplinary team will meet at least once per week to assess the care plan for each patient. The care plan will emphasize rehabilitation and education to enable the patient to progress to a less restrictive setting. The care team will help the patient and family learn how to manage disabilities and functional impairments to facilitate community re-entry. Approval of the LTCH will allow the MJH to "round out" the continuum of care it can offer the community by placing patients with clinically complex conditions in the most appropriate care setting possible. This is particularly true of persons who would otherwise have difficulty in accessing LTCH services. MJH has committed to providing a minimum of 4.2 percent of its patient discharges to Medicaid and charity patients. However, Mr. Stock anticipates that the actual percentage will be higher. If approved, MJH has committed to licensing and operating its proposed LTCH. MJH already has a number of the key personnel that will be required to implement its LTCH, including the Medical Director and other senior staff. In addition, MJH has extensive experience gleaned from both its acute care hospital and SNF in caring for very sick patients. In short, MJH has the clinical, administrative, and financial infrastructure that will be required to successfully implement its proposed LTCH. Approval of the MJH LTCH will dramatically reduce the number of persons who are now leaving the MJH PSA to access LTCH services. The hospitals in close proximity to MJH have LTCH use rates that are very low in comparison to other hospitals that are closer to existing LTCHs. Thus, it is likely that there are patients being discharged from the hospitals close to MJH that could benefit from LTCH services, but are not getting them because of access issues or because the existing LTCHs are perceived to be too far away. A number of hospitals located close to MJH are now referring ventilator-dependent patients to MJH, and would also likely refer patients to the MJH LTCH. Because the majority of the infrastructure required is already in place, the MJH HIH can be implemented much more quickly and efficiently than can a new freestanding LTCH. For example, ancillary functions such as billing, accounting, human resources, housekeeping and administration already exist, and the LTCH can be efficiently integrated into those existing operations on campus. MJH will be able to appropriately staff its LTCH through a combination of its current employees and recruitment of new staff as necessary. In addition, MJH will be establishing an in-house pharmacy and laboratory within the next six months, which will also provide services to LTCH patients. On-site radiology services are already available to MJH patients. MJH has an excellent track record of successfully implementing new programs and services. There is no reason to believe that MJH will not succeed in implementing a high quality LTCH if its application is approved. MJH's Ventilator Unit By the time ventilator-dependent and other clinically complex patients are admitted to a nursing home they have often exhausted their 100 days of Medicare coverage, and have converted to Medicaid. Since Medicaid reimbursement is less than the cost of providing such care, most nursing homes are unwilling to admit these types of patients. Thus, it is very difficult to place ventilator patients in SNFs statewide. The problem is further exacerbated in District 11 by the lack of any hospital-based skilled nursing units. With the recent closure of two SNF-based vent units (Claridge House and Greynolds Park) there are now only three SNF-based vent units remaining in District 11. They are located at MJH, Hampton Court (10 beds), and Victoria Nursing Home. MJH instituted a ventilator program in its SNF in early 2004. Many of the patients admitted into the ventilator program fall into the SE3 RUG Code. On July 1, 2005, there were 24 patients in the SE3 RUG code in MJH. Only one other SNF in District 11 has more than four SE3 RUG patients in its census on an average day. Over 60 percent of the Medicare post-acute census at the MJH SNF falls into the RUG categories associated with extensive, special care or clinically complex services. This mix of complex cases is about three times higher than average for District 11 SNFs. Although some of the patients now admitted to the MJH SNF vent unit would qualify for admission to an LTCH, there are also a number of patients who are not admitted because MJH cannot provide the LTCH level of care required. SNF admissions are required to be initiated following a STACH admission. MJH has actively marketed its vent unit to STACHs. Similarly most LTCH admissions come from STACHs and, like MJH’s efforts, LTCHs also market themselves to STACHs. Hospitals providing tertiary services and trauma care will generate the greater number of LTCH referrals, with approximately half of all LTCH patients being transferred from an ICU. The implementation of the MJH ventilator unit required the development of protocols, infrastructure, clinical capabilities and internal resources beyond those found in most SNFs. Dr. Ferreira conducted pre-opening comprehensive staff education. These capabilities will serve as a precursor to the development of the next stage of service delivery at MJH: the LTCH. MJH’s vent unit provides care for trauma victims, and recently received a Department of Health research grant to develop a program for long-term ventilator rehab for victims of trauma. Jackson Memorial Hospital is experiencing difficulty in placing "certain" medically complex patients, who at discharge, have continuing comprehensive medical needs. MJH is the only facility in Dade County that has accepted Medicaid ventilator patients from Jackson. Mt. Sinai Medical Center also has difficulty placing medically complex patients, particularly those requiring ventilator support, wound care, dialysis and/or other acute support services. Mt. Sinai is a major referral source to MJH and supports its LTCH application. MJH has received statewide referrals, including from the Governor's Office and from AHCA, of difficult to place vent patients. Most of these referrals are Medicaid patients. Ten of the MJH vent beds are typically utilized by Medicaid patients. Although MJH would like to accommodate more such referrals, there are financial limitations on the number of Medicaid patients that MJH can accept at one time. Promise Promise owns and operates approximately 718 LTCH beds outside of Florida and employs an estimated 2,000 persons. Promise proposes to develop and LTCH facility in the western portion of the County made up of 59,970 gross square feet, 60 private beds including an 8-bed ICU, and various ancillary and support areas. The projected costs to construct its freestanding LTCH is $11,094,500, with a total project cost of $26,370,885. As a condition of its CON if its application is approved, Promise agrees to provide three percent of projected patient days to Medicaid and charity patients. Select Select-Dade proposes to locate its 60-bed, freestanding LTCH in the western portion of Miami-Dade County. The Agency denied Select-Dade's application because of its failure to prove need. Otherwise, the application meets the CON review criteria and qualifies for comparative review with the other three applicants. Select-Dade proposes to serve the entire District, but it has targeted the entire west central portion of the County that includes Hialeah, Hialeah Gardens, Doral, Sweetwater, Kendall, and portions of unincorporated Miami. This area is west of State Road 826 (the "Palmetto Expressway"), south of the County line with Broward County, north of Killian Parkway and east of the Everglades ("Select's Target Service Area"). To be located west of the Palmetto Expressway, east of the Florida Turnpike, north of Miller Drive and south of State Road 836, the site for the LTCH will be generally in the center of Select's Target Service Area. Approximately 700,000 people (about 30 percent of the County's population) reside within Select-Dade's Target Service Area. This population of the area is expected to grow almost ten percent in the next five years. The rest of the County is expected to grow about five and one-half percent. Kindred Kindred proposes to construct a 60-bed LTCH in the County. It will consist of 30 private rooms, 20 beds in 10 semi-private rooms, and 10 ICU beds. The facility would include the necessary ancillary service, including two operating rooms, a radiology suite, and a pharmacy. Kindred utilizes a screening process before admission of a patient to assure that the patient needs LTCH level care that includes the set of criteria known as InterQual. InterQual categorizes patients according to their severity of illness and the intensity of services they require. Every patient admitted to a Kindred hospital must be capable of improving and the desire to undergo those interventions aimed at improvement. Kindred does not provide hospice or custodial care. In addition, through its reimbursement process, the federal government provides strong disincentives toward LTCH admission of inappropriate patients. Furthermore, every Kindred hospital has a utilization review (UR) plan to assure that patients do not receive unnecessary, unwanted or harmful care. In addition to the UR plan, the patient's condition is frequently reviewed by nursing staff, respiratory staff and by a multi-disciplinary team. Kindred had not selected a location at the time it submitted its application. Kindred anticipates, however, that its facility if approved would be located in the western portion of the County. Stipulated Facts As stated by Kindred in its Proposed Recommended Order, the parties stipulated to the following facts (as well as a few other related to identification of the parties): Each applicant timely filed the appropriate letter of intent, and each such letter contained the information required by AHCA. Each CON application was timely filed with AHCA. Following its initial review, AHCA issued a State Agency Action Report ("SAAR") which indicated its intent to deny each of the applications. Each applicant timely filed the appropriate petition with AHCA, seeking a formal hearing pursuant to Sections 120.569 and 120.57, Fla. Stat. In the CON batch cycle that is the subject of this proceeding, Promise XI proposed to construct a 59,970 square foot building at a total project cost of $26,370,885.00, conditioned upon providing 3 percent of its patient days to Medicaid and charity patients. Select proposes to construct a 62,865 square foot building at a total project cost of $22,304,791.00, conditioned upon providing 2.8 percent of its patient days to Medicaid and charity patients. MJHHA proposes to renovate 17,683 square feet of space at a total project cost of $5,315,672.00, conditioned upon providing 4.2 percent of its patient days to Medicaid and charity patients. Kindred proposes to construct a 69,706 square foot building at a total project cost of $26,538,458.00, conditioned upon providing 2.2 percent of its patient days to Medicaid and charity patients. Long term hospitals meeting the provisions of AHCA Rule 59A-3.065(27), Fla. Admin. Code, are one of the four classes of facilities licensed as Class I hospitals by AHCA. The length of stay in an acute care hospital for most patients is three to five days. Some hospital patients, however, are in need of acute care services on a long- term basis. A long-term basis is 25 to 34 days of additional acute are service after the typical three to five day stay in a short-term hospital. Although some of those patients are "custodial" in nature and not in need of LTCH services, many of these long-term patients are better served in a LTCH than in a traditional acute care hospital. Within the continuum of care, the federal government's Medicare program recognizes LTCHs as distinct providers of services to patients with high levels of acuity. The federal government treats LTCH care as a discrete form of care, and treats the level of service provider by LTCHs as distinct, with its own Medicare payment system of DRGs and case mix reimbursement that provides Medicare payments at rates different from what the Medicare prospective payment system ("PPS") provides for other traditional post-acute care providers. The implementation by the Centers for Medicare and Medicaid Services ("CMS") of categories of payment design specifically for LTCHs, the "LTC-DRG," is a sign of the recognition by CMS and the federal government of the differences between general hospitals and LTCHs when it comes to patient population, costs of care, resources consumed by the patients and health care delivery. Joint Pre-hearing Stipulation at 4, 6-7, 9-10. Applicable Statutory and Rule Criteria The parties stipulated that the review criteria in Subsections (1) through (9) of Section 408.035, Florida Statutes (the "CON Review Criteria Statute"), apply to the applications in this proceeding. Subsection (10) of the CON Review Criteria Statute, relates to the applicant's designation as a Gold Seal Program Nursing facility. Subsection (10) is applicable only "when the applicant is requesting additional nursing home beds at that facility." None of the applicants are making such a request. MJH's designation as a Gold Seal Program is not irrelevant in this proceeding, however, since it substantiates MJH's "record of providing quality of care," a criterion in Subsection (3) of the CON Review Criteria Statute. The Agency does not have a need methodology for LTCHs. Nor has it provided any of the applicants in this proceeding with a policy upon which to determine need for the proposed LTCH beds. The applicants, therefore, are responsible for demonstrating need through a needs assessment methodology of their own. Topics that must be included in the methodology are listed Florida Administrative Code Rule 59C-1.008(2)(e)2., a. through d. Subsection (1) of the CON Review Criteria: Need Not only does AHCA not have an LTCH need methodology in rule or a policy upon which to determine need for the proposed LTCH beds, it did not offer a methodology for consideration at hearing. This is the typical approach AHCA takes in LTCH cases; demonstration of LTCH need through a needs assessment methodology is left to the parties, a responsibility placed upon them in situations of this kind by Florida Administrative Code Rule 59C-1.008(2)(e)2. MJH's Need Methodology Unlike the other three applicants, all of whom used one form or another of STACH long-stay methodologies, MJH utilized a use-rate analysis which projects LTCH utilization forward from District 11's recent history of increased utilization. A use-rate methodology is one of the most commonly used health care methodologies. The MJH use-rate methodology projected need based upon all of District 11. The methodology projected need for 42 LTCH beds in 2008, with that number growing incrementally to 55 beds by 2012. Because statewide LTCH utilization data is not reliable when looking at any particular district, MJH developed a District 11 use-rate, by age cohort, to yield a projection of LTCH beds needed. The use-rate is derived from the number of STACH admissions compared to the number of LTCH admissions, by age cohort. Projected demographic growth by age cohort was applied to determine the number of projected LTCH admissions. The historic average LTCH LOS in District 11 was applied to projected admissions and then divided by 365 to arrive at an ADC. That ADC was then adjusted for an occupancy standard of 85 percent, which is consistent with District 11. A number of states have formally adopted need methodologies that use an approach similar to MJH's in this case. Kindred has used a shortcut method of the use rate model in other states for analyzing proposed LTCHs "when there is not much data to work with." Tr. 1744. The methodology used by MJH was developed by its expert health planner, Jay Cushman. The methodology developed by Mr. Cushman was described by Kindred's health planner as "a couple of steps beyond" Kindred's occasionally-used shortcut method. Kindred's health planner described Mr. Cushman's efforts with regard to the MJH need methodology as "a very nice job." Tr. 1745. Mr. Cushman created a use-rate by examining the relationship between STACH admissions and LTCH admissions. The use-rate actually grows as it is segmented by age group, and thus the growth in the elderly population incrementally increases the utilization rate. MJH’s application demonstrated how LTCH utilization has varied greatly statewide, and how the District 11 market has a significant history of utilizing LTCH services. For planning purposes the history of District 11 is a significant factor, and the MJH methodology is premised upon that history, unlike the other methodologies. MJH demonstrated a strong correlation between STACH and LTCH utilization in District 11, where 98 percent of LTCH admissions are referred from STACHs. MJH also demonstrated that the south and western portions of Miami-Dade have overlapping service areas from the three existing LTCHs, while northeastern Miami-Dade has only one provider with a similar service area, Kindred Hollywood in neighboring District 10. This peculiarity explains why the LTCH out-migration trend is much stronger in northeastern portions of the District. The area most proximate to MJH would enjoy enhanced access to LTCH services, including both geographic and financial access, if its program is approved. In short, as AHCA, now agrees, MJH demonstrated need for its project through a thorough and conservative analysis. All parties agree that the number of LTCH beds yielded by MJH's methodology are indeed needed. Whether more are needed is the point of disagreement. For example, Mr. Balsano plugged the 2003 use rate into MJH's methodology instead of the 2004 used by MJH. Employment of the 2003 use rate in the calculation has the advantage that actual 2004 and 2005 data can serve as a basis of comparison. Mr. Balsano explained the result: "The number of filled beds in 2005 in District 11 would exceed by 33 beds what the use rate approach would project as needed in 2005." Tr. 370. The reason, as Mr. Balsano went on to explain, is that the use-rate changed dramatically between 2002, 2003, and 2004. Thus MJH's methodology, while yielding a number of beds that are surely needed in the District, may yield a number that is understated. This is precisely the opposite problem of the need assessment methodologies of the other three applicants, all of which overstated LTCH bed need in the District. The Need Methodologies of the Other Three Applicants The need methodologies presented by the other applicants vary to some degree. All three, however, are based on STACH long-stay data. Long-stay STACH analyses rely upon a number of assumptions, but fundamentally they project need forward from historic utilization of STACHs. The methodologies used by each of these three applicants identify patients in STACHs whose stays exceeded the geometric mean of length of stay plus fifteen days (the "GMLOS+15 Methodologies"), although the extent of the patients so identified varied depending on the number of DRGs from which the patients were drawn. Each of the proponent’s projects would serve only a relatively small fraction of the District 11 patients purported by the GMLOS+15 Methodologies to be in need of LTCH services. The lowest projected need of the three was produced by Promise: 393 beds in 2010. Promise's methodology is more conservative than that of Kindred and Select. Unlike the latter two, Promise reduced the number of potential projected admissions to be used in its calculation. The reduction, in the amount of 25 percent of the projection of 500 beds, was made because of several factors. Among them were anticipation that MedPAC's suggestions for ensuring that patients were appropriate for LTCH admission, which was expected to reduce the number of LTCH admissions, would be adopted. The methodologies proposed by Kindred and Select-Dade did not include the Promise methodology's reduction potentially posed by the impact of new federal regulation. Kindred's methodology projected need for 509 new LTCH beds in District 11; Select-Dade's methodology projected need for 556 beds. One way of looking at the substantial bed need produced by the GMLOS+15 Methodologies used by Promise, Select and Kindred was expressed by Kindred. As an applicant proposing a new hospital of 60 beds, when its need methodology yielded a need in the District for more than 500 beds, Kindred found the methodology to provide assurance that its project is needed. On the other hand, if the methodology was reliable then the utilization levels of the two Kindred hospitals in Broward County in relative proximity to a populated area of District 11 would have been much higher in 2004 and 2005, given the substantial out-migration to those facilities from District 11. The Kindred and Select methodologies are not reliable. Their flaws were outlined at hearing by Mr. Cushman, MJH's expert health planner who qualified as an expert with a specialization in health care methodology. Mr. Cushman attributed the flaws to Promise's methodology as well but as explained below, Promise's methodology is found to be reliable. Comparison of the projections produced by MJH's use rate methodology with the projections produced by the other three methodologies results in "a tremendous disconnect," tr. 1233, between experiences in District 11 upon which MJH's methodology is based and the GMLOS+15 Methodologies' bed need yield "that are three or four or five times as high as have actually been expressed in the existing system." Id. One reason in Mr. Cushman's view for the disconnect is that the GMLOS+15 Methodologies identify all long-stay patients in STACHs as candidates for LTCH admission when "there are many reasons that patients might stay for a long time in an acute care facility that are not related to their clinical needs." Tr. 1234. This criticism overlooks the limited number of long-stay patients in STACHs used by the Promise methodology but is generally applicable to the Select and Kindred methodologies. Mr. Cushman performed detailed analysis of the patients used by Kindred in its projection to reach conclusions applicable to all three GMLOS+15 Methodologies. Mr. Cushman's analysis, therefore, related to actual patients. They are based on payor mix, discharge status, and case mix. The analysis showed that the GMLOS+15 Methodologies are "disconnected from the fundamental facts on the ground," tr. 1240, in that the methodologies produce tremendous unmet need not reconcilable with actual utilization experience. Some of the gaps based on additional case mix testing were closed by Kindred's expert health planner. The additional Kindred test, however, did not completely close the gap between projected unmet need and actual utilization experience. Mr. Cushman summed up his basis for concluding that the GMLOS+15 Methodologies employed by Kindred, Select-Dade and Promise are unreliable: [W]e have an untested method that's disconnected from actual utilization experience on the ground. And it provides projections of need that are way in excess of what the experience would indicate and way in excess of what the applicants are willing to propose and support [for their projects.] So for those reasons, I considered [the GMLOS+15 method used by Kindred, Select-Dade and Promise] to be an unreliable method for projecting the need for LTCH beds. Tr. 1243-44. The criticism is not completely on point with regard to the Promise methodology as explained below. Furthermore, at hearing, Mr. Balsano made adjustments to the Promise GMLOS+15 Methodology ("Promise's Revised Methodology"). Although not sanctioned by the Agency, the adjustments were ones that made the Agency more comfortable with the numeric need they produced similar to the Agency's comments at hearing about MJH's methodology. For example, if the number of needed beds were reduced by 50 percent (instead of 25 percent as done in Promise's methodology) to account for the effect of federal policies and alternative providers and if an 85 percent occupancy rate were assumed instead of an 80 percent occupancy rate, the result would be reduce the LTCH bed need yielded by Promise's methodology to 200. These adjustments make Promise's Revised Methodology more conservative than Select's and Kindred's. In addition, Promise's methodology commenced with a much fewer number of STACH patients because Promise based on its inquiry into the patient population that is "using LTCHs in Florida right now." Tr. 351. Examination of AHCA's database led to Promise's identification of patients in 169 DRGs currently served in Florida LTCHs. In contrast, Select-Dade and Kindred, used 483 and 390 DRGs respectively. Substantially the same methodology was used by Promise in Promise Healthcare of Florida III, Inc. v. AHCA, Case No. 06-0568CON (DOAH April 10, 2007). The methodology, prior to the 25 percent reduction to take into account the effects of new federal regulations, was described there as: Long-stay discharges were defined using the following criteria: age of patient was 18 years or older; the discharge DRG was consistent with the discharge DRGs from a Florida LTCH; and the ALOS in the acute care hospital was at the GMLOS for the specific DRG plus 15 days or more. Applying these criteria reduced the number of DRGs used and the potential patient pool. Id. at 19 (emphasis supplied.) The methodology in this case produced a number that was then reduced by 25 percent, just as Promise did in its application in this case. The methodology was found by the ALJ to be reliable. If the methodology there were reliable then Promise's Revised Methodology (an even more conservative methodology) must be reliable as well as the numeric need for District 11 LTCH beds it yields: 200. Such a number (200) would support approval of MJH's application and two of the others and denial of the remaining application or denial of MJH's application and approval of the three other applications. Neither of these scenarios should take place. However high a number of beds that might have been projected by a reasonable methodology, no more than two of the applications should be granted when one takes into consideration the ability of the market to absorb new providers all at once. Tr. 518-520. Nonetheless, such a revised methodology would allow approval of MJH and one other of the applicants. Furthermore, there are indications of bed need greater than the need produced by MJH's methodology. Market Conditions, Population and History The large majority of patients admitted to LTCHs are elderly, Medicare beneficiaries. Typically, elderly persons seek health care services close to their homes. This is often because the elderly spouse or other family members of the patient cannot drive to visit the patient. This contributes to the compressed service areas observed in District 11. Historic patient migration patterns show that for STACH services, there is nine percent in-migration to Miami- Dade, and only five percent out-migration from Miami-Dade, a normal balance. Most recent data for LTCH service, however, shows an abnormal balance: three percent in-migration and 22 percent out-migration. The current utilization of existing LTCHs in District 11 and the high out-migration indicates that additional LTCH beds are needed. Notably, of the 400 District 11 residents who accessed LTCH care in Broward County in 2004, 114 (over 25 percent) lived in the 15 zip codes closest to MJH. MJH’s location will allow its LTCH to best impact and reduce out- migration from District 11 for LTCH services. Neither Kindred nor Promise has a location selected, and while Select-Dade has a “target area,” its actual location is unknown. None of the existing LTCHs in District 11 or in District 10 have PSAs that overlap with the area around MJH. For example, the Agency had indicated that there was no need in the case which led to approval of the Sister Emmanuel LTCH at Mercy Hospital. It was licensed in July of 2002, barely half a year after the Select-Miami facility was licensed. Both facilities were operating at or near optimal functional capacity less than two years from licensure without adverse impact to Kindred-Coral Gables. The utilization to capacity of new LTCH beds in the District indicate a repressed demand for LTCH services. The demand for new beds, however, is not limited to the eastern portion of the County. The demand exists in the western portion as well where there are no like and existing facilities. Medicare patients who remain in STACHs in excess of the mean DRG LOS become a financial burden on the facility. The positive impact on them of an LTCH with available beds is an incentive for them to refer LTCH appropriate patients for whom costs of care exceeds reimbursement. There were a total of 1,231 adult discharges from within Select-Dade's targeted service area with LOS of 24 or more days in calendar year 2004. Medical Treatment Trends in Post-Acute Service The number of LTCHs in Florida has increased substantially in recent years. The increase is due, in part to the better treatment the medically complex, catastrophically ill, LTCH appropriate patient will usually receive at an LTCH than in traditional post acute settings (SNFs, HBSNUs, CMR, and home health care). The clinical needs and acuity levels of LTCH- appropriate patients require more intense services from both nursing staff and physicians that are available in an LTCH but not typically available in the other post acute settings. LTCH patients require between eight to 12 nursing hours per day and daily physician visits. CMS reimbursement at the Medicare per diem rate would not enable a SNF to treat a person requiring eight to 12 hours of nursing care per day. CMR units and hospitals are inappropriate for long- term acute care patients who are unable to tolerate the minimum three hours of physical therapy associated with comprehensive medical rehabilitation. The primary focus of an LTCH is to provide continued acute care and treatment. Patients in a CMR are medically stable; the primary focus is on restoration of functional capabilities. Subsection (2): Availability, Quality of Care, Accessibility, Extent of Utilization of Existing Facilities There are 27 acute care hospitals dispersed throughout the County. Only three are LTCHs. The three existing LTCHs, all in the eastern portion of the County, are not as readily accessible to the population located in the western portion as would be an LTCH in the west. Approval of an application that will lead to an LTCH in the western portion of the County will enhance access to LTCH services or as Ms. Greenberg put it hearing, "if only one facility is going to be built, the western part of the county is where that needs to go." Tr. 2101. See discussion re: Subsection (5), below. In confirmation of this opinion, Dr. Gonzalez pointed out several occasions when he was not able to place a patient at one of the existing LTCHs due to family member reluctance to place their loved one in a facility that would force the family to travel a long distance for visits. LTCH appropriate patients are currently remaining in the acute care setting with Palmetto General and Hialeah Hospital among the busiest of the STACHs in the County. Both are within Select-Dade's targeted service area. From 2002 to 2005 the number of LTCH beds in the District increased from 53 to 122. During the same period, the number of patient days increased from 18,825 to 37,993. Recently established LTCH facilities in District 11 have consistently reached high occupancy levels, approaching 90 percent at the time of hearing. From 2001 to 2004, the use rate for LTCH services grew from 3.07 per 1,000 to 6.51 per 1,000. The increase in use rate for those aged 65 and over was even more significant; from 19.32 per 1,000 to 41.67 per 1,000. Kindred's Miami-Dade facility is licensed at 53 beds; of those seven are in private rooms; the facility has 23 semi- private rooms. As far back as 2001, the facility has operated at occupancy rates in excess of 85 percent; in 1998 and 1999 its occupancy rate exceeded 92 percent and 93 percent, respectively. More recently, it has operated at an ADC of 53 patients; 100 percent capacity. Several physicians and case managers provided support to Kindred's application by way of form letters, indicating patients would benefit from transfers to LTCHs and "an ever growing need for (these) services." Kindred's daily census has averaged 50 or more patients since 2004. Unlike an acute care hospital, Kindred has not experienced any seasonal fluctuations in its census, running at or above a reasonable functional capacity throughout the year. Taking various factors into consideration, including the number of semi-private beds, the facility is operating at an efficient occupancy level. Looking ahead five years, the capacity at Kindred's facility cannot be increased in order to absorb more patients. As designed, the facility cannot operate more efficiently than it has at 85 percent occupancy. Select's facility, located in a medical arts building, houses 34 private and six semi-private beds. In 2005, Select's facility operated at an average occupancy of almost 88 percent. Unlike Kindred, Select can add at least seven more beds to its facility by converting offices. As a hospital within a hospital, Sister Emmanuel's 29-bed facility is subject to limits on the percentage of admissions it can receive from "host" Mercy Hospital; even with such restrictions, its 2005 occupancy rate was 84.6 percent. Because of gender mix and infection opportunities, among other reasons, it is difficult to utilize semi-private beds. Only three District facilities offer ventilator care: MJHHA, HMA Hampton Court, and Victoria Nursing Home. Other health care facility settings do not serve as reasonable alternatives to the LTCH services proposed here. In 2004, roughly one quarter of District 11 residents, (nearly 400 patients), requiring LTCH services traveled to District 10 facilities. In 2005 that number fell to 369, or about 22 percent. Although there is a correlation between inpatient acute care services and LTCH services, the out-migration of patients requiring LTCH services indicated above differs markedly from the out-migration numbers generated by acute care patients. The primary north-south road configurations in the county are A1A, U.S. 1 and I-95 on the east and the Palmetto Expressway on the west. The primary east-west road configurations are composed of the Palmetto Expressway extension, S.R. 112; the Airport Expressway feeding into the Miami International Airport area and downtown Miami, S.R. 836 to Florida's Turnpike, and the Don Shula Expressway in the southwest. Assuming no delays, a trip by mass transit, used by the elderly and the poor, from various areas in Miami-Dade to the nearest LTCH outside District 11 (Kindred Hollywood) runs two to four hours one way. These travel times pose a special hardship to the elderly traveling to a facility to receive care or visit loved ones. While improvements in the system are planned over the next five years, they will not measurably change the existing travel times. These factors, along with high occupancy levels in District 11 LTCHs, indicate the demand for LTCH services in the District exceeds the existing bed supply. The three existing LTCHs have recently operated at optimal functional capacity or above it. On December 31, 2005, Select Specialty Hospital-Miami was operating with 95 percent occupancy. Subsection (3): Ability of the Applicant to Provide Quality of Care and the Applicant's Record of Providing Quality of Care As discussed above, MJH has the ability to provide high quality of care to its LTCH patients and an outstanding record of providing quality of care. Select-Dade has the ability to provide quality of care to its LTCH patients and a record providing quality of care. In treating and caring for LTCH patients, Select-Dade will use an interdisciplinary team of physicians, dieticians, respiratory therapists, physical therapists, occupational therapists, speech therapists, nurses, case managers and pharmacists. Each will discipline will play an integral part in assuring the appropriate discharge of the patient in a timely manner. The Joint Commission on Accreditation of Hospital Organizations (JCAHO) has accredited all Select facilities that have been in existence long enough to qualify for JCAHO accreditation. Both Select and Promise use various tools, including Interqual Criteria, to assure patients who need LTCH services are appropriately evaluated for admission. All Promise facilities are accredited by JCAHO. Promise has developed and implemented a company-wide compliance program, as well as pre-admission screening instruments, standards of performance and a code of conduct for its employees. Its record of providing quality of care was shown at hearing with regard to data related to its ventilator program weaning rate and wound healing rates. None of the parties presented evidence or argument that any of the other applicants was unable to provide adequate quality of care. The Agency adopted its statements from the SAAR at pages 43 through 45. The SAAR noted the existence of certain confirmed complaints at the two existing LTCH providers in Florida Select and Kindred. The number of confirmed complaints is relatively few. Kindred, for example, had 12 confirmed complaints with the State Department of Health at its seven facilities during a three-year period, less than one complaint per Kindred hospital every two years. Each applicant satisfies this criterion. Subsection (4): Availability of Resources, Health and Management Personnel, Funds for Capital and Operating Expenditures, Project Accomplishment and Operation The parties stipulated that all applicants have access to health care and management personnel. Select-Dade, Kindred and MJH all have funds for capital and operating expenditures and project accomplishment and operation. In turn, each of these three contends that Promise did not demonstrate the availability of funds for its project. This issue is dealt with below under the part of this order that discusses Subsection (6) of the Statutory CON Review Criteria. Subsection (5): Access Enhancement The applicants stipulated that "each of the applicants' projects will enhance access to LTCH services for residents of the district to some degree." All four applicants get some credit under this subsection because approval of their application will enhance access by meeting need that all of the parties now agree exists. Select-Dade and Promise propose to locate their projects in the western portion of the County. Kindred did not indicate a location. Location of an LTCH in the western portion of the County will enhance geographic access. MJH's location is in an area that has reasonable geographic access to LTCH services. But approval of its application, given the unique nature of its operation, chiefly its charitable mission, will enhance access to charity and Medicaid recipients. Approval of Select-Dade's application will also enhance cultural access to the Latin population in Hialeah. A substandard public transportation system for this population makes traveling to visit hospitalized loved ones an insurmountable task in some situations. Select-Dade has achieved a competent cultural atmosphere in its LTCH opened in the County in 2003. It has in excess of 100 multi-lingual employees, many of whom communicate in Spanish. The staff effectively communicates with patients with a variety of racial, cultural and ethnic backgrounds. Every new LTCH must undergo a qualifying period to establish itself as an LTCH for Medicare reimbursement. Specifically, the average LOS for all Medicare patients must meet or exceed 25 days. During the qualifying period the LTCH is reimbursed by Medicare under the regular STACH PPS, that is paid on a DRG basis as if the patient were in an ordinary general acute care hospital with its lower reimbursement. Upon initiation of their LTCH services, Promise, Kindred and Select all intend to restrict or suppress admissions to ensure longer LOS to meet the Medicare 25 day average LOS requirement, and to “minimize the costs” of obtaining LTCH certification and reimbursement. MJH will not be artificially restricting its LTCH admissions during the initial 6 month Medicare qualification period, even though the cost of providing services during this period will likely exceed the STACH Medicare reimbursement. MJH’s opening without suppressing admissions (as in the case of Sister Emmanuel), will enhance access by patients in need of these services during the initial qualification period. Subsection (6): Immediate and Long-term Financial Feasibility a. Short-Term Financial Feasibility Short-term financial feasibility is the ability of an applicant to fund the project. None of the parties took the position that the MJH project was not financially feasible in the short term. MJH's current assets are equal to current liabilities, a short-term position found by AHCA to be weak but acceptable. The financial performance of MJH, however, has been improving in the past three years. Expansion of existing services, improved utilization of services, and the development of new programs have all contributed to a significant increase in operational revenue and total revenue during that period. MJH has a history of receiving substantial charitable gifts (ranging from $6.2 million to $13.2 million annually during the past three years) and can reasonably expect to receive financial gifts annually of between $4-5 million in the coming years. However, MJH is moving away from reliance on charitable giving, and toward increasing self-sufficiency from operations. Approval of the LTCH will play a major role in achieving that goal. In addition, MJH has total assets, including land and buildings, of approximately $150 million. The cost to implement the proposed MJH LTCH is $5,319,647. The projected cost is extremely conservative in the sense of overestimating any potential contingency costs that could be incurred. MJH has the resources available to fund the project through endowments and investments (currently $41 million) as well as from operating cash flow and cash on hand. Select-Dade has an adequate short-term position and Kindred a good short-term position. None of the parties contest the short-term financial feasibility of either Select-Dade or Kindred. In contrast, both Select-Dade and Kindred contested the short-term financial feasibility of Promise. In accord is MJH's position expressed in its proposed recommended order: "Promise did not demonstrate the availability of funds for its project." Miami Jewish Home & Hospital For the Aged, Inc.'s Proposed Recommended Order, at 37. Promise's case for short-term financial feasibility rests on the historical relationship between the principals of Promise, Sun Capital Healthcare, Inc., and Mr. William Gunlicks of Founding Partners Capital Management Company ("Founding Partners.") The relationship has led to great success financially over many years. For example, through the efforts of Mr. Gunlicks, Sun Capital has generated over $2 billion in receivable financing. Founding Partners is an investment advisor registered with the Security Exchange Commission, the Commodity Futures Trading Commission, the National Futures Association and the State of Florida. As a general partner, it manages two private investment funds: Founding Partners Stable Value Fund and Founding Partners Equity Fund. Founding Partners also manages an International Fund for non-U.S. investors. Its base is composed of approximately 130 individuals with high net worth and access to capital. Founding Partners provided Promise with a "letter of interest" dated October 12, 2005, which indicated its interest in providing the "construction, permanent, and working capital financing for the development of a 60 bed long-term acute care hospital to be located in Dade County, Florida." Promise Ex. 3, Exhibit Promise XI, Gunlicks 4, 6-27-06. The letter makes clear, however, that it is not a commitment to finance the project: "The actual terms and conditions of this loan will be determined at the time of your loan request is approved. Please recognize this letter represents our interest in this project and is not a commitment for financing." Id. Testimony at hearing demonstrated a likelihood that Promise would be able to fund the project should it's application be approved. Mr. Balsano opined that this is sufficient to meet short-term financial feasibility: "[I]t's not required at this point that firm funding be in place. . . . [W]e have an appropriate letter from Mr. Gunlicks' organization that they're interested and willing to fund the project. It kind of goes to the second issue, which is, well, what if there were some issue in that regard? Would this project be financed. And I guess I would just have to say bluntly that in doing regulatory work for the last 20-some years, that if an applicant has a certificate of need for a given service, most lending institutions view that as a validation that the project is needed and can be supported. My experience has been that I have never personally witnessed a project that was approved that could not get financing. Tr. 392. Other expert health planners with considerable experience in the CON regulatory arena conceded that they were not aware of a CON-approved hospital project in the state that could not get financing. Despite the proof of a likelihood that Promise's project would be funded if approved, however, Promise failed to demonstrate as MJH, Select-Dade and Kindred continue to maintain, that funds are, indeed, available to fund the project. In sum, Promise failed to demonstrate the short-term financial feasibility of the project. The projects of MJH, Select-Dade and Kindred are all financially feasible in the short-term. b. Long-Term Financial Feasibility Long-term financial feasibility refers to the ability of a proposed project to generate a positive net revenue or profit at the end of the second full year of operation. MJH’s projected patient volumes are both reasonable and appropriate, given its current position in the community, the services it currently provides, and the need for LTCH services in the community. MJH’s projected payor mix was largely based upon the historical experience of the three existing LTCHs in the District, with the exception of the greater commitment to charity and Medicaid patients. The higher commitment to Medicaid/charity is consistent with MJH’s historical experience and status as a safety net provider. Sister Emmanuel is a 29-bed LTCH located within Mercy Hospital. As a similarly-sized HIH, a not-for-profit provider, and an entity with the same kind of commitment to Medicaid/charity patients, Sister Emmanuel is the best proxy for comparison of the financial projections contained in the MJH application. MJH projected its gross revenues based upon Sister Emmanuel’s general charge structure, adjusted for payor mix and inflated at 4 percent per year. The staffing positions, FTEs and salaries contained on Schedule 6 of each of the applications were stipulated to represent reasonable projections. MJH’s Medicaid net revenues were calculated by determining a specific Medicaid per diem rate using the Dade County operating cost ceiling and 80 percent of the capital costs. Given that many LTCH patients exhaust their allowable days of Medicaid coverage, 70 percent of the revenue associated with MJH’s Medicaid patient days were “written off” in total. Similarly, patient days associated with charity care and bad debt reflected no net revenue. MJH's Medicare net revenues were determined using the specific diagnosis (DRG) of each projected patient. For the first six months of operation it was assumed that MJH would receive the short-stay DRG reimbursement, and in the second 6 months and second year of operation would receive the LTCH DRG payment. Net revenues for the remaining payor categories were based upon the historical contractual adjustments of MJH. MJH’s projected gross and net revenues for its proposed LTCH are conservative, reasonable and achievable. However, if MJH has in fact understated the net revenues that it will actually achieve, the impact will be an improved financial performance and improved likelihood of long-term financial feasibility. MJH’s staffing expense projections were derived from its Schedule 6 projections (which were stipulated to be reasonable) with a 28 percent benefit package added. Non- ancillary expense costs were based upon MJH’s historical costs, while ancillary expenses (lab, pharmacy, medical supplies, etc.) were based upon the Sister Emmanuel proxy. Capitalized project costs, depreciation and amortization were derived from Schedule 1 and the historical experience of MJH, as were the non- operating expenses such as G&A, plant maintenance, utilities, insurance and other non-labor expenses. MJH’s income and expense projections are reasonable and appropriate, and demonstrate the long-term financial feasibility of MJH’s proposed LTCH. John Williamson is an Audit Evaluation and Review Analyst for AHCA. He holds a B.S. in accounting and is a Florida CPA. Mr. Williamson conducted a review of the financial schedules contained in each of the four applications at issue. In conducting his review, Mr. Williamson compared the applicants’ financial projections with the “peer group” of existing Florida LTCHs. With regard to the MJH projections, Mr. Williamson noted: Projected cost per patient day (CPD) of $1,087 in year two is at the group lowest value of $1,087. Projected CPD is considered efficient when compared to the peer group with CPD falling at the lowest level. The apparent reason for costs at this level are the low overhead costs associated with operating a hospital-within- a-hospital. MJH Ex.34, depo Ex. 4, Page 3 of 5. Mr. Williamson further concluded that MJH presented an efficient LTCH project, which is likely to be more cost- effective and efficient than the other three proposals. In its application, Kindred projected a profit of $16,747 at the end of year two of operation. Schedule 8A listed interest expense "as a way of making a sound business decision." Tr. 1458. Interest expense, however, is not really applicable because Kindred funds new projects out of operation cash flows. If the interest expense is omitted, profit before taxes would roughly $1.5 million. Taking taxes into consideration, the profit at the end of year two of operation would be roughly $1 million. Promise's projections the facility will be financially feasible in the long term are contained in its Exhibit 2, Schedules 5, 6, 7 and 8A and related assumptions. The parties agreed the information contained in Promise's Schedule 5, and the supporting assumptions, were reasonable. Schedule 5 indicates Promise projects an occupancy rate in Year 2 of 76.1 percent, based on 16,660 patient days and an ADC of 45.6 patients. To reach projected occupancy rates, Promise would have to capture roughly 15-17 percent of the LTCH market in Year 2. AHCA concluded Promise's project would be financially feasible in the long term. Only Select questioned Promise's projected long term financial feasibility. The attack, evidenced by Select Exhibits 12 and 14, was composed of a numbered of arguments, considered below: The estimated Medicare revenue per patient projected by Promise was high, and among other factors, erroneously assumed Medicare would increase reimbursement by an average of 3 percent per year. In determining a project's long-term financial feasibility, AHCA looks to the facility's second full year of operation, and, assuming reasonable projections, determines if there is a net positive profit. The analysis AHCA uses to determine the reasonableness of an applicant's projections in Schedules 7A and 8A begins with a comparison of those figures against a standardized grouping developed over the years and consistently applied by the agency as a policy. In this instance, the grouping consisted of all LTCHs operating in Florida in 2004; a total of 11 facilities; eight operated by Kindred and three operated by Select. The analysis is based on Revenue Per Patient Day (RPPD). Promise estimated it would generate an average RPPD of $1,492 in Year 2, and a net profit for the same period of $2,521.327. Using the above process, AHCA concluded that Promise's projected net income per patient day appeared reasonable. At the time of hearing, other Promise facilities were receiving an average RPPD higher than $1,400; compared to the projected "somewhat over" $1,500 it would expect to receive in Year 2 of its Miami-Dade facility. Approximately half of the existing Promise facilities (including West Valley and San Antonio) received Medicare RPPDs in excess of $1,500. As opposed to total revenue per patient, revenue on a per patient day is the one figure associated with the expenses generated to treat a patient on a given day. A comparison of net RPPDs projected by Promise with those of other applicants and the state median indicate Promise's revenue projections are reasonable. While Medicare recently opted not to increase the rate of LTCH reimbursement for the 2006-07 fiscal year, it is the first year in four that the program has done so. Compared to Promise's assumption that Medicare reimbursement would increase yearly by 3 percent on average, Select assumed a rate of 2.4 percent. The ALOS projected by Promise was too long. In projecting need, Select projected an ALOS similar to Promise's projection. Compared with the statewide ALOS of 35 days, Select's is about 28 days. This is the result of a combination of managing patients and their acuity. Assuming Promise's ability to manage patients in a manner similar to Select and achieve a like ALOS, Promise would have room available to admit more patients. There is no reason to assume Promise could not attain a similar ALOS with a similar population than that served by Select; others have done so. Like other segments of the health care industry, LTCH providers will manage patient care to the reimbursement received from payors. The CMI projected by Promise was too high. The prospective payment system is based to a great extent on how patients' diagnoses and illnesses are "coded," or identified, because the information is translated into a DRG, which, in turn, translates directly into the amount of reimbursement received. Each DRG has a "weight." By obtaining the DRG weight for each patient treated in a hospital, one can obtain the average weight, which will correspond to the average cost of care for the hospital's patients. The term for this average is Case Mix Index (CMI). Each year Medicare determines the rate it will pay for treatment of patients in LTCHs, adjusted for each market in the U.S. to account for variations in labor costs. Mr. Balsano assumed the new facility would experience an average CMI of 1.55 and that Medicare would reimburse the facility based on existing rates with an annual inflation of 3.0 percent. Mr. Balsano then reduced the estimated Medicare RPPD generated by those assumptions by 15 percent. While Select's expert criticized Promise's projected CMI adjusted reimbursement rate for Medicare patients (approximately $50,000) as to high, Select's own Exhibit 12, p. 8, indicates a projected reimbursement of $41,120.44 based on an average CMI of 1.0. However, at hearing it was verified that Select's Miami facility operated at an average CMI of 1.23. Applying a CMI of 1.23 generates an average projected Medicare reimbursement of $50,618 per patient, a number similar to that projected by Mr. Balsano. Select Ex. 14, pages 9-16, contains data on, among other things, the CMI of 161 DRGs used by Promise's expert. The data was taken from each of the existing LTCHs in Florida. In 2004, the statewide average CMI was 1.231. Also in 2004, four of 11 LTCHs in Florida experienced an average CMI of 1.4 or higher. Other Florida facilities have experienced an average CMI at or above 1.59. Indeed, other Florida facilities have experienced average CMIs and ALOS similar to that of the Select facility. While Promises operates no facility with an average CMI of 1.55, it has several with average CMIs of 1.3 or 1.4. Promise expects Medicare will take future steps to restrict the admission of patients with lower CMIs' the effect being more complex patients will access LTCHs than currently do, increasing the average CMI in LTCHs. Reducing the number of lower acuity patients admitted to LTCHs in future years will likely increase the CMI of those admitted. There is a direct correlation between CMI and ALOS. If, in fact, the CMI experienced by Promise's facility is less than 1.55, it will in turn generate a lower ALOS. Applying the reduction in reimbursement advanced by Promise's witness (15 percent) would in turn reduce the projected CMI in Promise's facility from 1.55 to 1.05. Because reimbursement coincides with acuity and ALOS, a representation that reducing one of the three does not likewise affects the others is not realistic. Whatever the CMI and ALOS for LTCHs will be in the future will be governed to a great extent by the policies established by the federal government. The federal government's reimbursement system will drive the delivery of patient services and the efficiencies the system provides, so that, in fact, the providers of care manage patients to the reimbursement provided. Whether the average CMI at Promise's facility reaches 1.55 in the future is subject to debate; however, it is reasonable that the status quo will not likely continue; thus, regardless of a facility's current CMI, more complex patients will access the facility in the future. Various sensitivity analyses generated to test the reliability of Select's criticisms in this area do not indicate any material change in the projected Medicare reimbursement. The interest rate on the loaned funds was 9 percent, rather than 7 percent. The estimated expenses did not include sufficient funds to pay the following: the necessary ad valorem taxes the required PMATF assessment the premiums to obtain premises insurance physician fees housekeeping expenses in Year 1 Using the same standardized "grouping" analysis, AHCA calculated Promise's projected costs per patient day and found them reasonable. Because the projected increase in ad valorem taxes and the PMATF assessment will not be payable until 2010, it is not necessary to borrow additional funds to meet these obligations. Select's expert concluded that, depending on a number of scenarios, the result of the appropriate calculations would produce a loss to Promise's project of between $624,636 and $902,361 of year 2. Assuming they represented sensitivity analyses which included various assumptions based on criticisms from Select. The impact of Select's suggested adjustments, reduced by overstated costs in Promise's application Schedule 8A, increased Promise's projected Year 2 net income from the initial estimate of $2,521,327 to $2,597.453. Even if the 15 percent reduction previously included in Mr. Balsano's assumptions on Medicare reimbursement were not considered, and assuming a lower CMI consistent with the existing statewide average (1.43 vs. 1.23), or that Promise's experience in District 11 will be similar to Select's, Promise's facility would still be financially feasible. Select's witness conceded that if Promise's facility experienced a lower ALOS, the demand for additional LTCH services is high enough to allow the facility to admit additional patients ("backfill"). While assuming a lower reimbursement due to lower acuity patients admitted to Promise's facility, Select's witness did not similarly assume any reduction in expenses associated with treatment of such lower acuity patients. In reality, if revenues are less than expected a facility reduces expenses to generate profits. Select's witness also conceded that Promise could reduce the management fee to reduce costs and generate a profit. The testimony of Promise's Chairman, Mr. Baronoff, established the company would take measures to reduce expenses to assure the profitability, including reducing the facility's corporate allocation. Such a reduction by itself would reduce expenses by between $1 million and $1.5 million. Reduction in corporate allocation has occurred before to maintain the profitability of a Promise facility. With regard to Select-Dade, its forecasted expenses, as detailed on Schedules 7A and 8A of its application are consistent with Select-Miami's historical experience in Miami. Evaluation of the revenues and expenses detailed in Select-Dade's Schedules 7A and 8A (and drawing comparison with SMC's 96 other hospitals, with particular attention paid to the Select-Miami facility), its profitability after year one indicates that Select-Dade's project will be financially feasible in the long term. In sum, all four applicants demonstrated long-term financial feasibility. Subsection (7): Extent to Which the Proposal Will Foster Competition that Promotes Quality and Cost-effectiveness Competition benefits the market. It stimulates providers to offer more programs and to be more innovative. It benefits quality of care generally. Competition to promote quality and cost-effectiveness is generally driven by the best combination of high quality and fair price. The introduction of a new LTCH providers to the market would press Sister Emmanuel, Kindred-Coral Gables and Select-Miami to focus on quality, responsiveness to patients and would drive innovations. Approval of any of the applications, therefore, as the Agency recognizes, see Agency for Health Care Administration Proposed Recommended Order, at 36, will foster competition that promotes quality and cost-effectiveness. Competition that promotes quality and cost- effectiveness will best be fostered by introduction to the market of a new competitor: either MJH or Promise. Between the two, Promise's application for 60 rather than 30 beds proposed by MJH, if approved, would capture a larger market share and promote more competition. On the other hand, MJH's because of its long-standing status as a well-respected community provider, particularly in the arenas of cost-effectiveness and quality of care, would be very effective in fostering competition that would promote both quality and cost-effectiveness. Kindred and Select dominate LTCH services in Florida with control over 86 percent of the licensed and approved beds: Kindred has eight existing LTCHs and one approved LTCH yet to be licensed; Select has three existing LTCHs and six approved projects in various stages of pre-licensure development. In 2005 the District 11 LTCH market shares were: Kindred-Coral Gables: 42 percent; Select-Miami: 35 percent; and Sister Emmanuel: 23 percent. Approval of Promise would only slightly diminish Select-Miami’s market share and would reduce Sister Emmanuel to a 16 percent share. A Select-Dade approval would give the two Select facilities a combined 54 percent of the market. A Kindred approval would give its two Miami-Dade facilities a combined 57 percent market share. An MJH approval would give it about 16 percent of the market, Sister Emmanuel would decline to 19 percent and Select-Miami and Kindred-Coral Gables would both have market shares above 30 percent. MJH's application is most favored under Subsection (7) of the Statutory Review Criteria. Subsection (8): Costs and Methods of Proposed Construction The parties stipulated to the reasonableness of a number of the project costs identified in Schedule 1, as well as the Schedule 9 project costs. All parties stipulated to the reasonableness of the proposed construction schedule on Schedule 10 of the application. Those additional costs items on Schedule 1 of the respective applications that were not stipulated to were adequately addressed through evidence adduced at final hearing. Given the conceptual-only level of detail required in the schematic drawings submitted as part of a CON application, and based on the evidence, it is concluded that each of the applicants presented a proposed construction design that is reasonable as to cost, method, and construction time. Each applicant demonstrated the reasonableness of its cost and method of construction. Accordingly each gets credit under Subsection (8) of the CON Statutory Review Criteria. But under the subsection, MJH's application is superior to the other three applications. The subsection includes consideration of "the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction." § 408.035(8), Fla. Stat. As an application proposing an HIH rather than a free-standing facility, not only can MJH coordinate its operations with other types of service settings at expected energy savings, its application involves less construction and substantially less cost that the other three applications. Subsection (9): Past and Proposed Provision of Services to Medicaid and Indigent Patients A provider's history of accepting the medically indigent, Medicaid and charity patients, influences patients and referral sources. Success with a provider encourages these patients on their own or through referrals to again seek access at that provider. As a safety net provider, MJH has a history of accepting financially challenged patients, many of whom are medically complex. Its application is superior to the others under Subsection (9) of the Statutory Review Criteria. Promise does not have a history of providing care in Florida. It has a history of providing health care services to Medicaid and the medically indigent at some of its facilities elsewhere in the country. As examples, its facility in Shreveport, Louisiana, provides approximately 7 percent of its care to Medicaid patients and a facility in California provides about 20 percent of its service to Medicaid patients. MJH committed to the highest percentage of patient days to Medicaid: 4.2 percent. Promise proposes a 3.0 percent commitment; Select-Dade and Kindred, 2.8 percent and 2.2 percent, respectively. Select-Dade's proposed condition is structured so as to allow it to include Medicaid days from a patient who later qualifies as a charity patient, thus accruing days toward the condition without expanding the number of patients served. Select-Dade's targeted service area, moreover, has fewer proportionate Medicaid beneficiaries identified (13 percent) as potential LTCH patients than identified by the methodologies used by the applicants (21 percent), indicating that Select's targeted area is generally more affluent than the rest of the County. Kindred does not have a favorable history of providing care to Medicaid and charity patients. For example, during FY 2004, Sister Emmanuel provided 6.1 percent of its services to Medicaid and charity patients. During this same period, Kindred-Coral Gables provided only 1.08 percent of its services to Medicaid and charity patients. Of all four applicants, Kindred proposes the lowest percentage of service to such patients: 2.2 percent. It has not committed to achieving the percentage upon its initiation of services. Its proposed condition and poor history of Medicaid and indigent care merit considerably less weight than the other applicants and reflects poorly on its application in a process that includes comparative review. MJH's proposed condition, although the highest in terms of percentage, is not the highest in terms of patient days because the facility it proposes will have only half as many beds as the facilities proposed by the other three applicants. Nonetheless, the proposal coupled with its past provision of health care services to Medicaid patients and the medically indigent, which is exceptional, makes MJH the superior applicant under Subsection (9) of the Statutory Review Criteria. Subsection (10) Designation as a Gold Seal Program None of the applicants are requesting additional nursing home beds. The subsection is inapplicable to this proceeding.
Recommendation Based on the foregoing Findings of Fact and Conclusion of Law it is RECOMMENDED that the Agency for Health Care Administration issue a final order that: approves Miami Jewish Home and Hospital for the Aged, Inc.'s CON Application No. 9893; approves Select Specialty Hospital-Dade, Inc.'s CON Application No. 9892; denies Promise Healthcare of Florida XI, Inc.'s CON Application No. 9891; and, denies Kindred Hospitals East LLC's CON Application No. 9894. DONE AND ENTERED this 17th day of May, 2007, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of May, 2007. COPIES FURNISHED: Dr. Andrew C. Agwunobi, Secretary Agency for Health Care Administration Fort Knox Building III, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Richard Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 W. David Watkins, Esquire Karl David Acuff, Esquire Watkins & Associates, P.A. 3051 Highland Oaks Terrace, Suite D Tallahassee, Florida 32317-5828 Sandra E. Allen, Esquire Agency for Health Care Administration Fort Knox Building 3, Mail Stop 3 2727 Mahan Drive Tallahassee, Florida 32308-5403 F. Philip Blank, Esquire Robert Sechen, Esquire Blank & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301 Mark A. Emanuele, Esquire Panza, Maurer & Maynard, P.A. 3600 North Federal Highway, Third Floor Fort Lauderdale, Florida 33308 M. Christopher Bryant, Esquire Oertel, Fernandez, Cole & Bryant, P.A. 301 South Bronough Street, Fifth Floor Tallahassee, Florida 32302-1110
Findings Of Fact At all times relevant hereto Daniel Francis Sanchez was licensed as a physician by the Florida Board of Medical Examiners having been issued license number ME0038795. At all times relevant hereto Respondent was Regional Medical Director of IMC which operated HMO offices in Hillsborough and Pinellas Counties. On October 17, 1985, Alexander Stroganow, an 84 year old Russian immigrant and former cossack, who spoke and understood only what English he wanted to, suffered a fall and was taken to the emergency room at Metropolitan General Hospital. He was checked and released without being admitted for inpatient treatment. Later that evening his landlady thought Stroganow needed medical attention and again called the Emergency Medical Service. The ambulance with EMS personnel arrived and concluded Stroganow was no worse than earlier when taken to the emergency room and they refused to transport him again to the hospital. The landlady then called the HRS hotline to report abuse of the elderly. The following morning, October 18, 1985, an HRS case worker was dispatched to the place where Stroganow lived. She was let in by the landlady and found an 84 year old man who was incontinent, incoherent, apparently paralyzed from the waist down, with whom she could not carry on a conversation to find out what condition he was in. She called for a Cares Unit to come and evaluate the client. An HRS Cares Unit is a two person team consisting of a social worker and nurse whose primary function is to screen clients for admission to nursing homes and adult congregate living facilities (ACLF). The nurse on the team carries no medical equipment such as a stethoscope, blood pressure cuff, or thermometer, but makes her determination on visual examination only. Upon arrival of the Cares Unit both members felt Stroganow needed to be placed where he could be attended. A review of his personal effects produced by his landlady showed his income to be over the maximum for which he could qualify for medicaid placement in a nursing home; that he was a member of IMC's Gold- Plus HMO; his social security card; and several medications, some of which had been prescribed by Dr. Dayton, a physician employed by IMC at the South Pasadena Clinic. The Cares team ruled out ACLF placement for Stroganow at the time because he was not ambulatory but felt he needed to be placed where he could be attended to and not left alone over the coming weekend. To accomplish this, they proceeded to the South Pasadena HMO clinic of IMC to lay the problem on Dr. Dayton, the Assistant Medical Director for IMC in charge of the South Pasadena Clinic. Stroganow had been a client of the South Pasadena HMO for some time and was well known at the clinic and by EMS personnel. There were two and sometimes three doctors who treated patients at this clinic and, unless the patient requested a specific doctor, he was treated by the first doctor available. Stroganow had not specifically requested he be treated by Dr. Dayton. When the Cares team met with Dr. Dayton they advised him that Stroganow had been taken to Metropolitan General Hospital Emergency Room the night before but did not advise Dayton that the EMS team had refused to transport Stroganow to the hospital emergency room a second time the previous evening. Dayton telephoned the emergency room at Metropolitan General to ascertain the medical condition of Stroganow when brought in the evening before. With the information provided by the Cares team and the hospital, Dayton concluded that Stroganow should be given a medical evaluation and the quickest way for that to occur was to call the EMS and have Stroganow taken to an emergency room for evaluation. When the Cares team arrived, Dayton was treating patients at the clinic. A doctor's office, or clinic, is not a desirable place to have an incontinent, incoherent, non- ambulatory patient brought to wait with other patients until a doctor is free to see him. Nor is the clinic equipped to do certain procedures frequently needed in diagnosing the illness and determining treatment needed for an acutely ill patient. EMS squads usually arrive within minutes of a call to 911 for emergency medical assistance and it was necessary for someone to be with Stroganow with the EMS squad arrived. Accordingly, Dayton suggested that the Cares team return to Stroganow and call 911 for assistance in obtaining a medical evaluation of Stroganow. If called from the HMO office, the EMS squad would have arrived long before the Cares team could have gotten back to Stroganow. Dr. Dayton did not have admitting privileges at any hospital in Pinellas County at this time. Upon leaving the South Pasadena HMO clinic, the Cares team returned to Stroganow. Enroute, they stopped to call a supervisor at HRS to report that the HMO had not solved their problem. The supervisor then called the Administrator at IMC to tell them that one of their Gold-Plus patients had an emergency situation. Respondent, Dr. Sanchez, called and advised that Dr. Dayton would take care of the problem. Later, around 2:00 p.m. when no ambulance had arrived, the Cares team called 911 from a telephone a block away from Stroganow's residence and arrived back just before the emergency squad. The EMS squad again refused to transport Stroganow to an emergency room and this information was passed back to Sanchez who directed that Stroganow be taken to Lake Seminole Hospital. This was the first time either Dayton or Sanchez was aware that the EMS squad had refused to transport Stroganow to an emergency room. Although Sanchez did not have admitting privileges at Lake Seminole Hospital, IMC had a contractual agreement with Lake Seminole which provided that certain staff doctors at Lake Seminole would admit patients referred to Lake Seminole by IMC. Pursuant to this contractual arrangement, Stroganow was admitted to Lake Seminole Hospital where he was treated for his injuries and evaluated for his future medical needs.
Findings Of Fact Upon consideration of the oral and documentary evidence presented the following facts are found: Petitioners each made application for a certificate of need under the provisions of Sections 381.493 through 381.497, Florida Statutes, 1975, which applications were submitted to the Bureau of Community Medical Facilities and accepted as complete by the bureau. Each application seeks a certificate of need for a third generation computerized axial tomography scanner (whole body unit) hereinafter referred to as a CAT scanner. There is presently in Jacksonville a head scanner installed at St. Vincent Hospital in November, 1975, and a whole body scanner at St. Luke's Hospital which has been in full operation since January, 1976. All three Petitioners are located in Jacksonville, Florida. The applications were processed by the appropriate Health Systems Agency. After due consideration the Health Systems Agency recommended that each of the three applications be granted. At the request of the Bureau of Community Medical Facilities, Department of Health and Rehabilitative Services, the State Hospital Advisory Council reviewed the applications and upheld the Health Systems Agency's determination that the three applications should be granted certificates of need. After consideration of the applications, the Health Systems Agency's recommendation the State Hospital Advisory Council's recommendation, Mr. Art Forehand, Administrator, Office of Community Medical Facilities, Respondent herein, notified each of the three Petitioners that their applications were not favorably considered. Mr. Forehand's notification set forth three reasons for the unfavorable consideration. Those were (1) lack of demonstrated need for the requested scanner, (2) failure of each application to demonstrate positive action toward containment of cost for services rendered to the public, and (3) lack of demonstrated unavailability, unaccessability, and inadequacy of like services within the Jacksonville area. At the time of his decision Mr. Forehand had no material or information available to him which was not available to the Health Systems Agency or the State Hospital Advisory Council at the time of their decision. At the time the three applications were denied Mr. Forehand felt that there did exist a need for one additional scanner in the Jacksonville area but he did not feel that he should bear the burden of deciding which one of the three applications should be granted and therefore all three were denied. Except for those matters set forth in Mr. Forehand's denial and noted above, none of the parties to this proceeding disputed that the criteria for determining need found in Section 101-1.03(c), F.A.C., were met. A study of computerized axial tomography with suggested criteria for review of certificate of need applications was conducted by the staff of the Health Systems Agency of Northeast Florida relative to the Duval County area. This study was published in April of 1976 and its findings appear to have been accepted by the Health Systems Agency. As one of its suggested criteria for determining need it found that a hospital or applicant should have a potential case load of at least 1,000 CAT scans per year. The study went on to project a potential case load for the three Petitioners herein. That projection for Baptist Memorial Hospital shows a a potential case load of 2,512 scans per year. The study noted that Baptist Memorial projected 1,300 scans for the first year during start up operations and 2,080 scans during the second and third years of their forecast. The study found that Riverside Hospital has a potential case load of 1,196 scans per year compared to their own projections of 1,432 scans per year. The study finally found that the University Hospital has a potential case load of 1,558 scans per year compared to their projection of 2,904. Testimony on behalf of the Respondent shows that in the opinion of Respondent full use of a CAT scanner is 10 scans per day on a 20-day work month working five days a week. As shown by unrebutted testimony the existing scanner at St. Luke's Hospital in Jacksonville is presently averaging 10 scans per day, five-days a week. Further, according to the evidence presented by Respondent, the existing scanner at St. Vincent is being utilized to at least 85 percent of its capacity. Respondent took the position at the hearing that when existing scanners are being used to 85 percent or more of their capacity a need exists for more equipment. Thus, it appears that using the criteria of utilization adhered to by Respondent, the existing CAT scanners in Jacksonville are being utilized to the extent that there is a need for additional scanners. University Hospital has 310 licensed beds and is the community hospital in Duval County with the responsibility of serving the indigent on an emergency and short term basis. It is the trauma center of the city and has the most active emergency room. It is also the major teaching hospital in Duval County. Respondent agrees that it has the greatest need of any hospital in Duval County for a CAT scanner. The University Hospital has approximately 300 visits per month to its emergency room. In the four months prior to the date of final hearing the hospital did 586 skull x-rays due to trauma. In the case of acute trauma patients frequently may not be moved from one hospital to another for the purpose of a CAT scan nor, in some cases, should other dangerous invasive techniques be used for diagnosis. Baptist Hospital has 567 licensed beds and is a major oncology center or cancer center and does a large amount of surgical cancer work in additional to radiation therapy. With the possible exception of University Hospital, Baptist Hospital is the largest pediatric hospital in the area. According to the testimony of the administrator of the hospital it would take 14 to 18 months after receipt of a certificate of need to have a CAT scanner in service. Riverside Hospital has 183 licensed beds. The hospital has been a specialty hospital since its establishment in 1908 and serves the Riverside Clinic. The hospital has approximately 200 specialized physicians, all board certified, on-staff. Riverside is a unique hospital because of its degree of specialty and its relationship to Riverside Clinic. Riverside Hospital does 100 percent of the Riverside Clinic's radiology work. Riverside Hospital has been known as an established diagnostic center. Witnesses for Riverside Hospital testified that if they were not able to have a CAT scanner their reputation and ability to provide first class service would be seriously diminished. CAT scanners represent a significant development in diagnostic medicine. They reduce the need for many dangerous, painful and costly injections of dye, air and radioactive isotopes required by some of the more traditional diagnostic procedures. The three most common tests displaced by CAT scanners are pneumoencephalography, angiography and radioactive isotope scanning. The first two of the foregoing are particularly expensive procedures and require hospitalization. At present, patients at the three Petitioner hospitals have to be transported to another facility in order to use a scanner. The transfer of an inpatient to another hospital for a scan may effectively consume the better part of a patient's day and may require an extra day of hospitalization. The cost of transportation, increased hospital stay and ancillary matters increase the actual cost to the Patient. Patients suffering from severe trauma or otherwise in a critical state, may not be transported out of a hospital to a scanner. All three of the Petitioners have an active neurological and neurosurgical staff and qualified radiologists. The unrebutted testimony indicates that, although CAT scanners are a new development whose potential has not yet been fully explored and whose development may not yet be final, they nevertheless have become an essential diagnostic tool of regular use.
The Issue Should the Agency for Health Care Administration (Agency) approve Certificate of Need (CON) Application No. 10499 of Marion Community Hospital, Inc. (Marion Community), d/b/a West Marion Community Hospital (West Marion), to add 12 comprehensive medical rehabilitation (CMR) beds to its facility? Should the Agency approve CON Application No. 10496 of Florida Hospital Waterman, Inc. (Waterman), to add 12 CMR beds to its facility?
Findings Of Fact Stipulations There is a published need for 12 CMR beds in District 3. Waterman is an existing licensed hospital that currently operates a 269-bed facility in Service District 3, Sub-District 7, Lake County. Ocala Regional Medical Center (Ocala Regional) is an existing licensed hospital that operates a 222-bed acute care facility in Service District 3, Sub-District 4, Marion County. West Marion is an existing licensed hospital that currently operates a 138-bed facility in District 3, Sub-District 4, Marion County. Marion Community Hospital, Inc., d/b/a Ocala Regional Medical Center, is a verified Level II trauma center. West Marion and Waterman satisfy the CON review criteria regarding the costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction. § 408.035(1)(h), Fla. Stat. (2018).1/ Schedules 1 through 10 of each hospital’s application are reasonable. West Marion and Waterman satisfy the CON application review criteria regarding the immediate and long-term financial feasibility of their proposals. § 408.035(1)(f), Fla. Stat. Parties The Agency The Agency is the state agency charged with administering the CON program. Section 408.034(1), Florida Statutes authorizes the Agency to evaluate CON applications. West Marion Marion Community owns West Marion and Ocala Regional. Both are acute care hospitals. Marion Community proposes to establish a 12-bed CMR unit at its West Marion campus. This is a new service. West Marion and Ocala Regional operate using one tax ID number and one Medicare billing number. One medical executive committee governs the medical staff for both facilities. They have the same Chief Executive Officer and Chief Financial Officer. They have different physical facilities and locations. These facilities, along with Summerfield freestanding emergency department, operate as the Ocala Health System (Ocala Health). Ocala Regional is located in Ocala, Marion County, Florida. West Marion is also located in Ocala. West Marion’s primary service area is Marion County (Sub-District 4). Ocala Health is a fast growing health system. It serves a large geriatric (65 and older) population. West Marion and Ocala Regional provide acute health care services to patients who need CMR services. Ocala Regional treats a more acutely ill patient population. That population includes patients recovering from bilateral joint replacements (replacing both knees at once); patients recovering from trauma injuries, especially severe brain and spinal cord injuries; and patients recovering from strokes. Marion Community plans to locate the CMR beds at West Marion. West Marion is located on 50 acres that provide plenty of space for the CMR unit and room for future growth. West Marion should complete its most recent expansion by March 2019, increasing its inventory of acute care beds to 174. West Marion plans to contract with Strive Physical Therapy Centers (Strive). Strive is the contracted physical therapy, occupational therapy, and speech therapy provider for the Ocala Health System, providing outpatient and inpatient services. It is a competent professional health care provider. West Marion operates a very busy orthopedic joint replacement program that has become a destination center for total joint replacement patients. The joint replacements conducted at West Marion include many of the most complex types, including bilateral replacements, revision replacements of joint replacements, surgeries for severely overweight patients, and surgeries for patients over the age of 85. Many of these patients require intensive and prolonged rehabilitation. CMR services would benefit them greatly. This category of West Marion’s patients experiences problems accessing CMR services. Ocala Regional recently began a $64 million expansion project. It includes the addition of 12 emergency department beds, 34 additional beds at the hospital, two additional operating rooms, and the infrastructure necessary for comprehensive stroke center certification. Ocala Regional operates a Level II trauma center. Trauma service is a regional program. The sweep of a 40-mile radius around the hospital circumscribes Ocala Regional's trauma service area. The area includes Marion, Citrus, and Hernando Counties. It contains approximately one million people. Ocala Regional’s trauma center is the fourth busiest trauma center in Florida. Since opening in December 2012, the trauma center has experienced a yearly growth rate of 11 percent. This is greater growth than other Florida trauma centers, likely the result of growth in the size of the area’s geriatric population. Members of that population are more prone to serious injury in accidents. Ocala Regional’s Trauma Center treats approximately 3,500 trauma patients a year. Ocala Regional’s high acuity trauma program cares for patients with traumatic brain and spinal cord injuries. Ocala Regional has a highly trained staff, including seven trauma critical care physicians and three neurosurgeons, specializing in treatment of traumatic brain injuries and severe spinal cord injuries. Ocala Regional recently expanded its facility to include a state of the art intensive care unit that will increase the number of high acuity patients in need of CMR services. Sixty-five percent of Ocala Regional’s trauma patients come from Marion County. The rest come in roughly equal numbers from Lake, Sumter, and Citrus Counties. Ocala Regional is also a receiving facility for trauma patients from The Villages Regional Hospital in Sumter County, and for advanced trauma patients of another area hospital, Munroe HMA Hospital, LLC, d/b/a Munroe Regional Medical Center.2/ Need for CMR services correlates naturally with the provision of trauma services because trauma patients often require intensive and prolonged rehabilitation therapies to return to normal daily activities. These patients can benefit greatly from the intensive rehabilitation services offered through CMR units. Ocala Regional also operates a certified primary stroke center. It currently provides all treatment modalities, with the exception of interventional neurology. Ocala Health serves a high volume of stroke patients, in part due to the large geriatric population that it serves. As with trauma services, the elderly are more likely to need CMR services than the general population. Stroke patients are the biggest driver of CMR admissions because a stroke patient requires the intensive, multi-discipline therapies that CMR units provide. West Marion operates a primary stroke center. Patients of this center also experience problems accessing CMR services. Ocala Regional is in the final stages of obtaining approval to operate as a comprehensive stroke center. This provides care for patients suffering large vessel strokes, the most serious sort. When a stroke patient meets the criteria for large- vessel disease, a primary stroke center is not as good a treatment option as a comprehensive stroke center, which is able to provide necessary interventional neurology services. Comprehensive stroke patients are a primary driver for the need for inpatient rehabilitation services. CMR services benefit these patients by addressing immediate post-stroke deficits such as aphasia, hemiparesis (weakness on one side of the body), and cortical blindness. These patients will immediately require the largest amount of CMR services. Certification of Ocala Regional as a comprehensive stroke program will enable Ocala Regional to serve as the comprehensive stroke program for Marion, Lake, Sumter, and Citrus Counties, an area with a population of approximately one million people. This will promptly drive an increased need for CMR services not accounted for by the Agency rule. The Emergency Medical Treatment and Labor Act requires that large vessel stroke patients be transported to a comprehensive stroke center. The comprehensive stroke programs closest to Marion County are located in Tampa, Gainesville, and North Florida.3/ Once certified, Ocala Health will be the first and only comprehensive stroke center in Ocala. The number of severe stroke patients treated at Ocala Regional will rise and correspondingly immediately increase the need for CMR beds in Marion County. The geriatric population is growing in District 3, in general, and in Marion County specifically. This area also experiences a seasonal influx of elderly when “snowbirds” come to Florida during the winter. The geriatric population greatly benefits from access to CMR services. It also generates an increased need for CMR services. Access to CMR beds is a consideration for certification as a trauma center and certification as a comprehensive stroke program. This demonstrates a correlation between these programs and a more robust need for CMR services. Ocala Health’s significant programs in these vital service areas are a strong consideration in favor of approving CMR services at West Marion. The new CMR beds will ensure access to needed health care services in the community. Ocala Regional is also developing a graduate medical education (GME) program for various disciplines. A GME program typically increases the sub-specialties available at a hospital. This in turn facilitates treatment of more complex cases and patients more likely to need CMR services. Establishment of the GME program is helping transform Ocala Regional into a tertiary facility serving the needs of Marion, Lake, Sumter, and Citrus Counties. The GME program will also improve services for trauma patients, complex cardiology cases, and advanced neurosurgical cases. The corresponding increase in patient acuity will bolster the need for CMR beds in a manner which the need rule cannot anticipate. These patients will benefit greatly from sufficient and timely access to CMR beds and the continuity of care that accompanies location of a CMR unit in conjunction with an acute care hospital. Waterman Waterman is a not-for-profit 269–bed acute care hospital located in Tavares, Lake County, Florida, in the southeastern corner of District 3. It serves residents of north, central, and west Lake County. Waterman proposes to establish a 12-bed CMR unit at its Tavares facility. Waterman accepts all patients, regardless of their ability to pay. Waterman is part of the Florida Hospital System, which has facilities on 23 campuses and serves communities throughout Florida. Waterman is also part of the Adventist Health System. The system owns a broad variety of health care facilities including 42 hospitals in ten states. Waterman is opening a 60-bed skilled nursing facility on its campus. Waterman’s new skilled nursing facility will provide some rehabilitation services to patients discharged from the hospital. The services, however, will not be an adequate substitute for the more intense CMR services. This is also true of home health services. Waterman is a tertiary level hospital. It serves a large, fast-growing area. It is the busiest hospital in Lake County as measured by emergency visits and discharges. Waterman offers a wide array of high quality medical and surgical services. They include an accredited cancer institute, open-heart surgery, knee and hip replacements, extracorporeal membrane oxygenation, and 24-hour advanced emergency services. Waterman is also a primary stroke center. It is not currently, and is not in the process of becoming, a certified comprehensive stroke center. Waterman is also not a designated trauma center. Waterman operates a robust outpatient rehabilitation unit, the Florida Hospital Waterman Rehabilitation Institute (Institute). The Institute provides a wide variety of treatments and unique specialty care such as physical therapy, hand therapy, speech therapy, language therapy, pelvic rehabilitation, neurological therapy, amputee rehabilitation, orthopedics, and sports medicine. Waterman CMR patients will benefit from Waterman’s use of the skills, caregivers, and experience of the Institute in operating its CMR unit. The Florida Hospital system operates several successful CMR programs. Waterman’s CMR services will have the benefit of assistance from the administrators and clinicians from these sister facilities as it develops, implements, and operates its CMR unit. These resources require finding that Waterman will more quickly bring enhanced quality of care to the District. Waterman also operates a Home Care Agency. The agency has provided home health care -- including physical, occupational, and speech therapy services -- to residents of Lake County and the surrounding areas since 1977. Waterman has several expansion projects underway. A related organization is building a 120-bed nursing home on the Waterman campus. Waterman is also completing a $75 million capital improvement project that will increase the size of its emergency department and will add a patient tower for pediatrics and women’s services. Waterman plans to house the proposed CMR unit in the tower. West Marion and Waterman are well-staffed, high-quality hospitals, affiliated with high-quality health care systems. They each provide their patients good care and are fully capable of establishing and operating the CMR units for which they seek certificate of need approval. CON Regulation and Need Every six months the Agency publishes projected numeric need for CMR beds in each health care planning district. Florida Administrative Code Rule 59C-1.039 regulates establishment of new CMR services and the addition or construction of new CMR beds. The Agency’s rule provides that a determination of need for CMR beds “shall not normally be made” unless the rule’s numeric methodology calculates one. The rule establishes a simple formula for calculating CMR bed need. The formula calculates the current utilization ratio for CMR services in the district by dividing the number of patient days reported for inpatient CMR beds and dividing it by the district population for the same period. It then multiplies the ratio times the projected population for the planning horizon, five years into the future. The rule divides that product by 365 times 85 percent. The rule specifies that 85 percent “equals the desired average annual occupancy rate for [CMR] beds in the district.” This operation calculates the gross number of beds needed for the district. The rule subtracts the licensed and approved CMR beds in the district from that number. The resulting number is the net number of beds needed. The rule does not account for markets in which patients needing CMR services receive similar, but not equivalent, less intense services from providers such as home health agencies, skilled nursing homes, or acute care hospitals without designated CMR beds, due to limited access to CMR beds. It also looks back, not forward. The need methodology promotes competition and access when the use rate in a service area falls below the statewide average use rate. The need rule also provides that, regardless of whether the formula shows need, “no additional [beds] shall normally be approved unless the average annual occupancy rate of the beds in the district was at least 80 percent for the 12 month period ending six months prior to the beginning date of the quarter of the publication of the Fixed Bed Need Pool.” Fla. Admin. Code R. 59C-1.039(5)(d). The Agency’s rule calculated a need for 12 new CMR beds in District 3 for the January 2023 planning horizon. District 3 includes Alachua, Bradford, Citrus, Columbia, Dixie, Gilchrist, Hamilton, Hernando, Lafayette, Lake, Levy, Marion, Putnam, Sumter, Suwannee, and Union Counties. The Agency had not published a need for CMR beds in District 3 for many years. This is because changes in CON regulation allowed existing providers to add beds in ten-bed increments if they met a specific occupancy threshold. In Ocala, HealthSouth Rehabilitation Hospital (HealthSouth) did this assiduously, effectively stifling what would otherwise have been a natural progression of need pool determinations. West Marion and Waterman agree that “not normal circumstances” establish a need for at least 12 CMR beds in addition to the 12 generated by the numeric need formula. This is an unusual CON case in this way. There is not a party arguing that either application should be denied or offering evidence to support denial. This includes the Agency, which offers only technical legal arguments against approving both applications. Effectively, the Agency implicitly concedes the need for both programs. The Agency’s tacit concession that circumstances are not normal in District 3 manifests in another way. The Agency, without comment or explanation, proposes approving a new 12-bed CMR unit. This is despite rule 59C-1.039(3)(c), which states, “A general hospital providing Comprehensive Medical Rehabilitation Inpatient Services should normally have a minimum of 20 Comprehensive Medical Rehabilitation Inpatient beds.” The Agency’s proposed approval of a 12-bed CMR unit confirms that something is not normal in District 3 when it comes to CMR services. Rule 59C-1.039(5)(f)3. grants priority consideration to an applicant that is a designated trauma center as defined in Florida Administrative Code Rule 64J-2.011. West Marion claims entitlement to a preference for trauma centers based upon the fact that all of the Ocala Health system facilities operate under the same license. The facts do not support the argument. Although Marion Community’s hospital license is for all Marion Community facilities, the trauma designation is for the Ocala Regional facility, not the West Marion facility. A review of the trauma center rule 64J-2.011, including an application that it incorporates by reference, makes clear that the trauma center designation is for a facility not a system. For instance, the Level II Trauma Center Application Manual (DH Form 2043-A, January 2010) requires the following facility-specific information: Recovery/Post-Anesthesia Care Unit; Trauma Resuscitation Area; helicopter landing site; an immediately available adequately staffed operating room for trauma patients 24 hours a day; a second adequately staffed operation room available within 30 minutes after the primary operating room is occupied; a post-anesthesia recovery area; airway control and ventilation equipment in the operating room; invasive hemodynamic monitoring equipment; and a fracture table. It is inconceivable that a trauma center could satisfy these requirements by having some of the facilities, such as the primary operating room, in one location and other facilities, such as the backup operating room or helicopter landing site, in another. This does not, however, mean that the presence of a trauma center in the district is not relevant to considering the need for CMR. Trauma center patients have a greater and more frequent need for CMR services than general acute care patients. CON Applications The Agency maintains that the applications did not present a “not normal circumstances” theory and that, therefore, the parties cannot advance the theory at this point. The applications, however, did. The applications of West Marion and Waterman sought approval relying upon arguments specific to their service areas and facilities, as well as relying on the calculated need. The arguments amount to claims that their projects should be approved because of “not normal circumstances.” In the context of the application review and of this proceeding, each applicant had to advance two theories. The first is why it should be selected to satisfy the numeric need. The second is why, regardless of calculated need, “not normal circumstances” call for approval of the applicant’s proposal. The facts and reasoning supporting each argument are congruent if not identical. Consequently, there was no need to label application assertions in the applications or evidence at hearing as applying to one theory or the other. West Marion’s CON application sought to fill the 12-bed numeric need. It also relied upon “not normal circumstances” for approval of its proposed 12-bed unit. West Marion’s application discusses the unavailability of CMR beds at HealthSouth, the county’s only CMR provider. It reviews the fact that HealthSouth has operated at or near capacity since opening, despite two ten-bed additions. Then West Marion concludes, on page 18 of the application, “This chronic unavailability of inpatient beds at HealthSouth creates a severe accessibility problem for the growing population of Marion County, and constitutes a not normal circumstance.” (WM Ex. 1, p. 22)4/ (emphasis added). Another part of West Marion’s application discussing the unavailability of beds at HealthSouth makes a similar assertion. Page 52 of West Marion’s application (WM Ex. 1, p. 55) states, “The chronic shortage of CMR beds in Marion County, especially given the location at ORMC of a Level II trauma center serving the residents of TSA 6 (Marion, Citrus and Hernando counties), is a not normal circumstance.” (emphasis added). The same page of the application states that the consistently high utilization of HealthSouth creates significant difficulty obtaining suitable CMR services for patients discharged from Ocala Health’s trauma program. West Marion’s application repeatedly notes that its approval will not adversely affect existing providers or the proposed Waterman CMR unit. Waterman’s CON application sought to fill the 12-bed need calculated by the Agency. It also relied upon “not normal circumstances” for approval of its proposed 12-bed unit. The statement on page 6 of the application (WH Ex. 1, p. 118) is explicit. “[Waterman’s] proposal has been developed to respond to the published numerical need for additional CMR services in District 3, as well as health planning factors that exist even in the absence of numerical need. The need for a CMR unit at [Waterman] is based on a lack of accessible CMR services for residents of Lake County that is evidenced by the following facts.” (emphasis added). A list of seven factors follows, including that the Lake County population aged 65 or older is increasing faster than the district’s and the fact that approval of beds for Waterman would not adversely affect existing providers. Page 30 of Waterman’s application (WH Ex. 1, p. 142) repeats the assertion of “not normal circumstances.” It states, “[Waterman] has developed this proposal in response to the published need for additional CMR beds in the District, as well as facility and market-specific factors that clearly show the beds should be located within Lake County and at [Waterman].” (emphasis added). Waterman’s application continues the theme on page 37 (Waterman Ex. 1, p. 149) asserting, “there is a barrier to accessibility of inpatient rehabilitation services for residents of Lake County and those who are discharged from [Waterman].” West Marion committed to a minimum of seven percent of its annual discharges being a combination of Medicaid, Medicaid HMO, and self-pay/other (including charity) patients. This commitment is consistent with its financial projections that show 8.89 percent of its first-year revenue/charges attributed to services for that population. It will enhance access to CMR services. Waterman made no commitment to serve these populations. Waterman’s first-year financial projections show 5.3 percent of revenue/charges attributed to services for that population. CMR Services and District 3 CMR services are provided to patients discharged from an acute care hospital after treatment for an ailment or event that requires substantial rehabilitation before the patient resumes normal daily activities. For example, patients with complex nursing or medical management needs or conditions such as spinal cord injury, amputation, multiple sclerosis, hip fracture, brain injury, and neurological disorders need CMR services. Fla. Admin. Code R. 59C-1.039(2)(d). Patients recovering from an acute episode such as a severe trauma injury or stroke and patients recovering from complex orthopedic joint replacement surgeries such as bilateral joint replacements and patients with a high body mass index (BMI) recovering from joint replacements also need CMR services. The continuum of care for physical rehabilitation services comprises a range of levels, depending primarily on patient condition/goals, medical management requirements, and the ability to participate in therapy. Patients can receive physical rehabilitation in an acute rehabilitation unit inside a hospital or freestanding facility (a CMR unit), a skilled nursing facility, through a home health agency, or in an outpatient setting. CMR units, which are at issue in this case, provide the most intense level of rehabilitation. Determinations of whether a CMR admission is necessary depend on whether the medical record demonstrates a reasonable expectation that certain criteria are met at the time of admission to a CMR unit. The criteria include: (1) requiring active and continuing intervention of multiple therapy disciplines (Physical Therapy, Occupational Therapy, Speech-Language Pathology, or prosthetics/orthotics), at least one of which must be PT or OT; (2) requiring an intensive rehabilitation therapy program of three hours of therapy per day at least five days per week; (3) having an ability to actively participate in, and benefit significantly from, an intensive rehabilitation therapy program; (4) requiring supervision by a rehabilitation physician, with face-to-face evaluations at least three days per week; and (5) requiring an intensive and coordinated interdisciplinary team approach to the delivery of rehabilitative care. Family support and involvement play a vital part in the rehabilitation process. Family members are also part of the care- giver team. Additionally, positive attitudes and reinforcement from family members can inspire the patient and help her adapt to new physical challenges or limits. Finally, family members are able to assist staff in motivating the patient and maintaining communication between the patient and the rehabilitation team. Travel distance plays a significant role in an eligible CMR patient’s decision to enter a CMR unit. Elderly patients and/or their families often do not choose to travel far from their home even though the patient needs the CMR services, because travel places an unreasonable burden on patients and their families. CMR facilities focus on speech, physical, and occupational therapies. A CMR facility provides intensive therapy on a frequent, consistent basis. This helps patients recover more quickly than they would in another setting. The Federal Center for Medicare and Medicaid Services (“CMS”) establishes the requirements for CMR facilities, which are designated by CMS as “inpatient rehabilitation facilities.” CMR facilities are also sometimes referred to as acute rehabilitation facilities. HealthSouth is the only CMR provider in Marion County in District 3. Lake County does not have a CMR provider. There was a CMR unit located at Leesburg Regional Hospital North in Lake County until July 1, 2016. That facility closed. The CMR beds from the Leesburg facility were transferred to The Villages, which is located in Sumter County. The evidence is insufficient to establish the reason for this. HealthSouth is the closest CMR provider to West Marion and Ocala Health. It is a stand-alone CMR facility in Ocala. The facility has been authorized to add ten more beds. The record is silent on when the beds will be added. HealthSouth opened in 2011 with 40 beds and has grown to 60 beds in ten-bed increments. Since 2012, HealthSouth has maintained an occupancy rate of 90 percent or higher. Despite its incremental growth, HealthSouth has not had sufficient available beds to meet the needs of patients from Ocala Health and West Marion or the district in general. District 3’s CMR occupancy rate is 86.5 percent. This is the highest rate for any district and is above the 85 percent that Agency rule establishes as the desired occupancy rate. All clinicians and experts in this case agree that rehabilitation services at skilled nursing facilities, long-term acute care hospitals, and home with home health care are not acceptable alternatives to CMR. They also agree that patient outcomes in those settings are not as good, since those settings simply do not provide the same level of care as a CMR unit. Access Problems There is no legal mandate requiring a licensed facility to accept CMR patients. A CMR facility may refuse any patient that it wishes. This means that HealthSouth can cherry-pick patients based on the most desirable payor source, leaving patients with less desirable payment providers, such as Medicaid, without access to CMR services. HealthSouth has demonstrated a preference for certain payors (including Medicare-eligible patients, patients with commercial insurance including some Blue Cross policies). It typically does not accept Medicaid or charity care patients. Ocala Health providers often do not even try to refer a Medicaid or charity care patient to HealthSouth because, based on experience, staff expects that HealthSouth will not admit those patients. HealthSouth frequently refuses to accept patients discharged from Ocala Health who qualify for CMR services under the CMS guidelines, including trauma, stroke, and complex orthopedic joint replacement patients. A large number of the patients that Ocala Health refers to HealthSouth each month are not accepted and are not able to receive CMR services that would improve their outcomes. HealthSouth’s admissions practices leave many Ocala Health patients needing CMR services without access to them. This vitiates consideration of HealthSouth as a reason to not add CMR beds in Marion County and District 3. There is a large unmet need for additional CMR beds to serve Ocala Health patients and other district residents. Some patients rejected by HealthSouth are admitted to skilled nursing facilities in Marion County. For patients needing CMR services, those facilities, although they provide some rehabilitative care, are not the correct solution. For example, treatment of the large vessel stroke patients, which Ocala Health’s comprehensive stroke center will serve, at a skilled nursing facility is not appropriate. Similarly, a skilled nursing facility would not meet the CMR needs other higher acuity patients, like bilateral transplant patients, the multidiscipline, intensive three hours a day therapy that a CMR facility provides. A skilled nursing facility provides rehabilitation services for approximately one to one and a half hours daily. This can result in a longer recovery time for high acuity patients. A skilled nursing facility is geared more toward patients with a simple hip fracture. Patients with more complex issues like bilateral joint replacements and spinal cord injuries need more. In a CMR facility, the patient sees a physician every day. In a skilled nursing facility, a patient usually sees a physician once a month. A skilled nursing facility is not optimal for higher acuity acute patients. However, due to the utilization and admission practices of HealthSouth, patients who need CMR services are often treated in skilled nursing facilities. This unusual circumstance causes the CMR need formula to under- calculate District 3’s need for CMR beds since these skilled nursing patients are not taken into consideration, whereas they would be if they were being treated in a CMR unit, as they should be. HealthSouth admission practices, consistently high occupancy rates, and delays in responding to referrals result in many patients who are ready for discharge with a physician order for CMR services, languishing in acute care beds at Ocala Regional or West Marion for longer lengths of stay or force the patients to travel to a CMR facility further from the patient's home and support system. These problems can negatively affect patient outcomes because the sooner patients start ambulating and leave an acute care facility, the less chance they have of suffering complications. When a patient cannot gain admission into a CMR facility and remains in an acute care bed, the patient is not receiving the needed CMR services ordered by the physician. This can cause a decline in their ability to benefit from therapy or an avoidably prolonged recovery. Because many of District 3 patients are elderly, their stay in a CMR facility, if and when they are admitted, ends up being longer than it would have been if they were more promptly placed. Younger patients also suffer from the lack of timely access to CMR. For example, a younger patient suffering from paralysis who has to remain in the hospital would benefit from approval of both applications because the patient will receive more therapy and opportunities for family support. While the hospital provides rehabilitative therapies in the acute care hospital setting, those services are provided at bedside and are limited in time and intensity compared to what a patient would receive in a CMR unit. The difficulty and delays in transferring patients to appropriate rehabilitation facilities cause Ocala Health hospitals to have a length of stay that is greater by a day or a day and a half than other trauma centers. The lack of availability of access to CMR services and the lack of timely access to CMR services negatively affects the Marion Community hospitals and their patients’ access to necessary services. When a patient is ready for discharge but has to remain in an acute care bed due to lack of availability of CMR beds, the availability of an acute care bed for a new acute care patient is reduced. This can result in the hospital going on “bypass,” meaning no new patients are taken in through the emergency room. In District 3 during the 12-month period ending December 31, 2016, six facilities with 202 licensed CMR beds served the entire district. The facilities are UF Health Shands Rehab Hospital, Seven Rivers Regional Medical Center (now closed), HealthSouth Rehabilitation Hospital of Spring Hill, Leesburg Rehabilitation Hospital, The Villages Regional Hospital (The Villages), and the HealthSouth facility. The District 3 beds are located in Marion, Sumter, Hernando, and Alachua Counties. None are in Lake County. These facilities experienced an 84.15 percent utilization rate. This is only .85 percent less than the Agency’s desired annual occupancy rate and is nearly five percent greater than the 80-percent occupancy rate the Agency’s rule sets as a trigger for approving additional beds. Fla. Admin. Code R. 59C- 1.039(5)(d). This was the highest CMR occupancy rate in the state. The statewide average CMR occupancy rate was 69.61 percent. These circumstances are not normal. The portion of CMR discharges covered under traditional Medicare or managed Medicare in District 3 is also significantly higher than the state average. This is reasonable since 27.2 percent of District 3’s population is 65 and older, while just 20.1 percent of the statewide population is 65 or older. In 2016, 74.1 percent of the statewide CMR discharges were covered under traditional or managed Medicare. For District 3, the number was nearly 81 percent. Lake County has no CMR services, even though it is the second largest population center in the district. Waterman is located a significant distance from the CMR providers in District 3. The closure and transfer of beds from Leesburg Regional Medical Center’s CMR unit to The Villages in Sumter County increased the travel time to CMR services for residents of the area. The Villages is still the closest CMR provider to Waterman, but travel from Waterman to The Villages can take 38 minutes to over an hour depending upon traffic and time of year. All other CMR providers are over an hour away, limiting access to CMR services. “Conversion rate” is the percentage of acute care patients that are discharged to a CMR provider. Analysis of the conversion rate of acute care patients discharged to CMR for both Lake County and Waterman also indicates that the population’s access to CMR services is limited. The district and state conversion rate to CMR is approximately two percent. The 2016 rate for Hernando County was 4.1 percent. The rate for Marion County of 2.6 percent was just over the district average. Lake County’s rate is 1.5 percent, and Waterman’s is .4 percent. This analysis demonstrates limited access to CMR services for Lake County residents and residents of Waterman’s service area. The record offers no other explanation. The analysis of discharges to CMR beds confirms the analysis. So does physician experience. Like Marion County, Lake County has a rapidly aging and growing population. As a result, there are many Waterman service area and Lake County residents who are appropriate for and could benefit from CMR, but are not accessing these services due to travel and distance constraints. The demographic and utilization data presented in this case demonstrate that there is a lack of accessible CMR services for residents in District 3 generally, and in Marion County and Lake County specifically. During the most recent reporting period (12 months ending on December 31, 2016), the average annual District 3 occupancy rate for the 202 CMR beds was 84.15 percent. Existing CMR services are clustered in just a few areas of this 16-county district. Patients of both applicants suffer from limitations on access to CMR services.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that: The Agency for Health Care Administration render a final order granting Florida Hospital Waterman, Inc., d/b/a Florida Hospital Waterman, a Certificate of Need to establish 12 Comprehensive Medical Rehabilitation Beds. The Agency for Health Care Administration render a final order granting Marion Community Hospital, Inc., d/b/a West Marion Community Hospital and Ocala Regional Medical Center, a Certificate of Need to establish 12 Comprehensive Medical Rehabilitation Beds. DONE AND ENTERED this 6th day of February, 2019, in Tallahassee, Leon County, Florida. S JOHN D. C. NEWTON, II 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 6th day of February, 2019.
The Issue Whether the certificate of need (CON) applications filed by New Port Richey Hospital, Inc., d/b/a Community Hospital of New Port Richey (Community Hospital) (CON No. 9539), and Morton Plant Hospital Association, Inc., d/b/a North Bay Hospital (North Bay) (CON No. 9538), each seeking to replace and relocate their respective general acute care hospital, satisfy, on balance, the applicable statutory and rule criteria.
Findings Of Fact The Parties AHCA AHCA is the single state agency responsible for the administration of the CON program in Florida pursuant to Chapter 408, Florida Statutes (2000). The agency separately reviewed and preliminarily approved both applications. Community Hospital Community Hospital is a 300,000 square feet, accredited hospital with 345 licensed acute care beds and 56 licensed adult psychiatric beds, located in southern New Port Richey, Florida, within Sub-District 5-1. Community Hospital is seeking to construct a replacement facility approximately five miles to the southeast within a rapidly developing suburb known as "Trinity." Community Hospital currently provides a wide array of comprehensive inpatient and outpatient services and is the only provider of obstetrical and adult psychiatric services in Sub-District 5-1. It is the largest provider of emergency services in Pasco County with approximately 35,000 visits annually. It is also the largest provider of Medicaid and indigent patient days in Sub-District 5-1. Community Hospital was originally built in 1969 and is an aging facility. Although it has been renovated over time, the hospital is in poor condition. Community Hospital's average daily census is below 50 percent. North Bay North Bay is a 122-bed facility containing 102 licensed acute care beds and 20 licensed comprehensive medical rehabilitation beds, located approximately one mile north of Community Hospital in Sub-District 5-1. It serves a large elderly population and does not provide pediatric or obstetrical care. North Bay is also an aging facility and proposes to construct a replacement facility in the Trinity area. Notably, however, North Bay has spent approximately 12 million dollars over the past three years for physical improvements and is in reasonable physical condition. Helen Ellis Helen Ellis is an accredited hospital with 150 licensed acute care beds and 18 licensed skilled nursing unit beds. It is located in northern Pinellas County, approximately eight miles south of Community Hospital and nine miles south of North Bay. Helen Ellis provides a full array of acute care services including obstetrics and cardiac catheterization. Its daily census average has fluctuated over the years but is approximately 45 percent. Mease Mease operates two acute care hospitals in Pinellas County including Mease Dunedin Hospital, located approximately 18 to 20 miles south of the applicants and Mease Countryside Hospital, located approximately 16 to 18 miles south of Community and North Bay. Each hospital operates 189 licensed beds. The Mease hospitals are located in the adjacent acute care sub-district but compete with the applicants. The Health Planning District AHCA's Health Planning District 5 consists of Pinellas and Pasco Counties. U.S. Highway 41 runs north and south through the District and splits Pasco County into Sub- District 5-1 and Sub-District 5-2. Sub-District 5-1, where Community Hospital and North Bay are located, extends from U.S. 41 west to the Gulf Coast. Sub-District 5-2 extends from U.S. 41 to the eastern edge of Pasco County. Pinellas County is the most densely populated county in Florida and steadily grows at 5.52 percent per year. On the other hand, its neighbor to the north, Pasco County, has been experiencing over 15 percent annual growth in population. The evidence demonstrates that the area known as Trinity, located four to five miles southeast of New Port Richey, is largely responsible for the growth. With its large, single- owner land tracts, Trinity has become the area's fuel for growth, while New Port Richey, the older coastal anchor which houses the applicants' facilities, remains static. In addition to the available land in Trinity, roadway development in the southwest section of Pasco County is further fueling growth. For example, the Suncoast Highway, a major highway, was recently extended north from Hillsborough County through Sub-District 5-1, west of U.S. 41. It intersects with several large east-west thoroughfares including State Road 54, providing easy highway access to the Tampa area. The General Proposals Community Hospital's Proposal Community Hospital's CON application proposes to replace its existing, 401-bed hospital with a 376-bed state- of-the-art facility and relocate it approximately five miles to the southeast in the Trinity area. Community Hospital intends to construct a large medical office adjacent to its new facility and provide all of its current services including obstetrical care. It does not intend to change its primary service area. North Bay's Proposal North Bay's CON application proposes to replace its existing hospital with a 122-bed state-of-the-art facility and also plans to relocate it approximately eight miles to the southeast in the Trinity area of southwestern Pasco County. North Bay intends to provide the same array of services it currently offers its patients and will not provide pediatric and obstetrical care in the proposed facility. The proposed relocation site is adjacent to the Trinity Outpatient Center which is owned by North Bay's parent company, Morton Plant. The Outpatient Center offers a full range of diagnostic imaging services including nuclear medicine, cardiac nuclear stress testing, bone density scanning, CAT scanning, mammography, ultrasound, as well as many others. It also offers general and specialty ambulatory surgical services including urology; ear, nose and throat; ophthalmology; gastroenterology; endoscopy; and pain management. Approximately 14 physician offices are currently located at the Trinity Outpatient Center. The Condition of Community Hospital Facility Community Hospital's core facilities were constructed between 1969 and 1971. Additions to the hospital were made in 1973, 1975, 1976, 1977, 1979, 1981, 1992, and 1999. With an area of approximately 294,000 square feet and 401 licensed beds, or 733 square feet per bed, Community Hospital's gross area-to-bed ratio is approximately half of current hospital planning standards of 1,600 square feet per bed. With the exception of the "E" wing which was completed in 1999, all of the clinical and support departments are undersized. Medical-Surgical Beds And Intensive Care Units Community Hospital's "D" wing, constructed in 1975, is made up of two general medical-surgical unit floors which are grossly undersized. Each floor operates 47 general medical-surgical beds, 24 of which are in three-bed wards and 23 in semi-private rooms. None of the patient rooms in the "D" wing have showers or tubs so the patients bathe in a single facility located at the center of the wing on each floor. Community Hospital's "A" wing, added in 1973, is situated at the west end of the second floor and is also undersized. It too has a combination of semi-private rooms and three-bed wards without showers or tubs. Community Hospital's "F" wing, added in 1979, includes a medical-surgical unit on the second and third floor, each with semi-private and private rooms. The second floor unit is centrally located between a 56-bed adult psychiatric unit and the Surgical Intensive Care Unit (SICU) which creates security and privacy issues. The third floor unit is adjacent to the Medical Intensive Care Unit (MICU) which must be accessed through the medical-surgical unit. Neither intensive care unit (ICU) possesses an isolation area. Although the three-bed wards are generally restricted to in-season use, and not always full, they pose significant privacy, security, safety, and health concerns. They fail to meet minimum space requirements and are a serious health risk. The evidence demonstrates that reconfiguring the wards would be extremely costly and impractical due to code compliance issues. The wards hinder the hospital's acute care utilization, and impair its ability to effectively compete with other hospitals. Surgical Department and Recovery Community Hospital's surgical department is separated into two locations including the main surgical suite on the second floor and the Endoscopy/Pain Management unit located on the first floor of "C" wing. Consequently, the department cannot share support staff and space such as preparation and recovery. The main surgical suite, adjacent recovery room, and central sterile processing are 25 years old. This unit's operating rooms, cystoscopy rooms, storage areas, work- stations, central sterile, and recovery rooms are undersized and antiquated. The 12-bay Recovery Room has no patient toilet and is lacking storage. The soiled utility room is deficient. In addition, the patient bays are extremely narrow and separated by curtains. There is no direct connection to the sterile corridor, and staff must break the sterile field to transport patients from surgery to recovery. Moreover, surgery outpatients must pass through a major public lobby going to and returning from surgery. The Emergency Department Community Hospital's existing emergency department was constructed in 1992 and is the largest provider of hospital emergency services in Pasco County, handling approximately 35,000 visits per year. The hospital is also designated a "Baker Act" receiving facility under Chapter 394, Florida Statutes, and utilizes two secure examination rooms for emergent psychiatric patients. At less than 8,000 total square feet, the emergency department is severely undersized to meet the needs of its patients. The emergency department is currently undergoing renovation which will connect the triage area to the main emergency department. The renovation will not enlarge the entrance, waiting area, storage, nursing station, nor add privacy to the patient care areas in the emergency department. The renovation will not increase the total size of the emergency department, but in fact, the department's total bed availability will decrease by five beds. Similar to other departments, a more meaningful renovation cannot occur within the emergency department without triggering costly building code compliance measures. In addition to its space limitations, the emergency department is awkwardly located. In 1992, the emergency department was relocated to the front of the hospital and is completely separated from the diagnostic imaging department which remained in the original 1971 building. Consequently, emergency patients are routinely transported across the hospital for imaging and CT scans. Issues Relating to Replacement of Community Hospital Although physically possible, renovating and expanding Community Hospital's existing facility is unreasonable. First, it is cost prohibitive. Any significant renovation to the 1971, 1975, 1977, and 1979 structures would require asbestos abatement prior to construction, at an estimated cost of $1,000,000. In addition, as previously noted, the hospital will be saddled with the major expense of complying with all current building code requirements in the 40-year-old facility. Merely installing showers in patient rooms would immediately trigger a host of expensive, albeit necessary, code requirements involving access, wiring, square footage, fireproofing columns and beams, as well as floor/ceiling and roof/ceiling assemblies. Concurrent with the significant demolition and construction costs, the hospital will experience the incalculable expense and loss of revenue related to closing major portions, if not all, of the hospital. Second, renovation and expansion to the existing facility is an unreasonable option due to its physical restrictions. The 12'4" height of the hospital's first floor limits its ability to accommodate HVAC ductwork large enough to meet current ventilation requirements. In addition, there is inadequate space to expand any department within the confines of the existing hospital without cannibalizing adjacent areas, and vertical expansion is not an option. Community Hospital's application includes a lengthy Facility Condition Assessment which factually details the architectural, mechanical, and electrical deficiencies of the hospital's existing physical plant. The assessment is accurate and reasonable. Community Hospital's Proposed Replacement Community Hospital proposes to construct a six- story, 320 licensed beds, acute care replacement facility. The hospital will consist of 548,995 gross square feet and include a 56-bed adult psychiatric unit connected by a hallway to the first floor of the main hospital building. The proposal also includes the construction of an adjacent medical office building to centralize the outpatient offices and staff physicians. The evidence establishes that the deficiencies inherent in Community Hospital's existing hospital will be cured by its replacement hospital. All patients will be provided large private rooms. The emergency department will double in size, and contain private examination rooms. All building code requirements will be met or exceeded. Patients and staff will have separate elevators from the public. In addition, the surgical department will have large operating rooms, and adequate storage. The MICU and SICU will be adjacent to each other on the second floor to avoid unnecessary traffic within the hospital. Surgical patients will be transported to the ICU via a private elevator dedicated to that purpose. Medical-surgical patient rooms will be efficiently located on the third through sixth floors, in "double-T" configuration. Community Hospital's Existing and Proposed Sites Community Hospital is currently located on a 23-acre site inside the southern boundary of New Port Richey. Single- family homes and offices occupy the two-lane residential streets that surround the site on all sides. The hospital buildings are situated on the northern half of the site, with the main parking lot located to the south, in front of the main entrance to the hospital. Marine Parkway cuts through the southern half of the site from the west, and enters the main parking lot. A private medical mall sits immediately to the west of the main parking lot and a one-acre storm-water retention pond sits to the west of the mall. A private medical office building occupies the south end of the main parking lot and a four-acre drainage easement is located in the southwest corner of the site. Community Hospital's administration has actively analyzed its existing site, aging facility, and adjacent areas. It has commissioned studies by civil engineers, health care consultants, and architects. The collective evidence demonstrates that, although on-site relocation is potentially an option, on balance, it is not a reasonable option. Replacing Community Hospital on its existing site is not practical for several reasons. First, the hospital will experience significant disruption and may be required to completely close down for a period of time. Second, the site's southwestern large four-acre parcel is necessary for storm-water retention and is unavailable for expansion. Third, a reliable cost differential is unknown given Community Hospital's inability to successfully negotiate with the city and owners of the adjacent medical office complexes to acquire additional parcels. Fourth, acquiring other adjacent properties is not a viable option since they consist of individually owned residential lots. In addition to the site's physical restrictions, the site is hindered by its location. The hospital is situated in a neighborhood between small streets and a local school. From the north and south, motorists utilize either U.S. 19, a congested corridor that accommodates approximately 50,000 vehicles per day, or Grand and Madison Streets, two-lane streets within a school zone. From the east and west, motorists utilize similar two-lane neighborhood streets including Marine Parkway, which often floods in heavy rains. Community Hospital's proposed site, on the other hand, is a 53-acre tract positioned five miles from its current facility, at the intersection of two major thoroughfares in southwestern Pasco County. The proposed site offers ample space for all facilities, parking, outpatient care, and future expansion. In addition, Community Hospital's proposed site provides reasonable access to all patients within its existing primary service area made up of zip codes 34652, 34653, 34668, 34655, 34690, and 34691. For example, the average drive times from the population centers of each zip code to the existing site of the hospital and the proposed site are as follows: Zip code Difference Existing site Proposed site 34652 3 minutes 14 minutes 11 minutes 34653 8 minutes 11 minutes 3 minutes 34668 15 minutes 21 minutes 6 minutes 34655 11 minutes 4 minutes -7 minutes 34690 11 minutes 13 minutes 2 minutes 34691 11 minutes 17 minutes 6 minutes While the average drive time from the population centroids of zip codes 34653, 34668, 34690, and 34691 to the proposed site slightly increases, it decreases from the Trinity area, where population growth has been most significant in southwestern Pasco County. In addition, a motorist's average drive time from Community Hospital's existing location to its proposed site is only 10 to 11 minutes, and patients utilizing public transportation will be able to access the new hospital via a bus stop located adjacent to the proposed site. The Condition of North Bay Facility North Bay Hospital is also an aging facility. Its original structure and portions of its physical plant are approximately 30 years old. Portions of its major mechanical systems will soon require replacement including its boilers, air handlers, and chillers. In addition, the hospital is undersized and awkwardly configured. Despite its shortcomings, however, North Bay is generally in good condition. The hospital has been consistently renovated and updated over time and is aesthetically pleasing. Moreover, its second and third floors were added in 1986, are in good shape, and structurally capable of vertical expansion. Medical Surgical Beds and ICU Units By-in-large, North Bay is comprised of undersized, semi-private rooms containing toilet and shower facilities. The hospital does not have any three-bed wards. North Bay's first floor houses all ancillary and support services including lab, radiology, pharmacy, surgery, pre-op, post-anesthesia recovery, central sterile processing and supply, kitchen and cafeteria, housekeeping and administration, as well as the mechanical, electrical, and facilities maintenance and engineering. The first floor also contains a 20-bed CMR unit and a 15-bed acute care unit. North Bay's second and third floors are mostly comprised of semi-private rooms and supporting nursing stations. Although the rooms and stations are not ideally sized, they are in relatively good shape. North Bay utilizes a single ICU with ten critical care beds. The ICU rooms and nursing stations are also undersized. A four-bed ICU ward and former nursery are routinely used to serve overflow patients. Surgery Department and Recovery North Bay utilizes a single pre-operative surgical room for all of its surgery patients. The room accommodates up to five patient beds, but has limited space for storage and pre-operative procedures. Its operating rooms are sufficiently sized. While carts and large equipment are routinely stored in hallways throughout the surgical suite, North Bay has converted the former obstetrics recovery room to surgical storage and has made efficient use of other available space. North Bay operates a small six-bed Post Anesthesia Care Unit. Nurses routinely prepare patient medications in the unit which is often crowded with staff and patients. The Emergency Department North Bay has recently expanded its emergency department. The evidence demonstrates that this department is sufficient and meets current and future expected patient volumes. Replacement Issues Relating to North Bay While it is clear that areas of North Bay's physical plant are aging, the facility is in relatively good condition. It is apparent that North Bay must soon replace significant equipment, including cast-iron sewer pipes, plumbing, boilers, and chillers which will cause some interruption to hospital operations. However, North Bay's four-page written assessment of the facility and its argument citing the need for total replacement is, on balance, not persuasive. North Bay's Proposed Replacement North Bay proposes to construct a new, state-of-the- art, hospital approximately eight miles southeast of its existing facility and intends to offer the identical array of services the hospital currently provides. North Bay's Existing and Proposed Sites North Bay's existing hospital is located on an eight-acre site with limited storm-water drainage capacity. Consequently, much of its parking area is covered by deep, porous, gravel instead of asphalt. North Bay's existing site is generally surrounded by residential properties. While the city has committed, in writing, it willingness to assist both applicants with on-site expansion, it is unknown whether North Bay can acquire additional adjacent property. North Bay's proposed site is located at the intersection of Trinity Oaks Boulevard and Mitchell Boulevard, south of Community Hospital's proposed site, and is quite spacious. It contains sufficient land for the facilities, parking, and future growth, and has all necessary infrastructure in place, including utility systems, storm- water structures, and roadways. Currently however, there is no public transportation service available to North Bay's proposed site. Projected Utilization by Applicants The evidence presented at hearing indicates that, statewide, replacement hospitals often increase a provider's acute care bed utilization. For example, Bartow Memorial Hospital, Heart of Florida Regional Medical Center, Lake City Medical Center, Florida Hospital Heartland Medical Center, South Lake Hospital, and Florida Hospital-Fish Memorial each experienced significant increases in utilization following the opening of their new hospital. The applicants in this case each project an increase in utilization following the construction of their new facility. Specifically, Community Hospital's application projects 82,685 total hospital patient days (64,427 acute care patient days) in year one (2006) of the operation of its proposed replacement facility, and 86,201 total hospital patient days (67,648 acute care patient days) in year two (2007). Using projected 2006 and 2007 population estimates, applying 2002 acute care hospital use rates which are below 50 percent, and keeping Community Hospital's acute care market share constant at its 2002 level, it is reasonably estimated that Community Hospital's existing hospital will experience 52,623 acute care patient days in 2006, and 53,451 acute care patient days in 2007. Consequently, Community Hospital's proposed facility must attain 11,804 additional acute care patient days in 2006, and 14,197 more acute care patient days in 2007, in order to achieve its projected acute care utilization. Although Community Hospital lost eight percent of the acute care market in its service area between 1995 and 2002, two-thirds of that loss was due to residents of Sub- District 5-1 acquiring services in another area. While Community Hospital experienced 78,444 acute care patient days in 1995, it projects only 64,427 acute care patient days in year one. Given the new facility and population factors, it is reasonable that the hospital will recapture half of its lost acute care market share and achieve its projections. With respect to its psychiatric unit, Community Hospital projects 16,615 adult psychiatric inpatient days in year one (2006) and 17,069 adult inpatient days in year two (2007) of the proposed replacement hospital. The evidence indicates that these projections are reasonable. Similarly, North Bay's acute care utilization rate has been consistently below 50 percent. Since 1999, the hospital has experienced declining utilization. In its application, North Bay states that it achieved total actual acute care patient days of 21,925 in 2000 and 19,824 in 2001 and the evidence at hearing indicates that North Bay experienced 17,693 total acute care patient days in 2002. North Bay projects 25,909 acute care patient days in the first year of operation of its proposed replacement hospital, and 27,334 acute care patient days in the second year of operation. Despite each applicant's current facility utilization rate, Community Hospital must increase its current acute care patient days by 20 percent to reach its projected utilization, and North Bay must increase its patient days by at least 50 percent. Given the population trends, service mix and existing competition, the evidence demonstrates that it is not possible for both applicants to simultaneously achieve their projections. In fact, it is strongly noted that the applicants' own projections are predicated upon only one applicant being approved and cannot be supported with the approval of two facilities. Local Health Plan Preferences In its local health plan for District 5, the Suncoast Health Council, Inc., adopted acute care preferences in October, 2000. The replacement of an existing hospital is not specifically addressed by any of the preferences. However, certain acute care preferences and specialty care preferences are applicable. The first applicable preference provides that preference "shall be given to an applicant who proposes to locate a new facility in an area that will improve access for Medicaid and indigent patients." It is clear that the majority of Medicaid and indigent patients live closer to the existing hospitals. However, Community Hospital proposes to move 5.5 miles from its current location, whereas North Bay proposes to move eight miles from its current location. While the short distances alone are less than significant, North Bay's proposed location is further removed from New Port Richey, is not located on a major highway or bus-route, and would therefore be less accessible to the medically indigent residents. Community Hospital's proposed site will be accessible using public transportation. Furthermore, Community Hospital has consistently provided excellent service to the medically indigent and its proposal would better serve that population. In 2000, Community Hospital provided 7.4 percent of its total patient days to Medicaid patients and 0.8 percent of its total patient days to charity patients. Community Hospital provided the highest percentage and greatest number of Medicaid patient days in Sub-District 5-1. By comparison, North Bay provided 5.8 percent of its total patient days to Medicaid patients and 0.9 percent of its total patient days to charity patients. In 2002, North Bay's Medicaid patients days declined to 3.56 percent. Finally, given the closeness and available bed space of the existing providers and the increasing population in the Trinity area, access will be improved by Community Hospital's relocation. The second local health plan preference provides that "[i]n cases where an applicant is a corporation with previously awarded certificates of need, preference shall be given to those which follow through in a timely manner to construct and operate the additional facilities or beds and do not use them for later negotiations with other organizations seeking to enter or expand the number of beds they own or control." Both applicants meet this preference. The third local health plan preference recognizes "Certificate of Need applications that provide AHCA with documentation that they provide, or propose to provide, the largest percentage of Medicaid and charity care patient days in relation to other hospitals in the sub-district." Community Hospital provides the largest percentage of Medicaid and charity care patient days in relation to other hospitals in Sub-District 5-1, and therefore meets this preference. The fourth local health plan preference applies to "Certificate of Need applications that demonstrate intent to serve HIV/AIDS infected persons." Both applicants accept and treat HIV/AIDS infected persons, and would continue to do so in their proposed replacement hospitals. The fifth local health plan preference recognizes "Certificate of Need applications that commit to provide a full array of acute care services including medical-surgical, intensive care, pediatric, and obstetrical services within the sub-district for which they are applying." Community Hospital qualifies since it will continue to provide its current services, including obstetrical care and psychiatric care, in its proposed replacement hospital. North Bay discontinued its pediatric and obstetrical programs in 2001, does not intend to provide them in its proposed replacement hospital, and will not provide psychiatric care. Agency Rule Preferences Florida Administrative Code Rule 59C-1.038(6) provides an applicable preference to a facility proposing "new acute care services and capital expenditures" that has "a documented history of providing services to medically indigent patients or a commitment to do so." As the largest Medicaid provider in Sub-District 5-1, Community Hospital meets this preference better than does North Bay. North Bay's history demonstrates a declining rate of service to the medically indigent. Statutory Review Criteria Section 408.035(1), Florida Statutes: The need for the health care facilities and health services being proposed in relation to the applicable district health plan District 5 includes Pasco and Pinellas County. Pasco County is rapidly developing, whereas Pinellas County is the most densely populated county in Florida. Given the population trends, service mix, and utilization rates of the existing providers, on balance, there is a need for a replacement hospital in the Trinity area. Section 408.035(2), Florida Statutes: The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant Community Hospital and North Bay are both located in Sub-District 5-1. Each proposes to relocate to an area of southwestern Pasco County which is experiencing explosive population growth. The other general acute care hospital located in Sub-District 5-1 is Regional Medical Center Bayonet Point, which is located further north, in the Hudson area of western Pasco County. The only other acute care hospitals in Pasco County are East Pasco Medical Center, in Zephyrhills, and Pasco Community Hospital, in Dade City. Those hospitals are located in Sub-District 5-2, east Pasco County, far from the area proposed to be served by either Community Hospital or North Bay. District 5 includes Pinellas County as well as Pasco County. Helen Ellis and Mease are existing hospital providers located in Pinellas County. Helen Ellis has 168 licensed beds, consisting of 150 acute care beds and an 18-bed skilled nursing unit, and is located 7.9 miles from Community Hospital's existing location and 10.8 miles from Community Hospital's proposed location. Access to Helen Ellis for patients originating from southwestern Pasco County requires those patients to travel congested U.S. 19 south to Tarpon Springs. As a result, the average drive time from Community Hospital's existing and proposed site to Helen Ellis is approximately 22 minutes. Helen Ellis is not a reasonable alternative to Community Hospital's proposal. The applicants' proposals are specifically designed for the current and future health care needs of southwestern Pasco County. Given its financial history, it is unknown whether Helen Ellis will be financially capable of providing the necessary care to the residents of southwestern Pasco. Mease Countryside Hospital has 189 licensed acute care beds. It is located 16.0 miles from Community Hospital's existing location and 13.8 miles from Community Hospital's proposed location. The average drive time to Mease Countryside is 32 minutes from Community Hospital's existing site and 24 minutes from its proposed site. In addition, Mease Countryside Hospital has experienced extremely high utilization over the past several years, in excess of 90 percent for calendar years 2000 and 2001. Utilization at Mease Countryside Hospital has remained over 80 percent despite the addition of 45 acute care beds in April 2002. Given the growth and demand, it is unknown whether Mease can accommodate the residents in southwest Pasco County. Mease Dunedin Hospital has 189 licensed beds, consisting of 149 acute care beds, a 30-bed skilled nursing unit, five Level 2 neonatal intensive care beds, and five Level 3 neonatal intensive care beds. Its former 15-bed adult psychiatric unit has been converted into acute care beds. It is transferring its entire obstetrics program at Mease Dunedin Hospital to Mease Countryside Hospital. Mease Dunedin Hospital is located approximately 18 to 20 miles from the applicants' existing and proposed locations with an average drive time of 35-38 minutes. With their remote location, and the exceedingly high utilization at Mease Countryside Hospital, neither of the two Mease hospitals is a viable alternative to the applicants' proposals. In addition, the construction of a replacement hospital would positively impact economic development and further attract medical professionals to Sub-District 5-1. On balance, given the proximity, utilization, service array, and accessibility of the existing providers, including the applicants, the relocation of Community Hospital will enhance access to health care to the residents. Section 408.035(3), Florida Statutes: The ability of the applicant to provide quality of care and the applicant's record of providing quality of care As stipulated, both applicants provide excellent quality of care. However, Community Hospital's proposal will better enhance its ability to provide quality care. Community is currently undersized, non-compliant with today's standards, and located on a site that does not allow for reasonable expansion. Its emergency department is inadequate for patient volume, and the configuration of the first floor leads to inefficiencies in the diagnosis and treatment of emergency patients. Again, most inpatients are placed in semi-private rooms and three-bed wards, with no showers or tubs, little privacy, and an increased risk of infection. The hospital's waiting areas for families of patients are antiquated and undersized, its nursing stations are small and cramped and the operating rooms and storage facilities are undersized. Community Hospital's deficiencies will be effectively eliminated by its proposed replacement hospital. As a result, patients will experience qualitatively better care by the staff who serve them. Conversely, North Bay is in better physical condition and not in need of replacement. It has more reasonable options to expand or relocate its facility on site. Quality of care at North Bay will not be markedly enhanced by the construction of a new hospital. Sections 408.035(4)and(5), Florida Statutes, have been stipulated as not applicable in this case. Section 408.035(6), Florida Statutes: The availability of resources, including health personnel, management personnel, and funds available for capital and operating expenditures, for project accomplishment and operation The parties stipulated that both Community Hospital and North Bay have available health personnel and management personnel for project accomplishment and operation. In addition, the evidence proves that both applicants have sufficient funds for capital and operating expenditures. Community Hospital proposes to rely on its parent company to finance the project. Keith Giger, Vice-President of Finance for HCA, Inc., Community Hospital's parent organization, provided credible deposition testimony that HCA, Inc., will finance 100 percent of the total project cost by an inter-company loan at eight percent interest. Moreover, it is noted that the amount to be financed is actually $20 million less than the $196,849,328 stated in the CON Application, since Community Hospital previously purchased the proposed site in June 2003 with existing funds and does not need to finance the land acquisition. Community Hospital has sufficient working capital for operating expenditures of the proposed replacement hospital. North Bay, on the other hand, proposes to acquire financing from BayCare Obligated Group which includes Morton Plant Hospital Association, Inc.; Mease; and several other hospital entities. Its proposal, while feasible, is less certain since member hospitals must approve the indebtedness, thereby providing Mease with the ability to derail North Bay's proposed bond financing. Section 408.035(7), Florida Statutes: The extent to which the proposed services will enhance access to health care for residents of the service district The evidence proves that either proposal will enhance geographical access to the growing population in the service district. However, with its provision of obstetrical services, Community Hospital is better suited to address the needs of the younger community. With respect to financial access, both proposed relocation sites are slightly farther away from the higher elderly and indigent population centers. Since the evidence demonstrates that it is unreasonable to relocate both facilities away from the down-town area, Community Hospital's proposal, on balance, provides better access to poor patients. First, public transportation will be available to Community Hospital's site. Second, Community Hospital has an excellent record of providing care to the poor and indigent and has accepted the agency's condition to provide ten percent of its total annual patient days to Medicaid recipients To the contrary, North Bay's site will not be accessible by public transportation. In addition, North Bay has a less impressive record of providing care to the poor and indigent. Although AHCA conditioned North Bay's approval upon it providing 9.7 percent of total annual patient days to Medicaid and charity patients, instead of the 9.7 percent of gross annual revenue proposed in its application, North Bay has consistently provided Medicaid and charity patients less than seven percent of its total annual patient days. Section 408.035(8), Florida Statutes: The immediate and long-term financial feasibility of the proposal Immediate financial feasibility refers to the availability of funds to capitalize and operate the proposal. See Memorial Healthcare Group, Ltd. d/b/a Memorial Hospital Jacksonville vs. AHCA et al., Case No. 02-0447 et seq. Community Hospital has acquired reliable financing for the project and has sufficiently demonstrated that its project is immediately financially feasible. North Bay's short-term financial proposal is less secure. As noted, North Bay intends to acquire financing from BayCare Obligated Group. As a member of the group, Mease, the parent company of two hospitals that oppose North Bay's application, must approve the plan. Long-term financial feasibility is the ability of the project to reach a break-even point within a reasonable period of time and at a reasonable achievable point in the future. Big Bend Hospice, Inc. vs. AHCA and Covenant Hospice, Inc., Case No. 02-0455. Although CON pro forma financial schedules typically show profitability within two to three years of operation, it is not a requirement. In fact, in some circumstances, such as the case of a replacement hospital, it may be unrealistic for the proposal to project profitability before the third or fourth year of operation. In this case, Community Hospital's utilization projections, gross and net revenues, and expense figures are reasonable. The evidence reliably demonstrates that its replacement hospital will be profitable by the fourth year of operation. The hospital's financial projections are further supported by credible evidence, including the fact that the hospital experienced financial improvement in 2002 despite its poor physical condition, declining utilization, and lost market share to providers outside of its district. In addition, the development and population trends in the Trinity area support the need for a replacement hospital in the area. Also, Community Hospital has benefited from increases in its Medicaid per diem and renegotiated managed care contracts. North Bay's long-term financial feasibility of its proposal is less certain. In calendar year 2001, North Bay incurred an operating loss of $306,000. In calendar year 2002, it incurred a loss of $1,160,000. In its CON application, however, North Bay projects operating income of $1,538,827 in 2007, yet omitted the ongoing expenses of interest ($1,600,000) and depreciation ($3,000,000) from its existing facility that North Bay intends to continue operating. Since North Bay's proposal does not project beyond year two, it is less certain whether it is financially feasible in the third or fourth year. In addition to the interest and depreciation issues, North Bay's utilization projections are less reasonable than Community Hospital's proposal. While possible, North Bay will have a difficult task achieving its projected 55 percent increase in acute care patient days in its second year of operation given its declining utilization, loss of obstetric/pediatric services and termination of two exclusive managed care contracts. Section 408.035(9), Florida Statutes: The extent to which the proposal will foster competition that promotes quality and cost-effectiveness Both applicants have substantial unused capacity. However, Community Hospital's existing facility is at a distinct competitive disadvantage in the market place. In fact, from 1994 to 1998, Community Hospital's overall market share in its service area declined from 40.3 percent to 35.3 percent. During that same period, Helen Ellis' overall market share in Community Hospital's service area increased from 7.2 percent to 9.2 percent. From 1995 to the 12-month period ending June 30, 2002, Community Hospital's acute care market share in its service area declined from 34.0 percent to 25.9 percent. During that same period, Helen Ellis' acute care market share in Community Hospital's service area increased from 11.7 percent to 12.0 percent. In addition, acute care average occupancy rates at Mease Dunedin Hospital increased each year from 1999 through 2002. Acute care average occupancy at Mease Countryside Hospital exceeded 90 percent in 2000 and 2001, and was approximately 85 percent for the period ending June 30, 2002. Some of the loss in Community Hospital's market share is due to an out-migration of patients from its service area to hospitals in northern Pinellas and Hillsborough Counties. Market share in Community's service area by out-of- market providers increased from 33 percent in 1995 to 40 percent in 2002. Community Hospital's outdated hospital has hampered its ability to compete for patients in its service area. Mease is increasing its efforts to attract patients and currently completing a $92 million expansion of Mease Countryside Hospital. The project includes the development of 1,134 parking spaces on 30 acres of raw land north of the Mease Countryside Hospital campus and the addition of two floors to the hospital. It also involves the relocation of 51 acute care beds, the obstetrics program and the Neonatal Intensive Care Units from Mease Dunedin Hosptial to Mease Countryside Hospital. Mease is also seeking to more than double the size of the Countryside emergency department to handle its 62,000 emergency visits. With the transfer of licensed beds from Mease Dunedin Hospital to Mease Countryside Hospital, Mease will also convert formerly semi-private patient rooms to private rooms at Mease Dunedin Hospital. The approval of Community Hospital's relocated facility will enable it to better compete with the hospitals in the area and promote quality and cost- effectiveness. North Bay, on the other hand, is not operating at a distinct disadvantage, yet is still experiencing declining utilization. North Bay is the only community-owned, not-for- profit provider in western Pasco County and is a valuable asset to the city. Section 408.035(10), Florida Statutes: The costs and methods of the proposed construction, including the costs and methods or energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the project costs in both applications are reasonable to construct the replacement hospitals. Community Hospital's proposed construction cost per square foot is $175, and slightly less than North Bay's $178 proposal. The costs and methods of proposed construction for each proposal is reasonable. Given Community Hospital's severe site and facility problems, the evidence demonstrates that there is no reasonable, less costly, or more effective methods of construction available for its proposed replacement hospital. Additional "band-aide" approaches are not financially reasonable and will not enable Community Hospital to effectively compete. The facility is currently licensed for 401 beds, operates approximately 311 beds and is still undersized. The proposed replacement hospital will meet the standards in Florida Administrative Code Rule 59A-3.081, and will meet current building codes, including the Americans with Disabilities Act and the Guidelines for Design and Construction of Hospitals and Health Care Facilities, developed by the American Institute of Architects. The opponents' argue that Community Hospital will not utilize the 320 acute care beds proposed in its CON application, and therefore, a smaller facility is a less- costly alternative. In addition, Helen Ellis' architectural expert witness provided schematic design alternatives for Community Hospital to be expanded and replaced on-site, without providing a detailed and credible cost accounting of the alternatives. Given the evidence and the law, their arguments are not persuasive. While North Bay's replacement cost figures are reasonable, given the aforementioned reasons, including the fact that the facility is in reasonably good condition and can expand vertically, on balance, it is unreasonable for North Bay to construct a replacement facility in the Trinity area. Section 408.035(11), Florida Statutes: The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Community Hospital has consistently provided the most health care services to Medicaid patients and the medically indigent in Sub-District 5-1. Community Hospital agreed to provide at least ten percent of its patient days to Medicaid recipients. Similarly, North Bay agreed to provide 9.7 percent of its total annual patient days to Medicaid and charity patients combined. North Bay, by contrast, provided only 3.56 percent of its total patient days to Medicaid patients in 2002, and would have to significantly reverse a declining trend in its Medicaid provision to comply with the imposed condition. Community Hospital better satisfies the criterion. Section 408.035(12) has been stipulated as not applicable in this case. Adverse Impact on Existing Providers Historical figures demonstrate that hospital market shares are not static, but fluctuate with competition. No hospital is entitled to a specific or historic market share free from competition. While the applicants are located in health planning Sub-District 5-1 and Helen Ellis and the two Mease hospitals are located in health planning Sub-District 5- 2, they compete for business. None of the opponents is a disproportionate share, safety net, Medicaid provider. As a result, AHCA gives less consideration to any potential adverse financial impact upon them resulting from the approval of either application as a low priority. The opponents, however, argue that the approval of either replacement hospital would severely affect each of them. While the precise distance from the existing facilities to the relocation sites is relevant, it is clear that neither applicants' proposed site is unreasonably close to any of the existing providers. In fact, Community Hospital intends to locate its replacement facility three miles farther away from Helen Ellis and 1.5 miles farther away from Mease Dunedin Hospital. While Helen Ellis' primary service area is seemingly fluid, as noted by its chief operating officer's hearing and deposition testimony, and the Mease hospitals are located 15 to 20 miles south, they overlap parts of the applicants' primary service areas. Accordingly, each applicant concedes that the proposed increase in their patient volume would be derived from the growing population as well as existing providers. Although it is clear that the existing providers may be more affected by the approval of Community Hosptial's proposal, the exact degree to which they will be adversely impacted by either applicant is unknown. All parties agree, however, that the existing providers will experience less adverse affects by the approval of only one applicant, as opposed to two. Furthermore, Mease concedes that its hospitals will continue to aggressively compete and will remain profitable. In fact, Mease's adverse impact analysis does not show any credible reduction in loss of acute care admissions at Mease Countryside Hospital or Mease Dunedin Hospital until 2010. Even then, the reliable evidence demonstrates that the impact is negligible. Helen Ellis, on the other hand, will likely experience a greater loss of patient volume. To achieve its utilization projections, Community Hospital will aggressively compete for and increase market share in Pinellas County zip code 34689, which borders Pasco County. While that increase does not facially prove that Helen Ellis will be materially affected by Community Hospital's replacement hospital, Helen Ellis will confront targeted competition. To minimize the potential adverse affect, Helen Ellis will aggressively compete to expand its market share in the Pinellas County zip codes south of 34689, which is experiencing population growth. In addition, Helen Ellis is targeting broader service markets, and has filed an application to establish an open- heart surgery program. While Helen Ellis will experience greater competition and financial loss, there is insufficient evidence to conclude that it will experience material financial adverse impact as a result of Community Hospital's proposed relocation. In fact, Helen Ellis' impact analysis is less than reliable. In its contribution-margin analysis, Helen Ellis utilized its actual hospital financial data as filed with AHCA for the fiscal year October 1, 2001, to September 30, 2002. The analysis included total inpatient and total outpatient service revenues found in the filed financial data, including ambulatory services and ancillary services, yet it did not include the expenses incurred in generating ambulatory or ancillary services revenue. As a result, the overstated net revenue per patient day was applied to its speculative lost number of patient days which resulted in an inflated loss of net patient service revenue. Moreover, the evidence indicates that Helen Ellis' analysis incorrectly included operational revenue and excluded expenses related to its 18-bed skilled nursing unit since neither applicant intends to operate a skilled nursing unit. While including the skilled nursing unit revenues, the analysis failed to include the sub-acute inpatient days that produced those revenues, and thereby over inflated the projected total lost net patient service revenue by over one million dollars.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: Community Hospital's CON Application No. 9539, to establish a 376-bed replacement hospital in Pasco County, Sub- District 5-1, be granted; and North Bay's CON Application No. 9538, to establish a 122-bed replacement hospital in Pasco County, Sub-District 5- 1, be denied. DONE AND ENTERED this 19th day of March, 2004, in Tallahassee, Leon County, Florida. S WILLIAM R. PFEIFFER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of March, 2004. COPIES FURNISHED: James C. Hauser, Esquire R. Terry Rigsby, Esquire Metz, Hauser & Husband, P.A. 215 South Monroe Street, Suite 505 Post Office Box 10909 Tallahassee, Florida 32302 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Saliba, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Darrell White, Esquire William B. Wiley, Esquire McFarlain & Cassedy, P.A. 305 South Gadsden Street, Suite 600 Tallahassee, Florida 32301 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Rhonda M. Medows, M.D., Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308
The Issue Whether Certificate of Need (CON) Application No. 10009, filed by HealthSouth Rehabilitation Hospital of Ocala, LLC (the applicant or HS-Ocala) to establish a new freestanding 40-bed comprehensive medical rehabilitation (CMR) hospital in Marion County, Agency for Health Care Administration (AHCA or Agency) District 3, satisfies, on balance, the applicable statutory and rule review criteria for approval.
Findings Of Fact The Parties The Applicant HS-Ocala is a wholly-owned subsidiary of HealthSouth Corporation (HealthSouth). Founded in 1984, HealthSouth is the nation's largest provider of inpatient rehabilitative healthcare services in terms of revenue, number of hospitals, and patients treated. HealthSouth employs over 22,000 people in approximately 93 rehabilitation hospitals, six long-term care hospitals, approximately 48 outpatient rehabilitation satellites and 25 hospital-based home health agencies across 26 states and Puerto Rico. All HealthSouth facilities, including the facilities in Florida, are either accredited by the Joint Commission (f/k/a the Joint Commission on Accreditation of Healthcare Organizations – JCAHO) or the Commission on Accreditation of Rehabilitation Facilities (CARF) or both. HealthSouth has created specific programs for different conditions, including a specialized Stroke Rehabilitation Program nationwide. HealthSouth is one of only four hospital companies receiving Joint Commission Stroke Rehabilitation Certification: 21 of 25 hospitals that have this certification are HealthSouth facilities. HealthSouth owns and operates nine freestanding CMR hospitals in Florida. HealthSouth also owns and operates a 40- bed long-term acute care hospital in Sarasota and owns eight outpatient centers in the state. HealthSouth will provide patients with an interdisciplinary team that includes the services of a physician/physiatrist, physical therapists, occupational therapists, speech/language pathologists, psychologists, rehabilitative nurses, case managers, therapeutic recreation specialists, dieticians, and respiratory therapists. Shands Shands Teaching Hospital and Clinics, Inc., was incorporated in 1979 as a Florida not-for-profit corporation. Shands is located in Gainesville, Florida, and operates a health care delivery system that includes the flagship teaching hospital for the School of Medicine of the University of Florida and Shands Rehab Hospital (a division of Shands), a 40-bed freestanding inpatient rehabilitation hospital. Shands serves patients throughout District 3, as well as other areas of Florida. Co-located in the same building with Shands Rehab Hospital is Shands Vista (a division of Shands), an inpatient psychiatric and substance abuse facility licensed to operate 81 beds, of which 57 are psychiatric and 24 are substance abuse. Shands also operates Shands AGH, a 367-bed acute care community hospital in Gainesville; Shands at Lake Shore, a 99- bed acute care community hospital located in Starke, Florida; and Shands Live Oak, a 15-bed acute care hospital located in Live Oak, Florida. Another subsidiary of Shands is Shands Jacksonville Medical Center, a 696-bed teaching hospital in Jacksonville, Florida. Shands Rehab is accredited by the Joint Commission, the Florida Brain and Spinal Cord Injury Program and CARF. Shands Rehab offers a full array of CMR services. Patients at Shands Rehab are served by an interdisciplinary team. LRMC LRMC is a 309-bed acute care hospital located in Leesburg, Florida. LRMC provides a broad array of services including open-heart surgery and neurosurgery and also offers stroke specialty service. LRMC's CMR unit, also known as the Ohme Rehabilitation Center (Ohme), is a 15-bed hospital-based CMR unit located in its North Campus in Leesburg, Florida. Ohme is accredited by the Joint Commission and CARF. CARF has also accredited Ohme as a stroke specialty program. LRMC is part of the Central Florida Health Alliance, which also includes The Villages Regional Hospital (120 beds) located within the development known as The Villages, located in Lake, Sumter, and Marion Counties, and north of LRMC. The Villages is located approximately 15-to-20 minutes from LRMC. Ohme's patients work with an interdisciplinary team of professionals, including a medical director, case managers, registered nurses, rehabilitation techs, certified nursing assistants, physical therapists, occupational therapists, speech/language pathologists, recreational therapists, rehabilitation therapists, social workers, and dieticians. AHCA AHCA is the state health planning agency and administers the CON program pursuant to the Health Facility and Services Development Act, Sections 408.031-.0455, Florida Statutes. CMR Services and Facilities CMR facilities are licensed pursuant to Chapter 395, Florida Statutes. CMR services are defined by Section 408.032(17), Florida Statutes, as tertiary health services, which "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." Id. The services are integrated and intensive, provided in an inpatient setting by a multidisciplinary team to patients with severe physical disabilities, such as stroke, spinal cord or brain injury, congenital deformities, amputation, major multiple trauma, femur fracture, neurological disorders, polyarthritis, and burns. The patients served by CMR facilities are clinically complex and require an acute care level of nursing and rehabilitative therapies. Facilities such as the one proposed are reimbursed prospectively by the Medicare program under the inpatient rehabilitation prospective payment system, 42 C.F.R. Part 412, and are exempt from the Medicare inpatient prospective patient system for short-term acute care inpatient hospitals. To be eligible for Medicare reimbursement as an inpatient rehabilitation facility, 60 percent of the patients admitted to a CMR facility must have a medical condition that falls within one or more of 13 diagnoses established by the Centers for Medicare and Medicaid Services (CMS), which indicate a need for intensive rehabilitative services. These are commonly known as the "CMS-13" criteria. The CMS-13 criteria include: stroke, spinal cord injury, congenital deformity, amputation, major multiple trauma, femur fracture (hip fracture), brain injury, neurological disorders, burns, active polyarthritis, systemic vasculidities, advanced osteoarthritis, and knee or hip replacement with additional co-morbidities. If a CMR facility falls below the 60 percent threshold, it will be reimbursed by CMS as a short-term acute care inpatient hospital. In addition to the above requirements, the federal government mandates that a patient admitted to a CMR facility must require an acute care level of nursing services; that physicians determine the admission of the patient to be medically necessary; and that the patient be able to tolerate three hours of therapy services per day (900 minutes over five days) over a five-day period administered by licensed therapists. Therapy services included in the three-hour requirement include physical, occupational, speech, recreational, neuropsychological, and prosthetics and orthotic. Services or treatments rendered by aides may not be included in the three-hour per day minimum therapy requirement; however, services or treatments provided by licensed assistants can be included in the three-hour per day requirement. Unlike acute care services, access to CMR services is non-emergent. The process used to identify and admit patients from an acute care setting to a CMR facility begins early in the patient's stay, e.g., at an acute care facility. (Patients can be admitted from other entities or from home, but most are admitted from hospitals.) Typically, a patient will be assessed upon admission to an acute care hospital to determine what services they will need upon leaving the hospital. The assessment process involves discharge planners, case managers, physicians, nurses, the patient's insurance provider, and the patient and his or her family. In making the decision as to where a patient should be discharged, those involved in the decision-making process determine the amount of therapy the patient can tolerate; the age of the patient; and any co-morbidities or other conditions the patient may have. Once a decision is made as to what types of post-acute care services are needed, the acute care hospital's discharge planner or case manager is charged with coordinating the required care for the patient. CMR services include the close involvement of a physician (physiatrist) and the availability of 24-hour nursing care because the patients requiring CMR services typically have significant medical conditions and co-morbidities. In the CMR setting, nurses are trained to be a part of the entire therapeutic team. In coordinating post-acute care for a patient, some Marion County acute care hospitals such as Munroe Regional use the Allscripts or ECIN electronic referral system. Other local hospitals, such as Ocala Regional and West Marion, do not. However, the director of admissions at TimberRidge has access to patient charts at Ocala Regional and West Marion. (It appears that eight Ocala-area SNFs are listed on the ECIN system.) The ECIN system allows hospitals to transmit a patient's medical information to post-acute care facilities for consideration for admission in electronic format. The system also allows a hospital and the potential discharge facility to communicate if additional information or explanation is needed. The system is viewed as a valuable tool because it allows CMR facilities to obtain detailed information on potential admissions without having to travel to the referring facility to review medical records. The Allscripts system is also utilized by a CMR facility to assist with placement decisions at the time the patient is discharged from the CMR facility. Once the patient is referred to a CMR facility, the CMR admissions team receives the patient's information and begins its own assessment to determine whether the patient is a good candidate for admission. Typically, a nurse liaison is assigned to a referred case and gathers information on the patient to be used in the admissions decision. A patient assessment sheet is typically completed and the CMR admitting physician will be called on to review the information. The admitting physician will look for information regarding the nature and extent of a patient's illnesses and whether the patient had any complications that could affect the patient's ability to participate in rehabilitation. The ability to participate in rehabilitation is significant to a CMR facility because the patient is typically expected to begin exercising as soon as possible after admission. All of the above factors are considered in addition to the CMS-13 criteria. Even if a patient falls within one of the CMS-13 diagnosis codes, the CMR facility staff also determines if the patient requires at least two disciplines of therapy as required by Medicare. A patient who does not meet this criterion may not be considered a candidate for admission to a CMR facility notwithstanding the fact that he or she may fall within one of the CMS-13 diagnoses. Utilizing all of the above indicators, a final decision is made and communicated to the acute care facility or other referring entity to coordinate the transfer of the patient or re-refer the patient to a more appropriate setting. When a patient is admitted to a CMR facility, a patient assessment instrument that captures the patient's diagnostic and functional abilities must be completed. During this admission assessment process, the patient's level of independent functioning is measured for a number of activities. This comprehensive review of the patient's functions is performed within three days of admission. This measurement is known as the patient's functional independence measurement (FIM) score. The FIM score is both a quality and outcome and progress measure. The FIM measures 18 items on a scale of 1 (most severe) to 7 (independent). FIM scores are not utilized in the skilled nursing home industry, which has made it more difficult to compare the care delivered in CMR facilities and skilled nursing homes. All CMR providers utilize FIM scores. The FIM score in part determines the level of reimbursement the facility receives from Medicare because it indicates that the patient will typically require more services. FIM scores are measured again upon discharge. The Proposal HS-Ocala proposes to build a new 40-bed freestanding CMR hospital in Ocala, Florida, at a cost of $19,620,449 in a 49,900 square foot facility. All of the beds will be private. This prototype has been built by HealthSouth at least ten times since 2001, including twice within Florida. HS-Ocala plans to build the hospital on 6.2 acres located on Southwest 19th Avenue Road in, Ocala, Florida. The property is a portion of the approximately 7.63-acre tract identified as Marion County tax parcel number 23721-003-00. HealthSouth has an active contract to purchase the property. The projected construction cost contained in the application is $9,237,800 or $185.12 per gross square feet. The applicant agreed to condition the proposed project on the following: providing a minimum of 2.5 percent of the hospital's annual inpatient patient days to Medicaid and charity patients; implementing a Stroke Rehabilitation Program to begin upon licensure; obtaining Joint Commission Certification of its stroke rehabilitation program; and providing an AutoAmbulator and other appropriate technology upon licensure. In its preliminary approval of the application, AHCA conditioned the approval on the conditions indicated above, and that the facility is located in close proximity to the intersections triangulated by Interstate 75, SR 200, SR 40, and U.S. Highway 27. The applicant proposes to offer a full range of CMR services. The applicant does not propose to have a spinal cord or brain injury unit. These patients are typically transferred to a facility like Shands Rehab consistent with the tertiary nature of CMR services. HealthSouth CMR facilities have traditionally offered high quality CMR services at all of its facilities, including the nine facilities in Florida. Consistent with the general description of CMR services provided herein, HealthSouth has developed diagnostically distinct programs which offer specialized inpatient and outpatient services with an interdisciplinary approach. These programs are developed and implemented at each HealthSouth facility consistent with the needs of the market. These specific programs improve outcomes for the patients. HealthSouth's interdisciplinary therapy team primarily consists of physical, occupational, and speech therapists. The physical therapy team integrates with the other interdisciplinary team members, including physicians, nurses, prosthetists, orthotics, and other team members. From the initial assessment, the interdisciplinary team develops a plan of care through treatment interventions provided to the patient. A comprehensive review of the patient's functionality, including the FIM score determination, is performed on each patient is performed within three days of admission. Throughout the patient's stay, patient goals are constantly being assessed and implemented. Conferences are held with the patient and family to make sure the goals are being accomplished. The team also evaluates the home setting and prepares the patient and the family for discharge. HealthSouth's main mission is to provide quality outcomes. The outcomes are measured on admission, throughout the patient's stay and on discharge. HealthSouth takes the necessary measures to assure that it provides the patient with at least three hours of therapy a day. HealthSouth uses state-of-the-art technology as part of its ongoing quality initiatives. The Ocala facility will have access to state-of-the-art equipment including the AutoAmbulator, a device developed and implemented by HealthSouth and only offered at most of the HealthSouth facilities in the United States. (The AutoAmbulator is a sophisticated treadmill using the therapeutic concept of body weight supported ambulation and robotics to help patients with gait disorders. The equipment has produced quality outcomes for HealthSouth patients. There are no studies that compare the use of this device with other similar devise such as a LocoMat.) HealthSouth also proposes to offer other technology such as the Balance Master (assessment of balance); EquiTest (used to diagnose and treat imbalance and postural instability); Visipitch (computerized analysis of voice); SaeboFlex wrist splint and exercise station (promotes increased function in shoulder, wrist, elbow, and hand); Interactive Metronome (promotes motor learning); and VitalStim (targets swallow function); and Bioness (helps patients regain lost mobility for upper and lower extremities). See T. 707-16. HealthSouth tracks and measures quality provided to the patient pursuant to its contract with the Uniform Data System for Medical Rehabilitation, which is the most widely used system in the country. This system tracks function outcomes for CMR patients through the use of FIM data captured from approximately 900 rehabilitation hospitals in the United States. HealthSouth monitors patient satisfaction outcomes. Each HealthSouth CMR facility has a quality review council that examines patient safety measures, FIM outcome data, patient satisfaction data, and infection controls. HealthSouth encourages family participation before admission, during treatment, and after the patient is discharged from one of its CMR facilities. Travel barriers may impact the ability of family members to access a CMR facility. District 3 and the Proposed Service Area (PSA) District 3 is the largest health service planning district in the state of Florida composed of 16 counties, including Hamilton, Suwannee, Lafayette, Dixie, Columbia, Gilchrist, Levy, Union, Bradford, Putnam, Alachua, Marion, Citrus, Hernando, Sumter, and Lake. § 408.032(5), Fla. Stat. District 3 encompasses more than 11,000 square miles with nearly 1.6 million residents. Much of District 3 is rural covering approximately 20 percent of the state's land areas, but home to approximately eight percent of the state's population. Marion County is the most populated county within District 3 with more than 317,000 residents. There is a natural geographic barrier in the area with the forest to the east of Marion County. The service area for the proposed facility defined in the application comprises zip codes in Marion County and the easternmost portion of Levy County. A portion of zip code 32784 is located in Lake County. As of calendar year 2007, the total population for all of the zip codes within the PSA was 334,868 and is projected to increase to 377,543 by calendar year 2012, a 12.7 percent increase. The applicant projects receiving approximately 95 percent of its patients from within the PSA. Ms. Kelleher and Ms. Greenberg developed the PSA with the assistance of Wanda Pearman of Dixon Hughes. The process included the creation of various maps outlining the service area as it evolved prior to filing the application. The process utilized an August 2007 market analysis performed by Dixon Hughes on 27 or 28 markets across the United States, including the Marion County/Ocala market. The August 2007 market analysis was not performed specifically for the purpose of the CON Application. Rather, it was performed on potential markets across the country as a "50,000-foot" level market analysis of demographics and lack of CMR services in an effort to identify potential markets. HealthSouth would use the information to look further into each identified potential market and decide what the appropriate service area would be. Beginning on January 22, 2008, a number of zip codes were realigned and deleted from the original Dixon Hughes document to form the service area identified in the application. The HealthSouth team examined existing in and out- migration patterns for existing hospitals within Marion County. Existing roadways were driven. Local providers, including local doctors, were contacted and provided favorable comments regarding the proposed project. The Villages were excluded because they were not in close proximity to Ocala. Any area south of the Marion County line was also excluded due to travel distances. The analysis led to the conclusion that the Ocala area has developed into its own medical market and that the placement of a CMR facility in the Ocala area would not overlap with Ohme's or Shands Rehab's service areas such that their CMR services (quality of care, e.g.) would be compromised in any significant way. It was also important to the applicant that trauma patients, spinal cord and brain injury patients would continue to go to the Shands system for their post-acute care. From a demographic standpoint, 2007 data indicated that approximately 23 percent of the residents in the Ocala area are 65 years of age or older (increasing to approximately 25 percent by 2012) compared to the statewide average of 17 percent. This age cohort is expected to increase approximately 20 percent between 2007 and 2012 with some zip codes increasing between 24 and 37 percent. Approximately 75 percent of CMR patients are covered under Medicare and Medicare managed care. Statutory and Rule Review Criteria Section 408.035(1)(a): The need for the health care facilities and health services being proposed. "A favorable need determination for proposed new or expanded [CMR] inpatient services shall not normally be made unless a bed need exists according to the numeric need methodology in paragraph (5)(c) of this rule." Fla. Admin. Code R. 59C-1.039(5)(a). "The future need for [CMR] inpatient services shall be determined twice a year and published by the agency as a fixed need pool for the applicable planning horizon." Fla. Admin. Code R. 59C-1.039(5)(b). Pursuant to the Agency's need methodology, Florida Administrative Code Rule 59C-1.039(5)(c), the Agency published a fixed need pool of zero (0) for CMR beds for District 3 in the CON batching cycle at issue in this case in the Florida Administrative Weekly, Volume 34, Number 4 (January 25, 2008). By Agency precedent, this determination creates a presumption of no need. The applicant seeks approval based on "not normal" circumstances. Generally, pursuant to Subsection 408.035(1)(a), the need for a tertiary health service such as CMR is to be determined on a district-wide basis. See T. 2324, 2327-2332. But see Conclusions of Law 349-52. By its express terms, Subsection 408.035(1)(b) requires consideration of the stated criteria in reference to the service district of the applicant. Using the applicant's service area approach yields bed need projections in excess of those established by the Agency's rule, in large part because the applicant established a PSA using a series of zip codes in an area where there is no existing CMR facility. The applicant ultimately concluded that the PSA is a unique (and not-normal) market for which CMR services are unavailable. The Agency preliminarily approved the project based on the applicant's representations in its CON application of need for the service in the 25 zip code area. See generally T. 2327- 2390. The Agency considered several factors including the disparity in the "conversion rate" of patients who reside in the 25 zip codes comprising the applicant's PSA compared to other areas of the state where HealthSouth operates CMR hospitals; transportation difficulties; letters of support; and physician concerns in transferring patients to existing hospitals in the District. B. Section 408.035(1)(b): 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. Availability, accessibility, and utilization There are four acute care hospitals, ten skilled nursing facilities, and one long-term care hospital within the PSA. The acute care hospitals are: Munroe Regional Medical Center (Munroe Regional)(421 beds); Ocala Regional Medical Center (ORMC) (200 beds); West Marion Community Hospital (West Marion)(70 beds), a satellite of Ocala Regional Medical Center; and Nature Coast Regional Hospital (Nature Coast) (40 beds). The long-term care hospital, Kindred Hospital Ocala (31 beds), is located on the fifth floor of Munroe Regional. There is no persuasive evidence that area hospitals are experiencing problems placing patients in post-acute care settings. Munroe Regional has an average daily census of approximately 300 and offers open-heart surgery, cardiovascular services and neurological services, and orthopedic surgery. HS-Ocala's application contained numerous letters of support, including letters from ORMC and West Coast.2/ See HS Ex. 1 at 663-705 and JPS at HealthSouth's exhibit list, p. 1, n.1. Most of the letters were not authenticated. There was no objection to letters of support submitted by Drs. Tabbaa and Canon and the letter of support submitted by Linda F. Berry, RN, PCRM, employed with the University of Florida College of Medicine, Department of Orthopaedics and Rehabilitation, apparently as a case manager. Id. T. 497-98, 504-505, 525-27, 579; HS Ex. 1 at 664 and 667; HS Ex. 24. There are three existing CMR facilities in District 3. HealthSouth Rehabilitation Hospital-Spring Hill (Spring Hill), in Hernando County, is a 70-bed (16 private and 54 semi- private rooms) freestanding rehabilitation hospital and has been approved to add ten beds pursuant to a CON exemption. Spring Hill is approximately 70 miles from the downtown Ocala area. Spring Hill's primary service area is Hernando County and a small piece of Pasco County and Spring Hill receives 85-to-90 percent of its patients from its primary service area. (In seeking approval of the original 60-bed Spring Hill hospital around the Fall of 1999, the applicant used Marion County data to support its argument that there was a need for the facility and included Marion County as part of its defined service area.) Between 2004 and 2007, Spring Hill comprised 60 beds, a majority of which were semi-private. During that same time period, the average daily census at Spring Hill ranged from 50 to 57, with the average number of available beds ranging from three to ten. In 2008 and thus far in 2009, Spring Hill was at 92 and 94 percent occupancy, respectively, with an ADC of 64 and 66 for these years for 70 beds. Shands Rehab Hospital is a 40-bed freestanding rehabilitation hospital, and is part of the larger Shands Health Care System (with over 1,000 acute care beds) described above and which provides over 70 percent of the referrals to the Shands Rehab unit. Shands Rehab has 16 private and 24 semi-private beds. Shands Rehab is located approximately 40 miles from the downtown Ocala area or the center point of the PSA. There are two primary physician groups that work within Shands Rehab: University of Florida Division of Physical Medicine and Rehabilitation, which includes Shands Rehab's medical director, Dr. James Atchison and Southeastern Integrated Medical (SIMED). While it may vary from week to week, SIMED covers approximately 60 percent of the inpatient population at Shands Rehab, whereas Dr. Atchison's group has the remaining 40 percent. The two physician groups have agreed to accept only two unfunded (charity) patients each "at any particular time," although for key diagnostic groups that are seen regularly, such as brain and spinal cord injury and stroke patients, the physicians will consider serving them if Shands Rehab is the best facility for the patient. Dr. Atchison further explained that if Shands Rehab did not have an opening for an unfunded patient on a particular day, the referring facility would be told to consider waiting a few days to refer a patient as an alternative pathway with the decision to refer or not left with the referring facility. No such restriction exists for other patients including Medicaid patients. (From approximately April 2006 through November 2008, it appears that a few patients were not admitted to Shands Rehab because the allotted charity beds (not other beds) were full, including approximately three patients at Munroe Regional and one patient from West Marion Community Hospital.) Between 2004 and 2007, Shands Rehab operated with an average daily census (ADC) of between 26 and 31, and runs at functional capacity at an ADC of 39 for its 40 beds. T. 1653, 1688; HS Ex. 66 at 25, 41, and 53. But see SL Ex. 212 for years 2004 through 2007 - ADC range of 25 to 28 and an average of 12 to 15 available beds. For 2008, the ADC was 29 and up to 31 in 2009. HS Ex. 69 at 144. Shands Rehab has a strong referral base from within the Shands Health Care System. Shands Rehab does not admit many patients from the Ocala area acute care hospitals and has not been successful in increasing referrals from the "northern tier" in and around Lake City, and "southern tier" in and around the Ocala area, notwithstanding a potential patient population to be served. But see Findings of Fact (FOF) 319-20. LRMC's Ohme Rehabilitation Center is a 15-bed unit (seven private and eight semi-private beds) located in the north campus of and approximately one mile from LRMC. Ohme is located approximately 50 miles from the downtown Ocala area. The CMR unit is located on the third floor of a building that also houses the 120-bed nursing home on the second floor. The gym for the CMR unit is located on the first floor of the same building. Between 2004 and 2007, the ADC at LRMC ran between 11 and 12 beds and the available number of beds ranged between three and four. In or around 2006, LRMC received an exemption from the Agency to add seven beds to its existing CMR facility. However, at the time of the final hearing the exemption granted to LRMC had expired. It appears that LRMC's senior executive team decided not to add the beds in light of a declining census and because of the significant expense to satisfy code requirements. LRMC considers the Spring Hill location as a distinct medical market. Since 2005, approximately 90 percent of Ohme's CMR patients were admitted from hospitals within the LRMC system or hospitals within the Lake County area. Since 2005, between 69 to 77 percent of the CMR patient admissions have come from LRMC. See also FOFs 328-339. A negligible number of patients have been referred to and admitted from Ocala area acute care hospitals, i.e., Munroe Regional, Nature Coast Regional Hospital, Ocala Regional Medical Center, and West Marion Community Hospital. The persuasive evidence indicates that LRMC does not do any meaningful marketing in the Ocala area for CMR patients. Sixteen CMR beds have also been approved for Seven Rivers Medical Center in Citrus County. The Seven Rivers unit was scheduled to become operational by June 2009. However, testimony indicated that the beds were still under development at the time of the hearing. For the year ending December 31, 2007, the occupancy rate for all CMR beds in District 3 was 82 percent. As noted, there are ten skilled nursing facilities in the PSA with 1,552 licensed beds. TimberRidge Nursing and Rehabilitation Center (TimberRidge), is a skilled nursing facility (SNF) and comprises 180 beds (174 semi-private and six private) and owned by Munroe Regional. TimberRidge provides nursing and rehabilitative care based on a patient's needs and is Medicare-certified. TimberRidge is located on the west side of Interstate 75 next to Munroe Regional's new freestanding emergency department. TimberRidge is not at functional capacity and had 50 available beds at the time of this hearing. Approximately 40-to-50 percent of TimberRidge's admissions come from Munroe Regional and approximately 25-to-30 percent from Ocala Regional and the same percentage from West Marion. (If Munroe Regional has 100 discharges, TimberRidge receives 20 percent of those which comprise 40-to-50 percent of TimberRidge's admissions.) TimberRidge and Oakhurst Rehab and Nursing Center are the Ocala area largest SNF recipients of discharges from Munroe Regional. TimberRidge has not had a physiatrist on staff for approximately seven years. The applicant argued that approval of the proposed facility would promote quality of care based on the assertion that patients in the PSA are not being admitted to a CMR facility but are instead admitted to a "lesser, and often inappropriate, level of care" such as long-term acute care hospitals or SNFs. However, this contention was not persuasively supported by the facts. The issue of whether patients are better served in one post-acute care setting versus another, and in particular, whether particular patients should be admitted to SNF or CMR facilities, including resulting outcomes, is a debated topic. In response to the debate, CMS has engaged the services of Research Triangle Institute (RTI) to conduct a study known as the CARE Project. The CARE Project was created to undertake research to develop a common tool or instrument that could be used to assess patients in multiple settings so that home health agencies, CMRs, and SNFs would be able to report comparative data. CMRs and SNFs provide different levels of care service. SNFs, even when providing rehabilitation services and therapies, do not provide the level of intense interdisciplinary rehabilitation services provided at CMR facilities. In general, a SNF, such as TimberRidge, offering rehabilitation services in a distinct portion of the SNF, provides appropriate rehab care for the patients it serves. TimberRidge, however, is not a pure substitute for a CMR facility. Richard Soehner, the Administrator for TimberRidge testified in opposition to HS-Ocala's representation that SNFs are often inappropriate levels of care for patients needing inpatient rehabilitation. TimberRidge's 180 beds are split into three 60-bed wings -- West, East, and South. The West Wing houses the most acute, intensive rehabilitation patients. Additionally, the rehabilitation population overflows into the East Wing. The remainder of the East Wing and South Wing house long-term residents. TimberRidge provides nursing and rehabilitation services to geriatric patients in and around Ocala. Employees of TimberRidge are involved in daily communications with discharge planners at hospitals, and help to determine whether TimberRidge can accept a resident. A registered nurse will often visit patients in hospitals and discharge planners to gather necessary information for admission to TimberRidge. TimberRidge employs or contracts with 30 to 35 therapists and has a medical director. Rehabilitation therapy disciplines include physical, occupational, and speech therapy. Therapists are available seven days a week and coordinate a patient's particular clinical needs with one another. Nursing care is provided 24-hours a day. After admission, each patient at TimberRidge undergoes a lengthy assessment process by therapy staff, nursing staff, social services, activities, dining services, and dietician. Then, a care plan is formed that outlines the goals and objectives and how these goals and objectives are going to be reached by the interdisciplinary care plan team. Physician orders and a therapist's judgment are used to determine how much therapy a patient can tolerate and what the patient needs. TimberRidge also receives input from families from the assessment standpoint. Families are encouraged to visit, attend and participate in care-planning meetings. Families are a key component of successful rehabilitation. Family members are also provided training by nurses or therapists. In like manner, families are an important component of the patient services offered at CMR facilities. Mr. Soehner reviewed HS-Ocala Exhibit 1, Bates Stamp 556, which contains the chart summarizing differences in care between area SNFs and Florida CMR hospitals. Although not a clinician, he testified the average charges for therapy of $62 per patient day indicated in the exhibit is diluted because the calculation includes patient or resident days related to patients not receiving rehab therapy. As a SNF administrator, Mr. Soehner knows of no correlation in the size of gym space or lack of gym space being detrimental to care provided. Therapy is still provided with successful outcomes. (On average, among CMR facilities in Florida, more space is devoted to gym space as a percent of the total square footage, than in Ocala area SNFs.) The chart on HS-Ocala Exhibit 1, Bates Stamp 556, states that the average pharmacy and lab charges are $16 and $2 a day, respectively, which would indicate that the patients are not receiving very much medication or lab work. However, this data tends to dilute the numbers for pharmacy and lab charges per patient day because the total patient days used includes long-term patients. Notwithstanding the testimony of Mr. Soehner, Ms. Greenberg's analysis of the different levels of service generally offered at SNFs and CMR facilities is at least consistent with the finding that CMR facilities offer more intense levels of rehabilitation services (for the categories shown) to its patients. Patients are admitted to a SNF. The first five days are considered to be an initial assessment period. TimberRidge provides different levels of rehabilitation based on a patient's needs. The Medicare program has established Resource Utilization Groups or RUGs. SNFs are reimbursed according to dollar allocations among the various RUG codes. But, RUGs are not outcome based. Each code represents a specific skilled level code or reimbursement code. The "R" codes are rehabilitation codes. There are several rehabilitation RUGs. There are five ultrahigh categories, i.e., RUX, RUL, RUC, RUB, and RUA. This means that each patient in this ultrahigh category must receive a minimum of 720 minutes (12 hours) of therapy over a five-day period (within a seven-day period) and includes more than one discipline. This also equates to 2.40 hours per day. (The rehab very high category requires 500 minutes of therapy per week.) In contrast, a person in a CMR facility must be able to tolerate three hours per day of therapy over a five-day period, whereas a patient receiving rehab in a SNF may have a minimum of approximately 2.40 hours per day if they are classified in the ultra high category. There are other levels of rehabilitation categories very high, high medium, and low, with RUG subcategories within each. For example, there are five RUG classifications within the very high category, e.g., RVC, RVB, RVA, RVX, and RVL. The RUGs categories are represented by a three-digit alpha code, with the first two digits representing the level of rehab, e.g., RU being rehab ultrahigh, and the last character, C, B, A, X, or L representing activities of daily living scores and the nursing care needs of the patient.3/ The RUG category for a patient can change throughout their stay. In other words, a patient may initially be assigned and placed in an ultra-high RUG category and later assigned a lower category. The RUG factors, like RUC (ultra high), are a measure of the intensity of therapy. It does not necessarily mean that the patient is any sicker than other patients, but it does mean that at least they have the stamina to tolerate more therapy. Medicare reimburses SNFs for rehabilitation services based on RUG scores and the amount of rehabilitation therapy a patient receives, whereas Medicare pays a CMR facility a total amount depending on a particular diagnosis of a patient. Like Ms. Gill, Mr. Soehner testified that reimbursement is determined by a comprehensive assessment, including the amount of rehabilitation projected or provided. Although it is not an outcome based reimbursement system, the RUG system is designed to reimburse a skilled nursing facility based on the resources a patient is expected to consume while admitted. TimberRidge's goal is to provide patients the services needed to attain and maintain the highest level of functioning the patient can sustain regardless of whether TimberRidge is reimbursed for it. In rare cases, this goal may allow for three hours of therapy a day, but for most cases, the patient cannot tolerate that intense level of care nor is it medically necessary. Ms. Gill examined data regarding rehabilitation patients admitted and discharged from TimberRidge by RUG classification based on age and length of stay during 2008.4/ Patients fitting within the rehab ultra high and very high, high, medium, and low were separated from the other rehab categories. The ultra-high category was chosen because any patient admitted to a SNF and deemed appropriate for any category lower than ultra high means that the patient cannot tolerate any more than 500 minutes (two and a half hours of therapy a day) of therapy a week, which would disqualify them from admission to a CMR facility. Thus, the ultra-high category was chosen as a proxy for CMR services, at least for therapy utilization. Approximate 35.8 percent of the ultra-high patients were over the age of 75 and 28.9 percent were 85 and older. Approximately 60 percent of the patient population is over 75 years of age, which is different from what one would normally see in a CMR facility. Of the 881 total rehab patients admitted and discharged from TimberRidge in 2008, 461 (or approximately 52 percent) were placed in the ultra-high category and 420 in the remaining rehab categories. (Based on a 2008 Medicare cost report, TimberRidge's ultra-high RUGs have grown from 26 percent to 50 percent, which, according to Ms. Greenberg, places TimberRidge on par with the state averages.) The ultra-high category has increased significantly since 2001. Of the 461 patients, 28.7 percent returned to home; 43.8 percent returned to home with home health; 18.7 percent returned to a hospital; and other small percentages were discharged to other settings. The percentages are slightly higher for those patients returning to home and some with home health when age is considered. Patients in the other rehab categories (very high, high, medium and low) had lower percentages of patients discharged to the home (20.1 percent) and home with home health (30.8 percent) and a higher percentage discharged to a hospital (27.2 percent). It is a fair inference that these patients may not have been able to tolerate significant therapy and were also sicker and with co-morbidities. The number of patients in the ultra-high and high RUG therapy categories is consistent with statewide averages and is normal. The same is true for the level of RUG therapy provided by SNFs in areas where HealthSouth has a CMR facility. The applicant views this information as an indication that SNFs are "filling a role, but they are not filling a gap." TimberRidge has won the local area's rehabilitation award and Reader's Choice award as the area's number one nursing home. The facility receives a lot of repeat business and referrals. There is a fair inference that TimberRidge is an appropriate placement for patients. TimberRidge is not at functional capacity; as of June 22, 2009, TimberRidge had 50 available beds. The evidence at the hearing demonstrated that the care provided through SNFs in the Ocala area is appropriate and produces quality outcomes. On the other hand, the rehabilitation services provided to SNF rehabilitation patients is not a pure substitute for the rehabilitation services, including therapies, provided at a CMR facility for patients requiring that particular service. Also, as noted herein, there are several material differences between CMRs and SNFs.5/ Thirty-to-50 percent of the patients at a SNF such as TimberRidge could be placed in a CMR or in a SNF. Overall, patients receiving rehabilitation services in the Ocala area appear to be receiving appropriate care, and the quality and intensity of care being provided by the existing SNF rehabilitation providers is equivalent to, if not better, than national averages and does not present a not normal circumstance. Alternative bed-need methodologies HS-Ocala's healthcare planner performed several bed- need analyses. The applicant assumed that 95 percent of the patients would come from within the proposed service area of 25 zip codes. The first methodology considered bed need by age mix. The bed-need methodology yielded a need for 45, 46, and 48 beds by 2010-2012 at 85 percent occupancy. The second bed need was based on a discharge use rate for freestanding CMR market areas versus the areas that did not have a freestanding CMR. This methodology yielded a bed need of 53, 55, and 57 for 2010-2012 with the same occupancy rate. A third bed-need approach was based on an analysis of CMS 13 diagnostic codes in relation to the population within the proposed 25 zip code service area. This analysis is also known as the conversion rate analysis. Based on this analysis, the applicant projected a bed need of 51, 52, and 54, for years 2010, 2011, and 2012, respectively. The applicant projected that 12 of the 54 beds or 22 percent of the bed need is potentially attributable to stroke patients and 42 to non-stroke patients. These projections are based on a 15 percent conversion rate. The "conversion rate" The argument that "not normal" circumstances exist in District 3 is based in large part on a comparison of "conversion rates" in various areas of the state with the proposed service area. The "conversion rate" is a ratio calculated by the applicant to determine the utilization of CMR services by Medicare fee-for-service patients in the primary service area of each of HealthSouth's facilities. HealthSouth has used this conversion rate as a means of evaluating the success of its facilities since approximately 2004. The calculation begins by determining the primary service area for each HealthSouth Florida facility. The applicant defines the primary service area of any particular facility as the zip codes from which that facility derives between 75 percent and 85 percent of its patients. The HealthCare Concepts Group of Dixon Hughes, a consulting firm retained by HealthSouth, determined the zip codes comprising the primary service area for each HealthSouth Florida facility using HealthSouth patient admission information (not Medicare or MedPar data) for calendar year 2007. Dixon Hughes determined the zip codes from which each facility derived approximately 80 percent of its patient admissions for each HealthSouth CMR facility. Although Dixon Hughes sought a goal of 80 percent, the percentage of patient admissions comprising the primary service area for the Florida facilities used in calculating the conversion rate varied somewhat, ranging from as low as 73.6 percent at HealthSouth Treasure Coast, to as high as 90.83 percent at HealthSouth Sea Pines. HS Ex. 53A, Bates Stamp 515-44. After establishing the zip codes comprising the primary service area of each facility, Dixon Hughes requested another consulting firm, Health InfoTechnic (HIT), to provide summary data for certain CMS-13 discharges and admissions for each primary service area for the nine HealthSouth CMR facilities. This CMS-13 data was collected from HIT in 2008 and available to HealthSouth in January of 2009. The summary tabulated data provided by HIT was generated from the MedPar database (approximately 13,300,000 records per year) for federal fiscal year 2006 (October 2005 through September 2006). (HIT received the MedPar data file around September 2007.) MedPar data only includes fee-for-service patients and does not include any Medicare HMO or Medicare Advantage patients. The MedPar database records and generates information contained in the medical history of patients covered by the Medicare fee-for-service program and discharged from acute care hospitals. The MedPar database records up to nine diagnosis codes for each patient. Using the MedPar database, HIT first determined the number of Medicare fee-for-service patients discharged from only acute care hospitals who resided in a HealthSouth facility's primary service area (by zip code provided by Dixon Hughes) and who had one of the CMS-13 diagnosis codes in their medical history. These were identified as CMS "qualifying patients." Once the qualifying patients were identified, HIT determined how many of those qualifying patients (within the primary service area for each HealthSouth CMR facility) were discharged to a CMR facility anywhere in the United States. HIT used the diagnosis procedure codes that are HIPPA protected fields to determine whether the patient is a CMS qualified patient. Other information, such as the patient's name, date of birth, and the codes are prohibited from release. HIT is prohibited by CMS and pursuant to a data use agreement from providing any of the underlying claims data to anyone including HealthSouth. The number of diagnosis codes examined to determine whether a patient qualified as a potential admission to a CMR facility under CMR rules varied depending on the particular impairment group being examined. For example, for brain injury and for burns, only two of the nine available diagnosis codes were examined. For stroke, only four of the nine available diagnosis codes were examined. For joint replacement and hip fractures, all nine available procedure codes were examined. No evidence was presented to determine the number of diagnosis codes examined for the other CMS-13 diagnoses, such as amputation, major multiple trauma, neurological disorders, spinal cord injury, congenital deformities, osteoarthritis, rheumatoid arthritis, and systemic vasculidities. A patient with a psychiatric or obstetrical condition who may have also had a qualifying CMS-13 diagnosis code in his or her medical history was automatically excluded from the total CMS-13 qualifying patients for purposes of determining the conversion rate. Patients who died in an acute care hospital were not excluded. Patients in rehab facilities were excluded. A summary of the analysis generated by HIT was provided to Dixon Hughes in order to calculate a conversion rate for each of the nine HealthSouth Florida facilities by dividing the number of qualifying patients discharged to a CMR facility by the total number of qualifying patients. For example, for HealthSouth Spring Hill, there were 1,206 total CMS-13 cases (by discharge and derived from MedPar data and HIT) that were discharged from acute care hospitals for patients residing within one of the zip codes within the facility's primary service area. Of the 1,206 patient discharges, 305 or approximately 23 percent were discharged to a CMR facility somewhere in the United States. See, e.g., HS Ex. 53A at 2. The 23 percent number is the conversion rate for that facility. (Again, in order to establish the zip codes for each HealthSouth CMR facility, all of the admissions (not just Medicare fee-for-service) were recorded from HealthSouth's internal admission data.)6/ The conversion rate for each of HealthSouth's nine Florida facilities, as determined in the manner described above, is contained in HS-Ocala Exhibit 53, Bates Stamp 484. The numbers on HS-Ocala Exhibit 53 are a subset of all the CMS 13 discharges because the data used is MedPar data. As stated by Mr. Edward Stall for Dixon Hughes, the conversion rate is not a market penetration rate. "It's really a measure of does a specific market utilize rehab care or does it not? It's more of an indicator of reasonable access to care" for the nine HealthSouth CMR facilities. Ms. Greenberg opined that the conversion rate was synonymous with a penetration rate, i.e., it is a determinant of what percentage of patients are likely users of a service. Ms. Bedard considers a conversion rate to mean the number of patients coming to rehab. She was not used to seeing data arrayed in the manner depicted on HS-Ocala Exhibit 53, Bates Stamp 484. The applicant originally calculated a conversion rate of 17.7 percent. However, the applicant was unable to produce any persuasive documentation supporting the calculation and, upon attempting to recreate the conversion rate, arrived at an average conversion rate of 17.9 percent. The Ocala Conversion Rate Once the PSA was defined, the applicant determined the Ocala Conversion Rate using the area from which the proposed facility would generate 95 percent of its patients. The Ocala Conversion Rate was generated using discharge information from the AHCA database for calendar year 2006, rather than MedPar data. Unlike the MedPar database, the AHCA database captures discharge information for all patients discharged from acute care hospitals, regardless of payor. Also unlike the MedPar database, the AHCA database records up to 31 diagnosis codes for each. The AHCA database is far less restrictive than the MedPar data base. The AHCA database was used to determine the Ocala conversion rate "because that's the universe of the patients that [the applicant] will serve." She did not use MedPar data because it contains only Medicare fee-for-service patients only. She used MedPar data to determine the conversion rate for the nine HealthSouth facilities because HealthSouth uses MedPar data as a benchmark to compare their market across the country and the data was available. Using the AHCA database, it was determined the number of patients residing in each of the 25 zip codes comprising the PSA who were discharged from an acute care hospital with a medical history including one or more CMS-13 diagnosis code In short, the applicant's analysis assumed that any discharge with a CMS-13 diagnosis code in the patient's medical history as described in the above paragraph would be a "qualifying patient" for purposes of calculating the Ocala Conversion Rate. This method yielded a total of 3,658 qualifying patients from the PSA for calendar year 2006. This method is also called a resident service rate. Of the 3,658 discharges, approximately 80 percent came from the four acute care hospitals in the service area; two percent from Leesburg; and 10 percent from Shands. The remaining discharges came from facilities outside the service area other than the facilities mentioned. Having identified the qualifying patients, the AHCA rehab data base was used to determine how many of the qualifying patients were discharged to a CMR facility. The determination of the number of patients discharged to a CMR facility included patients discharged to a CMR facility anywhere. This method yielded a total of 90 qualifying patients who were discharged to a CMR facility.7/ Dividing the number of qualifying patients discharged to CMR facilities (90) by the total number of qualifying patients (3,658) yielded the Ocala Conversion Rate of 2.46 percent. HS-Ocala contends that the Ocala Conversion Rate of 2.46 percent is unacceptably low compared to the 17-to-18 percent average conversion rate for HealthSouth's nine Florida facilities. According to the applicant, this comparison indicates "not normal" circumstances which are indicative of artificial geographic and programmatic barriers to accessibility to CMR services to residents of the proposed PSA. However, there are numerous problems with the conversion rate approach that make it inappropriate for use in determining need. The "conversion rate" is a self-defined concept unique to HealthSouth. It is not a use rate, nor a concept recognized in any rule governing the CON process, or recognized in the discipline of health planning, but it is used by HealthSouth. Rather, the conversion rate analysis is a marketing tool that is driven by and relies solely on HealthSouth's own experience. The HealthSouth Conversion Rate is driven by, among other things, HealthSouth's determination of what constitutes a primary service area for its own facilities. HealthSouth is the sole determinant of what constitutes a particular facility's primary service area. Because the calculation of the HealthSouth Conversion Rate begins with the determination of each HealthSouth facility's primary service area, the procedure cannot truly be replicated except in those areas where existing HealthSouth facilities are located. For example, there is no way to determine if Orange County has a conversion rate consistent with the HealthSouth Conversion Rate because HealthSouth does not have an established facility with a primary service area there. HealthSouth's determination of what constitutes the service area of the proposed Ocala facility also drives the determination of the Ocala Conversion Rate. Because there is no existing HealthSouth facility in the PSA, there is no historical HealthSouth patient admission data from which to determine a primary service area. Instead, HealthSouth "carved out" a 25 zip-code area within District 3 from which it claims the proposed Ocala facility will derive approximately 95 percent of its patient admissions. Even among the nine HealthSouth facilities in Florida, the areas HealthSouth has designated as the primary service area varies greatly. For example, while the primary service area for HealthSouth Treasure Coast constitutes the area from which the facility derives approximately 73.6 percent of its admissions, the primary service area for HealthSouth Sea Pines constitutes the area from which that facility derives approximately 90.83 percent of its admissions. Put another way, the primary service area of HealthSouth Sea Pines is over 23 percent larger in terms of admissions than the primary service area of HealthSouth Treasure Coast. The record is devoid of any explanation of whether this difference affects the HealthSouth Conversion Rate and, if so, how. Moreover, the variance in the conversion rate among HealthSouth's nine Florida facilities is also substantial, ranging from a low of 10.8 percent at HealthSouth Treasure Coast to a high of 25.29 percent at HealthSouth Spring Hill. There is no persuasive evidence in the record to explain why the conversion rate for HealthSouth Spring Hill is almost two and a half times that of HealthSouth Treasure Coast. According to the applicant, based on 93 HealthSouth markets around the United States, HealthSouth's conversion rate is approximately 16 percent. As noted above, the PSA constitutes the area from which the proposed facility will derive approximately 95 percent of its admissions. This service area is almost 30 percent larger in terms of patient admissions than that for HealthSouth Treasure Coast and is over 18 percent larger than the stated goal of 80 percent used to determine the HealthSouth Conversion Rate. The result of the larger patient origin percentage for the PSA is that it tends to overstate the potential demand for CMR services. The conversion rate is also driven by the manner in which HealthSouth chose to analyze the patient data to calculate the rate. HealthSouth used MedPar data, which only captures Medicare fee-for-service patients, for the calculation of the HealthSouth Conversion Rate. HealthSouth further limited the potential pool of patients by only using a portion of the data available in the MedPar database. For example, HealthSouth's consultant reviewed only primary and secondary diagnosis codes for certain CMS-13 categories, four diagnosis codes for others, and potentially all nine diagnosis codes in the MedPar database for other CMS-13 diagnosis categories. However, when the PSA conversion rate was determined, the potential patient pool was not limited in a similar manner. Rather, there was testimony that the use of the AHCA database, which includes patients from all payors, increased the pool of CMS-13 qualifying patients used for the calculation of the Ocala conversion rate. Since the MedPar data is a subset of the AHCA data, the number 3,658 would have been approximately 70 percent of 3,658 if MedPar data was used. Stated otherwise, the 3,658 number contains approximately 30 percent more people than would have been included if MedPar data was used. The MedPar database captures far less diagnosis codes than the AHCA database. This difference serves to further inflate the pool of CMS-13 qualifying patients in the PSA. Although the applicant could have evaluated the patient population for the PSA in the same manner that HealthSouth did to arrive at the HealthSouth Conversion Rate, the applicant chose not to do so. The MedPar and AHCA databases are not comparable. Mr. Balsano, in an attempt to compare apples-to-apples, calculated a conversion rate for HealthSouth's nine Florida facilities using AHCA data limited to Medicare fee-for-service patients only. Utilizing the same zip codes that HealthSouth used to calculate the HealthSouth Conversion Rate, Mr. Balsano calculated a conversion rate of 13.2 percent for the nine HealthSouth facilities, compared to the 17.9 percent determined using the MedPar database. Thus, the AHCA database, even when limited to Medicare fee-for-service like MedPar, yields a lower conversion rate. Mr. Denney, with HIT, testified that there are several reasons not to use the AHCA database for such an analysis. For example, the discharge status codes used by AHCA are not the same as universal billing codes and are not always in what are called UB04, or universal bill 04, codes as used by MedPar. Another problem with using the AHCA database is that Florida law allows distinct rehabilitation units of acute care hospitals not to report admissions to AHCA. The inconsistencies described herein do not allow for a valid comparison of the HealthSouth and Ocala Conversion Rates. The HealthSouth Spring Hill Case Study The application also contains a historical analysis of the conversion rate for the HealthSouth Spring Hill facility to support the argument that there is a need for the proposed facility. HS Ex. 1, Bates Stamp 550. Ms. Greenberg testified at length regarding the method by which she personally conducted the HealthSouth Spring Hill Case Study, including the method she used to determine the Spring Hill conversion rate utilized in the case study. Ms. Greenberg performed the Spring Hill Case Study using the AHCA database for calendar year 2006, but limited to only Medicare fee-for-service patients, arriving at the conversion rate for Spring Hill of 25.6 percent for calendar year (CY) 2006 (4.3 percent in CY 2002 prior to operation). This means that 25.6 percent of the CMS 13 discharges were residents within Spring Hill's primary service area (as defined by the applicant) who went to a CMR facility somewhere. (In HS-Ocala Ex. 53, Bates Stamp 484, the conversion rate is 25.3 percent.) Ms. Greenberg testified that the similarity in the numbers generated using the AHCA database limited only to Medicare fee-for-service and those generated using the MedPar database supports her conclusion that the MedPar and AHCA databases are comparable data sources. It was ultimately acknowledged that, in fact, like the HealthSouth Conversion Rate, the Spring Hill Case Study presented on pages 41-43 of the CON Application was derived from a summary of MedPar data for fiscal years 2002 and 2006 (October 1, 2005-September 30, 2006) that HealthSouth provided to Ms. Greenberg. The actual MedPar database was not reviewed. Rather, the analysis for the Spring Hill Case Study consisted of calculating the percentages based on the summary MedPar data provided by HealthSouth. Because the HealthSouth Spring Hill Conversion Rate was calculated in the same fashion as was the HealthSouth Conversion Rate, it does not reasonably serve as a comparison to the Ocala Conversion Rate for the same reasons. A conversion rate for the HealthSouth Spring Hill facility was calculated using the AHCA database prior to completing the application. However, that calculation was not included in the application. The summary data sheet, HS-Ocala Ex. 53, was sent to counsel for Shands and LRMC in a letter dated April 24, 2009. The information was then conveyed with the HealthSouth Conversion Rate to the applicant's health care planner. The underlying work papers were not saved. The applicant had to examine the 2006 Medpar data base and rerun the numbers. HS Ex. 53. The applicant produced a document indicating the reworked HealthSouth Conversion Rate along with the April 24, 2009, letter (written to counsel for Shands). HS Ex. 53, Bates Stamp 484. The document appearing as HS-Ocala Ex. 53, Bates Stamp 484 is a recreation of the numbers given to Ms. Greenberg. The underlying data upon which the applicant based the HealthSouth Conversion Rate, including the zip codes comprising the primary service area for the HealthSouth facilities, was available and in HealthSouth's possession (its computers) throughout the discovery phase of this proceeding. While some summary documents were provided, the underlying data which apparently would support the evidence was not. Instead, Mr. Stall and Mr. Denney described the process that was used to calculate the HealthSouth Conversion Rate. However, the testimony only served to further highlight some of the inconsistencies between the methodologies used to calculate the HealthSouth and Ocala conversion rates and to further support the conclusion that the rates are not necessarily comparable. Without the underlying data, it was difficult to confirm the comparison between the Spring Hill Conversion Rate and the Ocala Conversion Rate. Geographic and Programmatic Access The applicant alleges that there are geographic and clinical (programmatic) access problems that compromise the level of care and clinical outcomes of patients who would benefit from CMR services. Family travel distance can impact a patient's decision to access CMR services. The family access issue described by the applicant in this proceeding is not unique to District 3 or Marion County. Transportation of patients from acute care to CMR facilities is accomplished by emergency vehicles and, in some instances other forms of transport, including family automobiles. Potential patients within the applicant's PSA would not have typical or not normal problems accessing existing CMR providers in District 3. Shands provides free transportation to families who visit patients at its facility, and to those who need to be involved in the discharge planning process. Shands also provides other accommodations either free or at reduced costs. HealthSouth has a corporate policy of not providing transportation for Medicare patients to bring their family members to one of its CMR facilities for visits. The same policy applies for all patients. For HealthSouth, it is a compliance issue and considered an improper inducement. T. 544. Whether free transportation is improper is not resolved based on the record in this proceeding. But see HS Ex. 76. Interstate 75 is the main road through the Ocala area and runs north to Gainesville and south to Leesburg. Interstate 75 is a four-lane road and even six lanes in some instances. There are segments of road configurations which are composed of two-lane black tops with little or no lighting. Roadway segments north and south of the PSA are often rural with soft shoulders. There is evidence that some of these roads north and south out of the PSA are congested depending on the time of day and other conditions. The forest east of Marion County represents a natural geographic barrier. Florida Administrative Code Rule 59C-1.039(6) addresses the access standards for patients in need of CMR services. CMR "inpatient services should be available within a maximum ground travel time of 2 hours under average travel conditions for at least 90 percent of the district's total population." The applicant, and Shands and LRMC jointly, engaged traffic experts to conduct travel time studies to measure the length of time it takes for residents of the area to reach area hospitals. The applicant's travel expert, Lorin Brissett of Kimley-Horn and Associates, Inc., conducted a travel time study from Shands Rehab Hospital and LRMC to various locations or points within the PSA. Locations 1 through 4 were based on zip code information provided by the applicant in terms of the general coverage of the PSA, and denote the centroid of different population densities in the four quadrants of the PSA.8/ Location 5 represented the approximate center of the City of Ocala and the PSA. Mr. Brissett used a floating car method in performing the travel time study between locations one through four and location five. This method involves the driver attempting to pass as many cars as passed him, that is, the car would float with the traffic. Two runs were performed for each of the routes, going from locations one through four to location five. Two runs were performed for each return route. The runs were performed during peak travel times (typically between 4:00 p.m. and 6:00 p.m.) on a typical weekday, that is, Tuesday, Wednesday, or Thursday. The weather was clear and no accidents were noted. The travel study indicated that the average travel time to and from Shands was 52 minutes, with a high of 67 minutes and a low of 33 minutes. The average travel time from and to LRMC was 63 minutes, with a high of 90 minutes and a low of 37 minutes. The overall average travel time was 46 minutes from the center of the PSA to either Shands or LRMC. Mr. Brissett also commented that these travel times may be a bit longer for elderly drivers and that elderly drivers tend to travel more on local roads. Also, older drivers are not likely to drive using the floating car method. (None of the drivers used in the study were 65 years of age or older.) The travel study also noted that many of the roadway segments were rural in nature and there were conditions where the road was not properly lit. Mr. Brissett was not asked to conduct any study that would indicate what percentage of the District 3 population would be within two hours' average travel time to any existing CMR facility in District 3. Mr. Brissett was not asked to conduct travel studies for any CMR facility in District 3 other than Shands and LRMC and he did not do so. Mr. Brissett stated that rural roadways are not unique to Marion and Levy Counties, but exist in other Florida counties as well. Mr. Brissett concluded that anyone within the five zones would be able to access Shands Rehab Hospital in less than 70 minutes, even driving from 4:00 p.m. to 6:00 p.m., although it may take the elderly a bit longer. The travel expert retained by Shands and LRMC, William Tipton, Jr., based travel time runs on the location of the existing CMR facilities and population data for 2008 and 2013 published by AHCA for District 3. According to Mr. Tipton, "[l]ooking at the district and knowing the road systems available and the orientation of the populations to the existing facilities, it was evident that the adjacent counties to existing facilities could certainly make their runs within the access rule standard of less than two hours" or "substantially less time than two hours by each of the existing facilities within District III." Mr. Tipton's team conducted two runs in the morning peak hour, 7 a.m. to 9 a.m.; two runs in the midday off-peak hour, 11 a.m to 1 p.m.; and two runs in the evening peak hour, 4 p.m. to 6 p.m. to arrive at a complete cross section of the different travel patterns throughout the day.9/ Additionally, one of the test drivers in Mr. Tipton's team, was 70 years old and accomplished runs on 441 from Ocala to Shands, and on U.S. Highway 441 from Ocala down to Leesburg Regional Medical Center, and also the Interstate 75 runs. The elderly test driver's results were consistent with other runs accomplished by non- elderly drivers. Mr. Tipton's team also used the floating car method, but adjusted the methodology so that none of the drivers exceeded the posted speed limit by more than five miles per hour. In Mr. Tipton's opinion, this adjustment would give results that are more typical of what an average driver would do and more accurately reflects the driving patterns of elderly drivers. Mr. Tipton's results show that all of the facilities could be reached by at least 90 percent of the population in one hour or less; half the time required by rule. The roads traveled for Mr. Tipton's analysis were typical roadways found throughout central Florida. Mr. Tipton's study concluded that existing CMR facilities could be accessed within the requirements in Florida Administrative Code Rule 59C-1.039(6) and that a geographic access issue for an elderly person or someone else did not exist. Although the applicant argued that conditions existed that led to patients and family members not accessing CMR services, no testimony at hearing from area residents supported the contention. No residents of the PSA testified as to their personal experiences accessing existing CMR hospitals in the District. Rather, several of the applicant's expert witnesses testified as to their experience with local road conditions driving from the PSA to and from Shands Rehab and LRMC. Dr. Lohan opined that elderly persons may find it more difficult to drive at night versus the daytime, which is consistent with the evidence in this record. Further, the transportation of patients to CMR facilities is not problematic because they are usually transported by ambulance or similar method of transport. It does not appear that patient safety or quality of care has been compromised because of the alleged travel times and distances to existing CMR hospitals. On the other hand, the construction of the proposed facility would reduce the average travel time to an existing CMR hospital for persons residing within the PSA. However, the number of persons whose travel time will likely be enhanced was not persuasively quantified by the applicant, aside from projecting occupancy rates for the first two years of operation. It is expected that patients with multiple trauma, brain, and spinal cord injuries would most likely be referred to Shands Rehab. For the most part, patients with brain and spinal cord injuries are receiving rehabilitation and typically are referred to Shands Rehab. The applicant does not propose a spinal cord and brain injury unit like the service offered at HealthSouth's Spring Hill facility. Consequently, whatever travel challenges might exist for these patients and their families would still exist even after HealthSouth is approved. The testimony was consistent that, in part due to the nature of CMR services as tertiary, patients and their families at times experience problems accessing such services. These problems, or challenges, include not only the time and distance required to reach such facilities, but other factors, such as whether a patient should be admitted to a CMR facility rather than to other post-acute care settings and whether the patient's insurance policy provides coverage for such services. The testimony was also consistent that these challenges occur not only throughout Florida but, in fact, occur throughout the nation on a daily basis. These challenges do not represent "not normal" circumstances but are normal. Quality of Care No evidence was presented indicating any deficiencies in the quality of care provided by Shands or LRMC. The services or equipment to be provided at the proposed facility are not necessarily superior to the services that are provided at Shands or LRMC. The applicant will offer the use of an AutoAmbulator to its patients. The AutoAmbulator was developed for and is exclusively available at HealthSouth facilities. No independent study indicates that the use of the AutoAmbulator results in better outcomes for patients, compared to similar equipment used at existing District 3 CMR facilities. Economic Access Notwithstanding the applicant's proposed commitment to provide at least 2.5 percent of its annual inpatient days to Medicaid and charity patients, there is no persuasive evidence that there are financial barriers to access CMR services by the residents of the PSA. It was not proven that the resident population of the PSA, including the medically indigent, Medicare recipients, and the elderly, has been or is likely to be denied access based on economic factors. See Fla. Admin. Code R. 59C-1.030(2). Section 408.035(1)(c): The ability of the applicant to provide quality of care and the applicant's record of providing quality of care. The applicant's quality of care will benefit from the hospital's affiliation with its parent, HealthSouth, which offers high quality CMR services country-wide. HealthSouth has invested in state-of-the-art quality measurement systems to monitor processes and outcomes, allowing each facility to maintain high standards of quality of care. The applicant has demonstrated that it has the ability to adequately staff the facility and will provide high quality of care. Section 408.035(1)(d): The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. HealthSouth is a publicly traded corporation and is the largest provider in inpatient rehabilitative health services in the United States in terms of revenue, number of hospitals, and patient treated. HealthSouth has the financial resources needed to ensure project accomplishment and operation of the proposed project. HealthSouth is committed to assisting the applicant with fiscal and legal services, specialized accounting functions, and reimbursement expertise and information system services. There continues to be a shortage of healthcare personnel in Florida and it is inevitable that a portion of the staff for the proposed facility may come from other facilities in District 3. Nevertheless, the applicant is able to draw upon the managerial resources and broad range of established and services provided by HealthSouth, including the recruitment and retention of staff. The applicant has the available resources, including health and management personnel for the completion and operation of the project. Schedule 6 of the application describes the applicant's estimate of the projected staff and staff needed for the project HealthSouth will need 17 new RNs in Year Two based on its staffing projections. HealthSouth recruits personnel to staff its facilities locally as well as on a national and international level. HealthSouth also satisfies its staffing demands internally, as its employees have the ability to transfer from one HealthSouth facility to another. HealthSouth has been successful in recruiting therapists and nurses to staff its facilities. HealthSouth uses a variety of tools to recruit its nurses, and once hired, HealthSouth invests significant efforts in training its employees. From time-to-time, HealthSouth has paid for contract nurses to fulfill its staffing demands. HealthSouth is not expected to limit its recruiting efforts to the Ocala area, but will recruit from other areas as is necessary to appropriately staff the facility. There was a difference of opinion offered by the parties' experts as to whether the applicant's staffing projections in its application were reasonable. Testimony from the applicant's experts indicated that the staffing projections included in the application were reasonable and appropriate based upon the projected occupancy and utilization numbers for the proposed facility. Shands' and LRMC's experts testified that the applicant's projected therapist staffing needs in the application were inadequate to fulfill the projected utilization by patients at the proposed facility. It was also estimated that the FTEs projected in the application for therapy staff was short by anywhere from four- to-five FTEs. Despite the challenges presented by medical personnel shortages and the shortfall in the staffing needs projected in the CON application, it is reasonable to conclude that the applicant will be able to recruit the staff needed for the proposed facility. Staffing of the proposed facility may impair to some degree the ability of Shands and LRMC to staff their facilities, but not to the extent that the services and the quality of care provided will be reduced. Weighing all the testimony presented on this issue, the evidence supports the conclusion that the applicant's staffing projections are reasonable. The proposed average annual salaries in Schedule 6A are reasonable. Appropriate funds have been budgeted for management personnel. Section 408.035(1)(e): The extent to which the proposed services will enhance access to health care for residents of the service district. The applicant's proposed CMR facility will enhance access to health care for the residents of that portion of District 3 within the PSA, except for patients with brain injury or spinal cord injury who are expected to go to Shands. Notwithstanding historical referral and admission patterns, at the very least, Shands and LRMC are viable alternatives for the residents needing CMR services residing within the applicant's PSA. Section 408.035(1)(f): The immediate and long-term financial feasibility of the proposal. Immediate Financial Feasibility Immediate or short-term financial feasibility refers to the ability of an applicant to fund construction, start-up, and operation of the proposed project. By rule, the Agency incorporated by reference Schedule 3 among other portions of the CON application. Fla. Admin. Code R. 59C-1.008(1)(f). The applicant's witnesses testified it was feasible for the project to be financed internally or by a third party in which case the third party would finance the acquisition of the property and the construction of the building and the applicant would lease the property from the third party. In support of its ability to obtain financing for the project, the applicant submitted a letter from GE Healthcare Financial Services (GE) with its application. The letter from GE did not represent a binding or enforceable commitment to provide the financing described in the letter. Notwithstanding the testimony regarding the GE letter, the ability of the applicant to obtain funding through a third party or to internally finance the building and startup costs of the project was established. Neither Shands' nor LRMC's witnesses disagreed with the applicant's ability to obtain sufficient funds for capital and initial operating expenses. The project is financially feasible in the short- term. Long-term Financial Feasibility Long-term financial feasibility is generally referred to as the ability of a project to show a profit at the end of its second year of operation. The projected utilization of a proposed facility is a critical factor to assess when determining whether the facility will be financially feasible in the long-term, given that projected revenues and expenses are driven by utilization projections. Schedules 7 and 8 set forth the financial projections for the project for years one and two. The applicant projects a net profit for Year Two from operations of $483,512 (net operating revenue minus total operating expenses) and an overall net profit of $299,777. These dollar amounts are derived based on projected utilization of the project in Year Two minus projected expenses. Shands and LRMC contend that HealthSouth overstated projected revenues and understated projected expenses. The projected revenues appear to be overstated, whereas the projected expenses appear to be reasonable. The projected utilization was determined by applying the "conversion rate" equal to 15 percent of the discharges identified. The conversion rate was then applied, which is based only on Medicare fee-for-service patients, to both Medicare and non-Medicare patients. Application of the use rate to the projected population in the proposed service area yielded 9,828 patient days and approximately 677 admissions in the second year of the facility's operation. The patient days projected in turn yielded an occupancy rate of 67.3 percent in year two. HS-Ocala Ex. 1, Bates Stamp 639-640. The 3,658 patients identified by Ms. Greenberg as potential patients requiring CMR services generated 90 admissions to a CMR facility in 2006. It is not reasonable to assume that the population defined in the PSA area will generate almost six times the number of admissions to CMR facilities that are presently generated. The applicant also assumed that 95 percent of the patients would come from the PSA area and five percent from other areas (in-migration). Mr. Balsano noted the financial projections are based upon the assumption that CMR admissions of patients residing in the PSA would increase from 90 patients in 2006 to approximately 644 patients by Year Two of the proposed project. Mr. Balsano testified that such a significant increase is not a reasonable assumption and overstates the market. As a result, Mr. Balsano's opinion was that revenues included in the applicant's financial projections were significantly overstated and that he had serious concerns about the proposed project's financial feasibility. The applicant did not provide financial projections assuming it would build and own the proposed facility itself without the involvement of a third party. According to Mr. House, this was because the costs were greater to HealthSouth if it were to utilize third party financing, so basing the financial projections on such a scenario presented a more conservative picture of the financial projections. Mr. House testified that the financial projections included in the application were reasonable. The rent expense included in the financial projections in Schedule 8 of the application included a cushion of approximately $371,000. Applying the cushion results in an increase in year two profit from $483,512 to $854,512. It appears that funding is available on the same terms as proposed in the GE letter and that that the rent projections are reasonable. Schedule 8 of the application did not include a management fee charged by HealthSouth to its subsidiaries despite the fact that the application's narrative assumptions represented that a management fee of five percent was included. Ms. Greenberg prepared the assumptions and she inadvertently indicated that a management fee was included. The actual management fee charged by HealthSouth at the time of the hearing was approximately three percent (2.78 percent in 2008). If the management fee referenced in the application is factored into the equation at the rate of five percent, it adds $515,548 in expenses to the project. If the management fee is factored at the rate of three percent, it adds $309,328 in expenses to the project expenses. Ms. Greenberg stated that the rent expense included in the financial projections did not include an adjustment for sales tax. At 6.5 percent, this would add approximately $95,000 to the expenses. Assuming this additional expense for Year Two, the effect would be to reduce the net profit from operations from $854,512 to $759,512, which would not affect the long-term financial feasibility of the project. Mr. Balsano also opined that the real estate taxes included in the financial projections were understated by approximately $158,000. In response, Ms. Greenberg opined that if a shortage existed, it would be between $113,341 and $153,244, with an average of $133,293. When coupled with the omitted sales tax (-$95,000), and after adjusting for the inflated rent expense (+$371,000), this reduces Schedule 8, Line 27 from $854,512 ($483,512 plus $371,000) to approximately $450,184 (-$309,328/management fee of three percent and -$95,000/sales tax on rent at 6.5 percent). The profitability in year two would be reduced further if the real estate taxes are considered, i.e., $316,891(Greenberg projection) versus $292,184 (Balsano projection). Further, according to Mr. Balsano, the staff projections included in the application are understated by $469,391 assuming a shortage of 6.2 FTEs, or approximately $300,000 assuming a shortage of four FTEs. The applicant did not concede a shortfall existed. Also, as noted herein, the staffing projections are reasonable and there is no projected shortage. In balancing the net effect of the adjustments suggested by Shands and LRMC and the applicant's responses, it is concluded that the project will be profitable in Year Two if the applicant achieves the projected net operating revenue on Schedule 8A, Line 1. (It was conceded that if the management fee charged by HealthSouth to its subsidiaries was 2.7 percent as opposed to five percent as stated in the application's assumptions, a $20,000 profit in year two would be projected.) While reasonable persons could differ as to whether the expenses in the financial projections included in Schedule 8A are reasonable, the long-term financial feasibility of the proposed project is based upon revenues which are calculated using the projected utilization from Schedule 5 of the application. The projected utilization is driven by the conversion rate calculated by the applicant that materially overstates the potential market for these services in the proposed PSA. Because the applicant's revenue projections are not reasonable, the proposed facility is not likely to be financially feasible in the long-term. Section 408.035(1)(g): The extent to which the proposal will foster competition that promotes quality and cost- effectiveness. Mr. Gregg testified that there is no evidence within the Agency's ability to analyze whether the application will foster competition that promotes quality and cost-effectiveness. However, as Mr. Gregg testified, the ability of healthcare providers to promote competition is very limited because payors have very narrow policies about what they will pay. The overwhelming portion of patients who require CMR services are served by the Medicare program. There is no price competition involved in the provision of the services proposed in this application. 306 There is no persuasive evidence showing that competition for the services proposed is lacking, that the quality of the care provided to residents of the District is other than excellent, or that the services or equipment proposed are superior to those already available to patients in the District. While approval of the project will likely provide some residents of the PSA a closer alternative to CMR services and perhaps some savings in terms of travel expenses and time, no persuasive evidence proved that the project is likely to foster competition that promotes quality and cost-effectiveness. Section 408.035(1)(h): The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction. The projected costs of construction in Schedule 1 are reasonable. The architectural plans are a reasonable. The architectural design and space for the proposed 40-bed freestanding rehabilitation facility are reasonable. The projected duration for construction of the facility is reasonable. The dates for construction are no longer accurate and would need to be extended due to the timing of the hearing. The projected land cost for the hospital is reasonable. The equipment listed in HS-Ocala Exhibit 6 is reasonable for the proposed facility. The equipment list does not include certain equipment, such as the AutoAmbulator, Bioness, and SaeboFlex, identified on pages 56-57 of the application. The cost of the AutoAmbulator was not included in equipment costs (although it is included on HS-Ocala Exhibit 6 at 8 of 16) because it is part of HealthSouth's research and development budget. The projected costs of the equipment are reasonable. Section 408.035(1)(i): The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent. HealthSouth has a history of providing health care services to Medicaid patients and the medically indigent, notwithstanding compliance issues relating to several of HealthSouth's Florida CMR facilities. Overall and based on the experience of HealthSouth, the applicant meets this criterion. Section 408.035(1)(j): The applicant's designation as a Gold Seal Program nursing facility pursuant to s. 400.235, when the applicant is requesting additional nursing home beds at that facility. This criterion is not applicable. Adverse Impact Shands and LRMC contend that approval of the proposed project would have a substantial negative impact on their operations. The issue of adverse impact is resolved in favor of Shands and LRMC, although it is a closer call than suggested by these parties, given the historical referral and admission of patients from within the PSA to Shands and LRMC. Consideration of adverse impact on existing providers is relevant to prove standing in a formal hearing involving a CON application pursuant to Section 120.57, Florida Statutes, and is a relevant factor to consider under Section 408.035(2), Florida Statutes, which includes consideration of the impact of approving a new hospital on an existing hospital in the same service district. Baptist Med. Ctr. of Clay, Inc. v. Agency for Health Care Admin. and Orange Park Med. Ctr., Inc. d/b/a Orange Park Med. Ctr., Case Nos. 06-0555CON, 06-0563CON, and 06-0843CON (DOAH Dec. 3, 2007, at ¶ 316; AHCA May 30, 2008), per curiam aff'd, 12 So. 3d 756 (Fla. 1st DCA 2009). Impact on Shands Mr. Balsano and Ms. Greenberg looked at the admissions to Shands from the defined PSA to determine the projected impact of the proposed facility on Shands. For the 12-month period ending June 30, 2007, Shands admitted 119 CMR patients from the zip codes comprising the PSA. To assess impact, Mr. Balsano and Ms. Greenberg agreed that patients with spinal cord or brain injury should not be considered, because those patients will likely continue to be treated at Shands. This left a total of 77 admissions. Mr. Balsano multiplied Shands' average contribution margin per patient, which he calculated to be $6,673, by the 77 patients to conclude that Shands would lose $513,821 in contribution margin. Mr. Balsano also considered the admissions to Shands from the secondary service area for the proposed facility that was referenced in the pre-application materials developed by Dixon Hughes. In 2007, Shands admitted 24 cases from this extended service area after subtracting the brain and spinal cord injury cases. Mr. Balsano concluded that Shands would lose half of those admissions. Applying the contribution margin to those cases resulted in an additional $80,076 of lost contribution for a total of $593,897. Ms. Greenberg disagreed with Mr. Balsano's use of the patients from the extended service area in his analysis of the potential impact on Shands. Ms. Greenberg opined that the use of these patients was inappropriate given the service area defined in the CON application, and the fact that HealthSouth considers the PSA a distinct medical market. Ms. Greenberg testified that major multiple trauma patients would also continue to be treated at Shands and, therefore, should be removed from the pool of at-risk patients. By doing so, Ms. Greenberg determined there were approximately 54 at-risk patients. Ms. Greenberg further reduced this number to account for patients who were admitted to Shands Rehab from within the Shands system because, according to Ms. Greenberg, those patients are likely to continue to be treated at Shands rehab. Applying this methodology to the 54 at-risk patients, Ms. Greenberg determined that the maximum number of at-risk patients was 19.3 and that the minimum number of at-risk patients was 13.5. Ms. Greenberg then multiplied Shands' average contribution margin per patient, which she determined to be $5,98410/ by the minimum and maximum at-risk patients she calculated, to determine that the impact to Shands would range from $80,787 to $115,196 in lost contribution margin. Using the contribution margin determined by Mr. Balsano resulted in a range of impact from $90,086 to $128,789 in lost contribution margin. Assuming consideration of the criticisms, Mr. Balsano testified that his estimate of 77 cases lost from the PSA was reasonable. Mr. Balsano based his conclusion, in part, on the fact that HealthSouth is projecting in excess of 600 admissions from the PSA in the Year Two. According to Mr. Balsano, to meet those projections, it is reasonable to assume the 77 non- spinal/non-traumatic brain injury patients that Shands is currently serving from the PSA will be redirected to the proposed facility. Having considered all of the evidence on this issue, including the historical referrals and admissions of patients to Shands, see, e.g., FOF 87, and while there is a wide variation in projected losses, it is concluded that Shands would lose significant dollars in contribution margin if the proposed facility were constructed. Impact on LRMC Similar to the analysis conducted with respect to Shands, Mr. Balsano looked to the admissions to LRMC from the applicant's HealthSouth defined PSA to determine the projected impact of the proposed facility on LRMC. For the 12-month period ending June 30, 2007, LRMC admitted 13 patients from the zip codes comprising the applicant's PSA. Notwithstanding the financial impact noted herein, from 2006 through 2008, the financial performance (excess revenues over expenses) of LRMC's CMR facility has improved. Mr. Balsano then multiplied LRMC's average contribution margin per patient which he calculated to be $8,007, by these 13 at-risk patients from the applicant's defined PSA to determine that the impact to LRMC for these 13 patients if the proposed facility is built would be $104,091 in lost contribution margin. Mr. Balsano also considered the admissions to LRMC from the extended service area for the proposed facility that was referenced in the pre-application materials developed by Dixon Hughes. In 2007, LRMC admitted 205 cases from the extended service area. Mr. Balsano determined that it was reasonable to assume that LRMC would lose half of those cases. Applying the contribution margin to those cases would result in an additional $824,721 in lost contribution for a total combined impact of $928,812 in lost contribution margin to LRMC if the proposed facility is built. Ms. Greenberg disagreed with Mr. Balsano's use of the patients from the extended service area in his analysis of the potential impact on LRMC. Ms. Greenberg felt that the use of these patients was inappropriate, given the service area defined in the CON application, and the fact that the applicant considers the PSA a distinct medical market. See FOFs 91-92. Ms. Greenberg's impact analysis focused on the hospitals from which LRMC derives its patients. Based on LRMC's data, Ms. Greenberg determined that in 2007, approximately 89 percent of LRMC's patients came from Leesburg Regional, Villages, Waterman or South Lake hospitals. In 2008, approximately 90 percent of LRMC's patients came from those hospitals with 81 percent coming from the Leesburg facilities. Since there were no admissions to LRMC from the three acute care hospitals in Marion County in 2007 and 2008, Ms. Greenberg determined that the likely impact to Leesburg if the proposed facility is built would be zero. For purposes of determining an upper limit of the potential impact on LRMC, Ms. Greenberg assumed that LRMC would lose the 10 percent of patients not coming from Leesburg Regional, Villages, Waterman or South Lake. Multiplying the 10 percent by the 13 total cases admitted to LRMC from the PSA, Ms. Greenberg determined that a total of 1.3 patients were at risk. Multiplying these at-risk patients by the contribution margin used by Ms. Greenberg of $7,27011/ results in an impact to LRMC of $9,451 in lost contribution margin. Notwithstanding the minimal impact to LRMC calculated by Ms. Greenberg, there is considerable overlap, in terms of either like or contiguous zip codes, between the Leesburg area and the PSA. For example, in fiscal year 2008, LRMC admitted eight patients from zip code 34491, three patients from zip code 32195, two patients from zip code 34420, and three patients from zip code 32784, or 16 patients. These zip codes are included in the defined PSA. LRMC admitted 37 patients from zip code 32159, 39 patients from zip code 32162, and 21 patients from zip code 34788, which are all zip codes that are contiguous to the defined PSa. In all, for fiscal year 2008, LRMC admitted 113 patients from zip codes that are either within or contiguous to the PSA. See also T. 2119. Applying Ms. Greenberg's contribution margin for LRMC to those 113 cases results in a loss to LRMC of $821,510. These 113 patients represent approximately 41 percent of LRMC's admissions. According to the Agency, a loss of approximately one-third of LRMC's admissions would be considered a substantial disruption of the patient flow pattern. Additionally, it is reasonable to assume that the applicant may attract patients from zip codes contiguous to its service area. Further, it is expected that the applicant will aggressively market to areas including contiguous zip codes and not stop at a bright line between zip codes. Having considered all of the evidence on this issue, including but not limited to the number of patients admitted from Ocala area hospitals, see, e.g., FOFs 91-92, it is concluded that while there is a wide variation in projected losses, LRMC, like Shands, would potentially lose significant dollars if the proposed facility were constructed. Such a loss in contribution margin and therefore admissions would substantially affect the facility. The loss of the contribution margins, coupled with the potential impact on existing staff and programs, is substantial enough to recognize the standing of Shands and LRMC.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered denying CON Application No. 10009. DONE AND ENTERED this 24th day of November, 2009, in Tallahassee, Leon County, Florida. S CHARLES A. STAMPELOS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 24th day of November, 2009.
Findings Of Fact The facts, as stipulated to by the parties and as set forth above, are hereby adopted.
