The Issue Whether or not the Respondents Walter C. Heinrich, as Sheriff of Hillsborough County, Florida and ARA Health Services, Inc. d/b/a Correctional Medical Systems, unlawfully discriminated against Petitioner, Mary Alice Dessasau a/k/a Mary Alice Miller, in March 1991, when Respondent Heinrich revoked Petitioner's identification badge preventing her entry into the Hillsborough County Jails.
Findings Of Fact Petitioner, Mary Alice Dessasau a/k/a Mary Alice Miller, is a black female resident of Hillsborough County, Florida, and was employed by Respondent, ARA Health Services, Inc. d/b/a Correctional Medical Services, Inc. (CMS) as a Director of Nursing (DON) from August 1989 through March 12, 1990. Respondents Heinrich and CMS are employers within the meaning of the Florida Human Rights Act of 1977, as amended by Sections 760.01-760.10, Florida Statutes. As part of its duties as Sheriff, Respondent Heinrich is responsible for the operation and maintenance of the jail system in Hillsborough County. Through its detention department, Respondent Heinrich operated three jail facilities: County Jail East, County Jail West and County Jail Central. Respondent Heinrich is responsible for health care of its inmates in its correctional facilities and these duties are codified in the Florida State Department of Correction Regulations, Chapter 33-8, Florida Administrative Code. Respondent's detention department also operates under its own Standard Operating Procedures (SOP's); Series 913 for inmate health care. Respondent Heinrich operates its jails according to standards established by two accrediting organizations: National Commission on Correctional Health Care ("NCCHC") and American Correctional Association ("ACA"). The head of Respondent's detention department is Colonel Davis Parrish, who reports directly to the Sheriff. In 1989, the detention department had a specific bureau of inmate support services which included, among other functions, a medical services section with responsibility for inmate and staff health care. Respondent's support bureau commander was Captain Carl Barletta. In his chain of command, Captain Barletta reported to Major Steven Saunders, who at times relevant, was commander of Jail Division III. Major Saunders reported directly to Colonel Parrish. In performing his detention responsibilities, Respondent Heinrich utilized outside contractors for some service functions, and since February 1989, has contracted with CMS to provide inmate health care for the jail system and certain health care support staff. The contract between Respondent Heinrich and CMS requires that CMS adhere to Chapter 33-8, Florida Administrative Code, the NCCHC and ACA standards. The contract also provides that Respondent Heinrich has the right to review applicants for CMS positions in its jails and to require CMS to terminate the continued employment of any CMS employee at Respondent's jails. Respondent employs a contract monitor, Joyce Clark, to oversee and monitor inmate health care in the jails and specifically to ensure CMS' compliance with the contract, Chapter 33-8, the accrediting agencies and other community standards. During times material, contract monitor Clark was the contractor monitor involved herein. Clark holds bachelor and master's nursing degrees from the University of Pennsylvania and has 31 years experience in health care. During times material, Clark reported to Captain Barletta and also consulted with Major Saunders and Colonel Parrish. As part of her monitoring duties, Clark report contract problems, including personnel difficulties, to CMS as well as to Barletta, Saunders and Parrish. To provide inmate health services under the contract with Respondent Heinrich, CMS utilizes a nursing staff and independent contractors who are doctors, dentists and psychologists. CMS also employs a program administrator, Carol Shepard, who is the overall supervisor of CMS employees including the independent contractors. Shepard is also responsible for monitoring CMS' contract with Respondent Heinrich. CMS employs two directors of nursing (DONs) who report directly to Shepard. The DONs are responsible for all inpatient nursing functions and for maintaining 24-hour, 7-day a week staffing of the jails by trained nurses. DONs assist the program administrator in the management of the health facility in the development and implementation of policies. DONs function according to specific job functions and are charged with being familiar not only with CMS' policies and procedures, but also with Chapter 33-8, Florida Administrative Code, and the accrediting agencies standards. All of the policies, procedures, standards and regulations are available for review by CMS DONs. Upon Petitioner's employment with CMS during August 1989, Clark arranged a meeting wherein Petitioner was oriented as to all of the procedures, policies and Clark apprised her of what to look for in the different jail facilities. During the orientation meeting with Petitioner on August 29, 1989, Clark explained to Petitioner Chapter 33-8, "histories and physical-physician review, screening forms, sick call, perpetual inventory, NCCHC standards, psych requirements, daily reports and the revisions in Florida Statutes regarding psychologists." Clark specifically explained the NCCHC standards and provided a worksheet for Petitioner's use. Petitioner understood her responsibilities as director of nursing with regards to those standards. Alternatively, Clark advised Petitioner to inquire of her if something should come up that she was unfamiliar with. A number of performance problems surfaced which ultimately led to Petitioner's termination. Alice Claiborne, the other Director of Nursing, encountered some performance problems. However, by contrast, DON Claiborne's performance pale in comparison to these by Petitioner. The first performance problem involved Petitioner's duty as DON pursuant to state law to maintain various records and logs at the jails. Specifically, each jail kept logs of controlled substances, "sharps" (needles, etc.), instruments, segregated inmates' nursing visits, first aid kits, chronic diseases, infirmary admissions, emergency room transfers, hospitalizations, communicable diseases, x-rays, and EKGs. As contract monitor, Clark performed weekly checks of the logs and a pattern of deficiencies were discovered relative to the record keeping of the jails where Petitioner served as DON. Clark filed a complaint of those deficiencies to CMS' program administrator Shepard who verbally counseled Petitioner about the matter. Another performance problem surfaced regarding the manner in which Petitioner conducted inmate histories and physicals ("H & Ps"). Inmate H & Ps are conducted according to standards set forth in Chapter 33-8, the Sheriff's SOPs as well as the NCCHC and CMS guidelines. A paramount deficiency with Petitioner's H & Ps which led to her being counselled came about as a result of what are known as hands on "assessments" and the use of LPNs in the performance of this task. Specifically, the standards require that only physicians, registered nurses, physician assistants or advanced registered nurse practitioners ("ARNPs") perform the hands on assessment portion of an H & P and LPNs are forbidden from doing so by all the pertinent regulations. Notwithstanding Petitioner's familiarity with the standards and availability of the same for review, Petitioner allowed, if not instructed, LPNs to do hands on assessments. Clark became aware of the violation during January 1990, and complained of the breach to administrator Shepard. Shepard counselled Petitioner about the matter during January 1990 and further counselled the nursing staff at County Jail West where Petitioner was then the DON during February 1990. Despite the counselling, a similar occurrence was repeated during March 1990 when Petitioner instructed and/or allowed LPNs to do the hands on assessments. This breach was discovered by Clark who was at County Jail West when she observed an LPN performing an H & P. Clark inquired of the LPN why she was performing the hands on assessment and she advised that she had been assigned H & Ps for that day. This assignment was contrary to the contract, the statutory law and regulatory standards. Clark filed a complaint with program administrator Shepard who reported the matter to her superior, Captain Barletta. Shepard considered Petitioner's actions to be in disobedience of an earlier counselling and she again counselled Petitioner about the matter on or about March 5, 1990, in a meeting attended by CMS's regional manager, Roy Moore. In addition to allowing the wrong personnel to do H & Ps, Petitioner permitted the examinations to be done improperly. Specifically, rather than using scales to weigh inmates, Petitioner permitted her nurses to rely instead on the inmate's estimate of their weight. Similarly, nurses would not use an otoscope to examine eyes and ears and did not use a flashlight and tongue depressor to examine inmate's throats. Likewise, the H & Ps did not include dental exams and lung auscultations (listening to chest sounds through a stethoscope). Petitioner expressed lack of knowledge or confidence regarding certain procedures routinely performed by RNs and particularly a DON. Specifically, Petitioner objected to the procedure for psychiatric (psych") sick call. Under state law, CMS's nurses are required to respond to any inmate request for medical, dental or psychiatric assistance within 24 hours of the request. The procedure is one whereby the request is triaged or sorted, depending on its type and severity. Petitioner, contrary to this triage procedure, instructed her support nurses to direct all psychiatric requests to the psych ARNP, Shuler. This resulted in a potentially dangerous situation wherein such requests could be left overnight without treatment in defiance of the twenty-four (24) hour response requirement.. Petitioner was counselled concerning this by Shepard, Clark, Barletta and the DOC inspector, Pat Terry. Another persistent performance problem CMS and Respondent Heinrich encountered with Petitioner was her ineffective management technique and obstructive personality. Specifically, Respondent presented a management style which was belittling and abusive to nursing personnel under her supervision and prompted a meeting of all black nurses working under her direction. The purpose of that meeting was to air complaints regarding Petitioner's harsh treatment. Not only was this style evident to CMS nurse Joan Harris who called the meeting of the black nurses but also to Captain Barletta who found that although Petitioner initially was very professional, she immediately became argumentative and somewhat insolent. A similar view of Respondent's management style was evident to contract monitor Clark and Major Saunders who reported that Petitioner's management style of "obstructiveness" was a problem. Petitioner's obstructive management style was highlighted when a Florida Department of Corrections inspector, Pat Terry, was making a site inspection of the Hillsborough County Jails on February 27, 1990. Inspector Terry who was accompanied by Shepard, inspected County Jail West where Petitioner was serving on duty as DON. Specifically, Inspector Terry on three occasions inquired about the sharp logs and other documentary logs and on each occasion, Respondent either replied "I don't know where it is; I'm too busy and Bonnie will get it for you". As a result of a complaint filed by Inspector Terry, Program Administrator Shepard counselled Petitioner regarding her attitude this conduct and instructed her on the rather obvious point that the DON should try to assist rather than antagonize the DON inspector. Shepard further explained to Petitioner that her interaction with inspectors was to be a positive experience whereby inspection results could be utilized to improve CMS nursing services to its client. Another example of Respondent's personality difficulties occurred during November, 1989 involving the death of an inmate, Robert King. Specifically, Inmate King was booked into the County Jail on November 19, 1989. King presented flu-like symptoms on November 27 and was transferred to the infirmary on November 29. King was transferred to Tampa General Hospital later that day. Petitioner was on call at the central jail on the evening that King was transferred to Tampa General Hospital. Petitioner reviewed his medical chart that night at approximately 10:00 p.m. At 2:00 a.m. on November 30, CMS nurse Halpin called Petitioner at home to relay a message from King's treating physician at Tampa General, Dr. Combs, that the doctor wished medical information on Inmate King. Petitioner advised nurse Halpin that she did not have Dr. Combs phone number and would not attempt to call him. Petitioner did however, advise Halpin that should the doctor call back, she should take his number and she would then call him the following morning. King died later that day and contract monitor Clark investigated the matter. As part of her investigation, Clark interviewed Petitioner the next morning and she acknowledged receiving the telephone call from nurse Halpin and having refused to make any effort to give the information to the doctor. Petitioner attempted to excuse her actions by claiming that she was required to have a written order prior to releasing the inmate's information. Petitioner was advised by Clark that that was not the case and that her actions were contrary to CMS's policy and good medical practices although she was not the focus of the investigation or that she was the cause of inmate King's death. Upon learning of the incident, Captain Barletta initiated an administrative review of the incident and presented his findings to Major Saunders. Major Saunders recalled this incident as one of two which stood out as examples of Petitioner's refusal to professionally carry out her duties as DON. The other incident which struck Major Saunders as being exemplary of the problematic manner that Petitioner functioned as DON and which culminated in her being barred from Respondent Heinrich's detention facilities involved a court ordered health evaluation of a prostitute inmate housed at County Jail West, one Shannon Harris. It is not unusual for Respondent Heinrich to receive court orders concerning inmates in Respondent's custody and specifically concerning medical care. Typically such orders are referred to the CMS program administrator however on occasion, the courts will sometimes call the sheriff's classification section to direct its order. On March 8, 1990, one of Respondent's classification specialists, Carolyn Walsh, received a call from County Judge Holloway's office ordering Harris' release but qualifying that she must first receive a health test or a "H & P" prior to release. Walsh contacted County Jail West and advised Petitioner that the court had ordered a health examination for Harris and that it had to be as soon as possible. Clark, who was at County Jail West that day performing medical record reviews, witnessed Petitioner taking the call from Walsh. Petitioner told Walsh that she could not do an H & P on an inmate out of sequence and that such tests were done in order. Petitioner then told Walsh that she needed an order in writing which Walsh immediately sent to Petitioner. Petitioner maintained that even with the court order, she would not be able to do the exam that evening and that it would wait until the next day when the H & P nurse(s) were on duty. Clark, who lacked the authority to order the CMS DON to perform the exam, advised Petitioner to call Shepard for clarification. At approximately 3:30 p.m. Petitioner called Shepard and advised her that the court ordered health evaluation had been received whereupon Shepard reviewed the procedure and advised her that she needed to do it and that it had to be done that night. Initially Petitioner indicated to Shepard that she did not understand the order and why it could not wait until the following day. Captain Barletta was advised of this incident later in the afternoon by telephone call from Hall, Walsh's supervisor in Respondent's classification section. Hall advised Barletta that Petitioner had been apprised of the court order but had refused to do the H & P not once, but two times. Barletta then called Petitioner who confirmed that she had refused to do the exam. Barletta then ordered Petitioner to do the exam which was completed at approximately 4:00 p.m. From Barletta's perspective, the court order was clear that a H & P was to be performed on Harris immediately and had been violated by Petitioner. Barletta viewed this as a very serious matter and relayed the incident to his superior, Major Saunders. As a result of the communiques between Barletta, Program Administrator Shepard and Saunders, Barletta requested a meeting the following day with Petitioner. Shepard called Petitioner that evening to advise her of the March 9 meeting with Captain Barletta during the afternoon of March 9 at County Jail West. Because of the seriousness of the matter, Shepard also called CMS Regional Manager Moore because of her concern that if the client was unhappy, as Barletta was, she needed to apprise her superior such that he wouldn't be "blindsided" the next morning if Moore was called by the client raising those concerns. The following morning, Shepard went to County Jail West and talked to the medical secretary and observed the records logs to ascertain whether court ordered medical procedures with inmate prostitutes were being carried out as required. Shepard found a well kept log reflecting that such procedures were routinely conducted. Shepard also questioned the CMS nursing staff about their familiarity with these procedures. Shepard learned that each was aware of the prostitute list and court ordered procedures. Based on her investigation and inquiry of the nursing staff, it became obvious that Petitioner was the only nurse who was unfamiliar (or claimed to be) with the procedure. Shepard attempted to meet with Colonel Parrish who was unavailable but his secretary advised that Parrish was very upset and expected action to be taken. In fact, Barletta had advised Saunders of the incident who in turn advised Parrish. The incident was of great concern to Saunders and they jointly determined that it was the "last straw" for Petitioner as far as Saunders and Respondent Heinrich was concerned as they considered that breach to be simply another in a litany of problems that had surfaced based on Petitioner's performance. Specifically, Barletta, Saunders and Parrish had all discussed Petitioner's performance shortcomings on earlier occasions and Colonel Parrish inquired of Saunders and Barletta "why is this continuing . . . isn't this a problem we're trying to get a handle on . . . we've got to take action". As a result, Saunders exercised Respondent Heinrich's contract perogative and approximately 9:30 a.m. on March 9, Saunders advised Shepard that CMS had until Monday afternoon to terminate Petitioner or Respondent Heinrich would "pull her badge" denying her access to the jails. At the 2:00 p.m. meeting with Captain Barletta, Shepard, and Clark, Petitioner acknowledged her initial noncompliance with the court order although she related that once she got the clarification which she needed, she performed the order as directed. During the meeting, Petitioner was advised by CMS that an investigation would follow and she would be contacted later (regarding her employment status). Respondent Heinrich and CMS's disciplinary treatment of Petitioner were separate and distinct. Specifically, Respondent Heinrich's representative, Major Saunders, advised CMS that Petitioner should be terminated or her access badge would be revoked by Respondent Heinrich. The result of that action was that Petitioner would no longer be able to work at jails however this was not the end of Petitioner's employment with CMS. Specifically, CMS utilized a progressive disciplinary policy and the upshot of all the performance problems was that Petitioner was offered continued employment by Respondent CMS (a transfer) to another location in Pinellas County. However, Petitioner declined CMS' offer of a transfer due to personal reasons i.e. a fear of the water "preventing her from crossing bridges from Tampa to Pinellas County." The transfer offered by CMS was open and continuing at the time of the hearing. However, Petitioner has been employed as a director of nursing at Ambrosia Nursing Home for two years since her separation from employment by the Respondents herein. Respondent's replaced Petitioner by a black employee. Petitioner failed to adduce any racial animus on the part of Respondent Heinrich as relates to her employment relationship. While Petitioner advanced that there was a conspiracy between Captain Barletta, Major Saunders, Joyce Clark and Carol Shepard to "get" her because she was black, the record fails to confirm her claim of a conspiracy and the unsubstantiated allegations of witness Ana Collymore who had little, if any, support for Petitioner's claim since her interaction with Petitioner's employment relationship with Respondent Heinrich was non-existent; they worked in different departments, Collymore's hours were erratic in that she worked part time as a dietician with limited involvement as a member of the executive committee which discussed problems regarding nursing services.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: The Florida Commission on Human Relations enter a Final Order dismissing Petitioner, Mary Alice Miller a/k/a Mary Alice Dessasau, charges of discrimination against Respondents Walter Heinrich and Correctional Medical Systems, Inc. DONE and ENTERED this 1st day of May, 1992, in Tallahassee, Leon County, Florida. JAMES E. BRADWELL 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 1st day of May, 1992. APPENDIX TO RECOMMENDED ORDER Rulings on Petitioner's proposed findings of fact: Paragraphs 5, 6 rejected, unnecessary. Paragraph 7, rejected as background material although a similar statement is made in the preliminary section of the Recommended Order. Paragraph 12, adopted as modified, Paragraph 1, Recommended Order. Paragraph 14, rejected, unnecessary. Paragraph 17, rejected, unnecessary. Paragraph 21, adopted as modified, Paragraph 8, Recommended Order. Paragraph 22, rejected, irrelevant and unnecessary. Paragraph 23, rejected, irrelevant. Paragraph 25, adopted as modified, Paragraph 18, Recommended Order. Paragraph 26, adopted as modified, Paragraph 18, Recommended Order. Paragraphs 29, 30, 31 and 32, rejected as recitations of testimony and not findings of fact. Paragraph 33, rejected, irrelevant. Paragraphs 37-60, rejected as being primarily a recitation of testimony and not factual findings and therefore not probative or necessary to resolve the issues posed. Paragraphs 61-155 are, in the main, a recitation of the chronology and testimony of the various witnesses and are not findings of fact which lend themselves to specific rulings as required by Section 120.59(2), Florida Statutes. Copies furnished: GARDNER W BECKETT JR ESQ NELSON BECKETT & NELSON 123 EIGHTH ST N ST PETERSBURG FL 33701 PAUL J MARINO ESQ 2008 EIGHTH AVE TAMPA FL 33601 JAMES M CRAIG ESQ THOMPSON SIZEMORE & GONZALEZ PO BOX 639 TAMPA FL 33601 MARGARET JONES, CLERK FLORIDA HUMAN RELATIONS COMMISSION BLDG F - STE 240 325 JOHN KNOX RD TALLAHASSEE FL 32303-4113 DANA BAIRD ESQ GENERAL COUNSEL FLORIDA HUMAN RELATIONS COMMISSION BLDG F - STE 240 325 JOHN KNOX RD TALLAHASSEE FL 32303-4113
Findings Of Fact The Parties FRTC is a wholly-owned subsidiary of Charter Medical Corporation (Charter) which proposes to construct and operate a freestanding, 60 bed, 24- hour-a-day, Intensive Residential Treatment Program for children between the ages of 6 and 18 in Palm Beach County within HRS District IX, pursuant to Rule 10-28.152(8), F.A.C. and Chapter 395, F.S. Although FRTC represents it will construct its proposed facility with or without CON licensure, which it is entitled to do, given the peculiarities of this type of health care entity, it is clear that a prime motivator in FRTC's CON application is that with CON licensure, FRTC potentially will have greater access to insurance reimbursement because it may then call itself a "hospital." FRTC will seek JCAH accreditation. HRS is the state agency with the authority and responsibility to consider CON applications, pursuant to Chapter 10-5.011, F.A.C. and Sections 381.701-381.715, F.S. (1987). HRS preliminarily approved FRTC's application, and supported it through formal hearing and post-hearing proposals. RTCPB is an existing 40 bed residential treatment center for adolescents between the ages of 12 and 18, located in Palm Beach County, on the campus of Lake Hospital of the Palm Beaches. It provides services similar or identical to those services proposed to be offered by FRTC. It is JCAH accredited through an extension of Lake Hospital's accreditation and is close to JCAH accreditation in its own right. RTCPB is a subsidiary of Psychiatric Hospitals, Inc. (PIA) . PIA operates two residential treatment centers in Florida. RTCPB is not CON licensed as an IRTP, under Chapters 381 and 395, F.S., but is licensed as a child care facility under Chapter 395, F.S., as a provider of services to HRS under Chapters 10M-9 and 10E-10, F.A.C. RTCPB accepts substance abusers in residency. RTCPB has also applied for CON licensure as an IRTP in a batching cycle subsequent to the present one. That application has been preliminarily denied by HRS and RTCPB is awaiting a Section 120.57(1), F.S., formal administrative hearing thereon. RTCPB now estimates its current patients' average length of stay (ALOS) as 106 days but projects a 315 day (10 1/2 months) ALOS in its subsequent CON application. RTCPB is charging $185 per day or HRS patients and $255 with $23-26 ancillaries [sic] per day for private pay patients. Like FRTC, it uses a "levels" system of behavior modification and patient control. Humana is a 250 bed JCAH accredited hospital located in Palm Beach County, Florida. Of Humana's 250 beds, 162 are traditional acute care beds and 88 are psychiatric beds. The 88 psychiatric beds are administratively divided into different units, one of which is a 27 bed adolescent psychiatric unit; this unit opened January 20, 1987, and has an average length of stay of nine months. Humana's existing CONs are for short-term adult psychiatric beds and do not authorize an adolescent unit with an average length of stay of over 30 days. Ninety days is the demarcation, by rule, between short- and long-term psychiatric beds. Humana recently applied for a CON for more psychiatric beds and also applied for an IRTP CON in a subsequent batch to the present one. Humana's present 27 bed adolescent psychiatric unit provides grossly similar services to those proposed to be offered by FRTC, but its emphasis is more medical-psychiatric than emotional-behavioral. Like FRTC, Humana does not accept in residency adolescents with a primary diagnosis of substance abuse. Like FRTC and RTCPB, Humana uses a "levels" system. Eighty percent of Humana's patient mix are commercial pay, and the unit is running at a 15 to 20 percent profit margin. Humana usually charges $325 per day on their adolescent unit plus ancillaries [sic] amounting to 10 percent of the patient's bill, but HRS contract patients pay only $225 per day. Humana has lost a number of adolescent unit referrals to RTCPB since RTCPB opened June 1, 1987, but the unit continues to be almost fully occupied. Humana's main referral asset, as well as the source of the confusion of referring entities, appears to be the reputation of its director, Dr. Kelly. Dr. Kelly previously directed a program at Lake Hospital which was identical to the program that he now directs at Humana. Lake Hospital currently has RTCPB operating under its auspices, but not Dr. Kelly. Nature of the FRTC Program FRTC's proposed program is designed to serve those persons in the designated age group who have psychiatric diagnoses of a severity requiring a long-term approach in a multidisciplinary structured living setting to facilitate recovery. It will not, however, treat adolescents with an active diagnosis of chemical dependency or substance abuse. It also only commits to 1.5 percent indigent care. The proposed FRTC program differs from an acute care setting in significant quantitative and qualitative ways, the most visible of which is that acute care psychiatric settings (either long- or short-term) are geared toward dealing with patients actively dangerous to property, themselves, or others, but patients whom it is reasonably assumed will respond primarily to physiologically-oriented physicians and registered nurses administering daily medication, treatment, and monitoring, as opposed to a long-term living arrangement emphasizing behaviorally-oriented group interaction as an alternative to parental care at home. FRTC will, however, accept patients with psychiatric diagnoses of effective disorders, depression, schizophrenia and impulse disorders and those who may be potentially harmful to themselves, others, or property for whom no other less intensive or less restrictive form of treatment would be predictably helpful. FRTC would fall on the continuum of care below an acute psychiatric facility such as Humana. Assessment of such a target group on a patient by patient basis is obviously subject to a wide variation of interpretation by qualified health care professionals, but FRTC anticipates both verifying referral diagnoses and assuring quality of care by insuring that each new patient is seen by a psychiatrist within 24 hours of admission, and by having each case reviewed by an independent utilization review committee. FRTC also plans to complete appropriate patient assessments and develop and update individual, integrated treatment programs. FRTC will provide, where appropriate, for continuity of care from previous acute care institutions through the FRTC program and out into more normal individual or family living arrangements. Parents will have to consent to their child's placement at FRTC. FRTC's program proposes an average length of stay of 365 days (one year) with a range of six months to two years. Based upon all the credible record evidence as a whole, including, but not limited to, the protestants' respective ALOS, this is a reasonable forecast despite contrary evidence as to Charter's experience at its "template" Virginia institution, Charter Colonial. FRTC's program components will include individual therapy, recreational therapy, occupational therapy, and general education. The general education component in FRTC's proposed program is more general and more open than that offered in acute care settings, such as Humana. FRTC's overall program will utilize a "levels" system of behavioral management based upon patients earning privileges, which levels system has a good patient rehabilitation and functional administrative track record in many different kinds of psychiatric health care facilities, including Humana and RTCPB. FRTC intends that each patient's program will be individualized according to age and program component directed to his/her diagnosis and each patient will receive individual, resident group, and family therapies. As to assessment, types of therapy, continuity of care, and general education provisions, FRTC's proposal is grossly consistent with that of its "template." To the extent there is evidence of inconsistencies between the two programs in the record, the FRTC proposal represents either improvements over, or refinements of, its template program which have been developed as Charter/FRTC has learned more about what actually "works" for the IRTP form of health care, or it represents changes to accommodate Florida's perception of what less restrictive but still intensive residential treatment should be, or it anticipates local community needs. Quality of Care The applicant's parent corporation is an experienced provider of many types of accredited psychiatric facilities. The type of quality assurance program proposed and the staff mix provide reasonable quality care assurances. Design, Construction, and Personnel Refinements to FRTC's original schematic take into consideration the influence that physical structure has on an Intensive Residential Treatment Program. Those refinements include modification of a multipurpose room into a half-court gymnasium, addition of a classroom, addition of a mechanical room, modification of the nursing station to decrease the amount of space, and the deletion of one seclusion room and addition of a four to six bed assessment unit. The modifications resulted in the addition of approximately 1,000 square feet to the original design. A minimum of four to six acres would be necessary to accommodate the modified design which totals approximately 32,000 square feet. Public areas, such as administration and support services, dining room, and housekeeping areas, are to the front; private areas, such as the nursing units, are to the back. The facility's middle area houses gym, classrooms, and occupational therapy areas. The location encourages residential community involvement. Each of three, 20-bed units is made up of a group of two consultation rooms, a galley, a laundry, a day room and core living space located directly across from the nursing station for maximum observation and efficiency. Each unit comprises a separate wing. Six handicapped accessible patient beds are contemplated; the building will be handicapped-accessible. The staffing projections have increased and the pattern has been minimally altered in the updates. The updated pro forma also modified the initial financial projections so as to increase salary expense and employee benefits based on this change in staffing. An increase in the total project cost impacted on depreciation, and interest expense changed with time. All these changes are reasonable and insubstantial. FRTC's design is adequate for providing a suitable environment for intensive residential treatment for children and adolescents even though it is not identical to Charter's "template" for residential treatment and even though Charter's extensive experience with acute care facilities has focused these changes in its residential treatment concepts. The parties stipulated to the adequacy of FRTC's proposed equipment list and costs. Total construction cost was demonstrated to be reasonably estimated at $2,078,000. The square footage costs of $64.86 per square foot represet an increase from the square footage costs contained in the original CON application. The original budget was updated based upon a three percent inflation factor and the addition of the approximately 1,000 square feet. The additional space is not a significant construction change. The total project costs of $4,728,000 are reasonable. The testimony of HRS Deputy Assistant Secretary for Regulation and Health Facilities, John Griffin, who testified by deposition, (RTCPB's Exhibit 8, pp. 21-22) revealed no firm policy on what the agency, within its expertise, views as substantial and impermissible amendments to a CON application; HRS did not move at hearing to remand for further review; and the undersigned concludes that the changes in facility design, costs, and staffing do not represent significant changes which would be excludable as evidence and that they do represent permissible minor modifications and refinements of the original FRTC application. Site Availability No party contended that FRTC's application was a "site specific" application, that a residential treatment program is otherwise required to be "site specific," or that an IRTP CON is governed by a "site specific" rule or by "site specific" statutory criteria. Therefore, it was only necessary for FRTC in this noncomparative proceeding to establish that several suitable sites were available within the required geographic parameters at the financial amount allotted in FRTC's projections. FRTC did establish financially and geographically available and suitable sites through the testimony of Robert H. Ellzey, a qualified expert in commercial real estate values. The Non-Rule Need Policy There are no hospital licensed Intensive Residential Treatment Programs in Palm Beach County or in District IX. IRTPs are in a separate licensure category by law from psychiatric beds, acute care beds, and rehabilitation beds. There is a separate need methodology for long-term psychiatric beds and there are no CON licensed long-term psychiatric programs for children and adolescents in District IX, unless one considers Humana which is treating adolescents well beyond 30 or 90 days residency. HRS has no promulgated rule predicting need for IRTPs seeking specialty hospital licensure under Chapter 395, F.S. Subsequent to advice of its counsel that a CON must be obtained as a condition of IRTP licensure pursuant to Chapter 395, F.S., HRS elected to evaluate all IRTP CON applications in the context of the statutory criteria of Chapter 381, F.S., and in the context of HRS' non-rule policy establishing a rebuttable presumption of need for one "reasonably sized" IRTP in each HRS planning district. The May 5, 1988 Final Order in Florida Psychiatric Centers v. HRS, et al., DOAH Case No. 88- 0008R, held this non-rule policy invalid as a rule due to HRS' failure to promulgate it pursuant to Section 120.54, F.S., but that order also held the policy not to be invalid as contrary to Chapter 381, F.S. That Final Order intervened between the close of final hearing in the instant case and entry of the instant Recommended Order, however, it does not alter the need for the agency to explicate and demonstrate the reasonableness of its non-rule policy on a case by case basis. HRS was unable to do so in the formal hearing in the instant case. Notwithstanding the oral testimony of Robert May and Elizabeth Dudek, and the deposition testimony of John Griffin, it appears that the non- rule policy is not based upon generally recognized health planning considerations, but solely on the agency's statutory interpretation of recent amendments to Chapter 395 and some vague perception, after internal agency discussions, that the policy is consistent with certain promulgated need rules and with certain other non-rule policies for other types of health care entities, which other non-rule policies were never fully enunciated or proved up in this formal hearing. The HRS non-rule policy was also not affirmatively demonstrated to be rational because it does not take into account the reasonableness of a proposed facility's average length of stay, referral sources, geographic access, or other factors common to duly promulgated CON rules. Numerical Need and Conformity to Applicable Health Plans FRTC sought to support HRS' non-rule policy on numerical need for, and definition of, a "reasonably sized" IRTP through the testimony of Dr. Ronald Luke, who was qualified as an expert in health planning, development of need methodologies, health economies, survey research, and development of mental health programs. In the absence of a finding of a rational non-rule policy on numerical need, Dr. Luke's evidence forms the cornerstone of FRTC's demonstration of numerical need. Through the report and testimony of Dr. Luke, and despite contrary expert health planning testimony, FRTC established the numerical need for, and reasonableness of, its 60 licensed IRTP beds in District IX with projected 60 percent occupancy in the first year and 50 percent in the second year of operation using two bed need methodologies. Dr. Luke ultimately relied on a utilization methodology based upon 1991 population projections. Dr. Luke used a census rate per 100,000 population of 21.58. This is appropriately and reasonably derived from national data for residential treatment patients aged 0-17, regardless of the fact that the types of residential treatment considered by the NIMH data base employed by Dr. Luke greatly vary in concept and despite HRS having not yet clearly defined the nature of the programs and services it expects to be offered by a Florida specialty hospital licensed IRTP. Therefrom, Dr. Luke derived an average daily census of 52 in 1991. That figure yields a bed sizing of between 58 and 61 beds, depending on whether an 85 percent or 90 percent occupancy factor is plugged in. Either 58 or 61 beds is within the range of ratios calculated by Dr. Luke's other methodology for currently licensed Florida IRTPs in other districts. Assuming a target occupancy rate of 85 percent and an ALOS of one year, Dr. Luke considered the gross District IX IRTP bed need to be 60. In the absence of any like program to assess occupancy for and in the presence of similar programs such as Humana operating at nearly full occupancy now and RTCPB forecasting its occupancy at 88 percent in 1990 if it were IRTP-licensed, it is found that 60 beds are justified. Since there are no IRTP beds licensed as specialty hospitals in the current district bed inventory, no adjustment of this figure must be made to account for existing licensed IRTP beds. Simply stated, this is a CON application for an IRTP, nothing more and nothing less, and the subtrahend to be subtracted from gross district bed need is zero when there is a zero specialty hospital licensed IRTP bed inventory. Luke's calculated gross need of 60 bed is also his net need and is accepted. Fifty beds is generally the minimum size HRS will approve to be feasible for any free standing facility to be eonomically efficient and to be able to benefit from economies of scale. This 50 bed concept is within the wide range of bed ratios that HRS implicitly has found reasonable in, previously- licensed IRTP CON approvals. Conformity With Applicable Health Plans Section 38l.705(1)(a), F.S., requires HRS to consider CON applications against criteria contained in the applicable State and District Health Plans. In this regard, neither the applicable State Health Plan nor the applicable District IX Local Health Plan make any reference to a need for intensive residential treatment facilities. The District IX Health Plan addresses the need for psychiatric and substance abuse services to be available to all individuals in District IX. FRTC's project addresses this goal only in part. The District Health Plan states that priority should be given to CON applicants who make a commitment to providing indigent care. FRTC proposes only 1.5 percent indigent care which works out to only 1/2 of the ALOS of one patient at the proposed facility and is hardly optimum, but in a noncomparative hearing, it stands alone as advancing the given accessibility goal within the plan. Objective 1.3 of the State Health Plan provides: Through 1987, additional long-term inpatient psychiatric beds should not normally be approved unless the average annual occupancy for all existing and approved long-term hospital psychiatric beds in the HRS District is at least 80 percent. FRTC's project is neutral as to this goal. The District Plan also contains a goal for a complete range of health care services for the population of the district. FRTC advances this goal. The State Health Plan further provides: Goal 10: DEVELOP A COMPLETE RANGE OF ESSENTIAL PUBLIC MENTAL HEALTH SERVICES IN EACH HRS DISTRICT OBJECTIVE 10.1: Develop a range of essential mental health services in each HRS district by 1989. OBJECTIVE 10.3: Develop a network of residential treatment settings for Florida's severely emotionally disturbed children by 1990. RECOMMENDED ACTION: 1.03A: Develop residential placements within Florida for all SED children currently receiving ing treatment in out-of-state facilities by 1990. The FRTC project advances these goals in part. To the extent SED patients placed outside the state for residential treatment services are HRS patients whom FRTC as yet has not contracted to treat, the FRTC project does not advance this goal. However, increased insurance reimbursement will advance accessibility for those SED children and adolescents in need of this type of care whose families have insurance coverage. The State Plan also emphasizes a goal for a continuum of care. The FRTC plan advances this goal. Financial Feasibility William S. Love, Senior Director of Hospital Operations for Charter, was accepted as an expert in health care finance. Mr. Love prepared the pro forma financial statement contained in the original CON application and the update of the pro forma in response to HRS' completeness questions. Mr. Love also had input into the updated financial information which increased salary and benefit expense. (See FOF No. 11). The revised pro forma utilized an assumption of gross patient revenues of $300 per day and a 365 day ALOS, both of which are reasonable and both of which support the rest of FRTC's assumptions (See FOF No. 9). Routine revenues are based on the types of routine services patients normally receive on a daily basis. Ancillary revenues are support revenues such as pharmacy charges, X-rays, lab charges, and other charges not generally utilized on a routine basis. The only charges to patients at the proposed FRTC facility are the routine and ancillary charges. The assumptions with regard to contractual adjustments are that there will be no Medicare utilization since the facility is projected for children and adolescents and no Medicaid since freestanding facilities in Florida are not eligible for Medicaid. Two percent of gross patient revenues are estimated to be contractual adjustments which relate to HMOs and PPOs. FRTC addresses indigent care by 1.5 percent of gross revenues which will be dedicated to Charter Care which is free care. The assumptions with regard to bad debt are that 8 percent of gross revenue will be the allowance for bad debt. An assumption of 20 percent of salaries was used for employee benefits which include the FICA tax, health insurance, dental insurance, retirement plans, and other benefits. Supplies and expenses were calculated as a function of patient day with a $90 per day estimate. Included in supplies and expenses are supplies utilized in the delivery of health care services as well as medical professional fees such as the half-time medical director and purchased services such as laundry, linen, speech and hearing services, utilities, telephone, malpractice insurance, repairs and maintenance. The depreciation assumptions are that the building would be depreciated over 40 years, fixed equipment over 20 years and major movable equipment over 10 years. Pre-opening expenses for the first 45 days of operation have been capitalized over 60 months with low amortization costs over 15 years. There is no income tax assumed in the first year but the assumption in subsequent years is that the tax rate will be 38 percent. The failure to assume a hospital tax is inconsequential. The assumptions for the second fiscal year are basically the same. Although staffing remained the same, the FTEs per occupied bed increased, and a 7 percent inflation factor was added. The project will be financially feasible even though the facility is pessimistically projecting a loss of $102,000 for the first year because a facility can suffer a loss in its first year of operation and remain financially feasible. The facility projects a $286,000 profit in its second year of operation. With regard to utilization by class of pay, FRTC has assumed that the insurance category represents 65.5 percent of total revenues projected and includes such things as commercial insurance, Blue Cross and any third party carrier other than Medicare and Medicaid. Assumptions with regard to the private pay are that 25 percent of the total revenues will be generated by private pay patients and would include the self pay portions of an insurance payor's bill, such as deductible and co-insurance. Bad debt was assumed to be 8 percent, and Charter Care or free care, 1.5 percent. FRTC's projected utilization by class of pay is reasonable and is supported by the protestants' current experience with commercial insurance utilization and reimbursement and the predicted recoveries if RTCPB were IRTP-licensed. In the second year of operation, the assumptions with regard to utilization by class of pay demonstrated an increase in the insurance category from 65.5 to 66.5 percent with everything else remaining the same except for a decrease in bad debt to 7 percent. The assumption with regard to a decrease in bad debt is based upon the establishment of referral patterns from acute psychiatric facilities, outpatient programs, mental health therapists, and miscellaneous programs. The assumption is that 65 percent of the patients would be covered by insurance, not that 65 percent of each bill would be paid by insurance. Charter's experience has been that a good portion of the deductible and co-insurance payments are collectible. FRTC did not assume payment from any governmental contracts or HRS reimbursement. FRTC's projected self pay percentages assumption reasonably contemplates the percentage of households in the district which can afford its projections for self pay. For purposes of evaluating the financial feasibility of this proposal, a management fee was not included because in looking at the financial feasibility of a facility the expenses of a corporate home office are incurred whether or not the facility is built. It was not appropriate to allocate a management fee to the hospital because it showed a loss in its first year of operation and a profit in its second. When the facility becomes profitable, FRTC anticipates passing the profit through to the corporation to help reduce the corporate overhead. If a management fee had been allocated to this facility, allocations would have had to have been made to the other Charter facilities to show where their management expense had decreased and their profitability increased. It would have been inappropriate to take these fixed expenses and allocate a portion of them to the proposed FRTC facility. In addition to the fact that the failure to include a management fee in the pro forma should not affect the feasibility of the project, Charter has good cause not to apply a $44 per patient day management fee in its IRTP. FRTC's categories of payor class are generally reasonable based in part on the results of a survey performed in Florida. FRTC's assumptions and calculations are reasonable, based upon the testimony of William S. Love and Dr. Ronald Luke, notwithstanding the testimony of Dan Sullivan, Donald Wilson, and Christopher Knepper, also qualified as experts. Specifically, it is found that Dr. Luke's assessment that the designation of a facility as a licensed specialty hospital has a beneficial effect on its ability to obtain insurance reimbursement for services, that reimbursement impacts to increase ALOS, and that the breakdown of sources of payment that FRTC has used is reasonable, is a credible assessment, supported elsewhere in the record. It is also found that Mr. Knepper's assessment for bad debt is inadequately supported and inconsistent with other evidence, and therefore not credible. Mr. Sullivan's testimony is not persuasive. Staffing and Recruitment Dr. Brett, a Charter regional director for hospital operations, was accepted as an expert in staffing psychiatric facilities including residential treatment centers. His distinctions between the acute care and residential types of facilities are corroborated and explained by other witnesses and evidence. Mr. Joyner was accepted as Charter's expert recruiter. Although the depth of Mr. Joyner's hands-on involvement in active recruitment is not extensive, the Charter network of manpower referrals and "head hunting" will obviously support this project. Upon the combined testimony of Dr. Brett, Mr. Joyner, and Paul Bodner, Charter's senior director of physician relations, there is sufficient evidence that FRTC can recruit a suitable staffing pattern to ensure quality of care (see FOF Nos. 9 and 10) in its proposed program, even if it has to hire from out of state and pay somewhat higher salaries due to some qualified manpower shortages in certain categories in Palm Beach County. In making this finding, the undersigned has considered the testimony of Donald Wilson concerning certain institution-specific recruiting problems of his principal, RTCPB, and the "step down" status of residential treatment as testified by Mary Certo, of Humana. Impact on Costs and Competition The FRTC project can reasonably be expected to attract patients with insurance coverage who would otherwise go to existing facilities for care, however, in light of the relatively consistent occupancy rates at Humana and RTCPB despite both their geographical proximity and the unique confusion of referrals arising over the relocation of Dr. Kelly, this impact is not altogether clear. Dr. Kelly's reputation will not be impacted by granting of a CON to FRTC. It is also not possible upon the basis of the record created in this hearing to factor out reimbursement differences inherent in Humana's current CON classification and RTCPB's circumstance as an unlicensed intensive residential treatment center. In any case, the negative impact upon Humana must be measured against the health planning goals expressed by several witnesses that it is desirable to substitute more suitable, less restrictive facilities for institutionalization of the severely emotionally disturbed child and adolescent whenever possible and that it is also desirable to encourage residential treatment upon a continuum of care basis after acute psychiatric care. The FRTC project will obviously increase the accessibility to this type of treatment for young people who have the appropriate insurance coverage. These goals are in conformity with the applicable health plans. The FRTC project can reasonably be expected to initially increase some costs of health services throughout the district because it will inflate some salary costs due to competition, but the negative impact will probably be short term.
Recommendation Upon a balanced consideration of all relevant criteria it is RECOMMENDED that HRS enter a Final Order approving FRTC's CON application for an IRTP, as updated, for licensure as a specialty hospital. DONE and ORDERED this 28th day of June, 1988, in Tallahassee, Florida. ELLA JANE P. DAVIS Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of June, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 87-2037 & 87-2050 The following constitute specific rulings pursuant to Section 120.59(2), F.S., with regard to the parties' respective Proposed Findings of Fact. Proposed Findings of Fact (PFOF) of FRTC: Covered in "issue" and FOF 1. Covered in FOF 1 and 2. 3-7. Except as subordinate or unnecessary, accepted in "procedural and evidentiary matters" and FOF 11. 8. Accepted in FOF 12. 9-12. Except as subordinate, unnecessary, or cumulative, accepted in FOF 7-9. 13. Accepted in FOF 10. 14-17. Accepted in part and rejected in part in FOF 7-11, 30. Although portions of the underlying data referred to in proposal 16 and by Mr. Joyner in his testimony was excluded from evidence, he was qualified as a recruitment expert and for the reasons set forth in FOF 30, his opinion is accepted. 18-19. Accepted in FOF 21. Accepted in FOF 22, 26, 29. Accepted in FOF 23. Accepted in FOF 24. Accepted in FOF 25 and 29. Accepted in FOF 26 and 29. Except as subordinate or unnecessary, covered in FOF 27. Except as mere argument or statement of position, accepted in FOF 26-27, and 29. 27-29. Accepted in part and rejected in part as unnecessary and cumulative to the facts as found; in part rejected as mere argument or recital of testimony, not distinguishing opinion from fact. To the degree adopted or accepted upon the record as a whole, see FOF 26-29. 30-31. Accepted in FOF 28. 32-40. Accepted in part and rejected in part as unnecessary and cumulative to the facts as found; in part rejected as mere argument or recital of testimony, not distinguishing opinion from fact. To the degree adopted or accepted upon the record as a whole, see FOF 9, 11, 21, 26-29. 41-44. Accepted in part and rejected in part as unnecessary and cumulative to the facts as found in FOF 29-32. 45-47. Rejected, as recital or summation of testimony and as part of preliminary agency review not relevant to this de novo proceeding. 48. Covered in FOF 7, 18-20, 22, and 26. 49-52. dejected as set out in "organic law and legislative background," "procedural and evidentiary matters," FOF 13-15. See also COL. 53. Accepted in FOF 16. 54-58. Rejected in part and accepted in part as set out in FOF 14-15. Rejected where not supported in full by the record as a whole, where subordinate, unnecessary or cumulative to the facts as found and where mere recital of testimony. 59. Accepted in principle and modified to conform to the record in FOF 18-20, 31. 60-61. Accepted in part and rejected in part as stated in "procedural and evidentiary matters" and in FOF 14-16 and the COL. Accepted in FOF 15 and COL. Accepted in FOF 18-20, 31. 64-68. Rejected as unnecessary to the facts as found in FOF 1, 7, 13-15 and 29, also in part as not supported by the record as a whole, and as primarily legal argument and recitation of testimony. Accepted in FOF 3-4 and 30. Accepted in part and rejected in part in FOF 3-4, 7, 26, and 29. 71-74. Except as subordinate or unnecessary, accepted in FOF 5-9 and 30-32. HRS' Proposed Findings of Fact (PFOF): 1-3. Accepted in "organic law and legislative background." 4. (Two paragraphs) Accepted FOF 3-4. Accepted in "issue" and FOF 3-4. Accepted, FOF 29-32. Rejected as unnecessary. Accepted, FOF 1. 10-18 & 20. Except as subordinate or unnecessary, accepted in FOF 5, 6, 15, 26, 31. 19. Rejected as irrelevant. 21-28. Accepted in part as modified to conform to the record as a whole in FOF 6-9, 30-31. The irrelevant, unnecessary or subordinate material has also been rejected. 29-31. Accepted in FOF 4, 9, 21, 26, 29-31. 32-35. Accepted in FOF 7-9. 36-41. Accepted in FOF 7-9 as modified to conform to the record as a whole, to eliminate subordinate and irrelevant matters and to comport with the rulings on the insubstantiality of updates to the CON application, in "procedural and evidentiary matters" and FOF 11. 42-45. Accepted as modified to conform to the record as a whole, to eliminate subordinate and irrelevant matters and to comport with the rulings on the insubstantiality of updates to the CON application in "procedural and evidentiary matters" and FOF 9-11, 21, 23, 30 and 32. Accepted in FOF 22, 26, 29. Accepted in FOF 7, 20, 22, 26. 49-52. Accepted in FOF 3, 4, 21-29. Assuming, based on the transcript reference, that this proposal refers to FRTC's pro forma, this proposal is accepted but unnecessary for the reasons set forth in rulings on HRS' PFOF 36-45. See FOF 11 and 21-29. Accepted in FOF 13-15. 55-58. Rejected as unnecessary. 59. Accepted but not dispositive of any material issue at bar. See FOF 13-15. 60-62. Accepted in part and rejected in part in FOF 13-14, as mere recital of testimony and statements of position. 63. Accepted in FOF 29. 64-65. Accepted in FOF 5-9. Accepted in FOF 7-9. Accepted that HRS made this assumption but it fails to explicate the non-rule policy. See FOF 13-14. Accepted in FOF 16. Rejected as a statement of position or COL. Peripherally, see COL. Accepted in FOF 13-14 but not dispositive of any material issue at bar. Rejected in FOF 13-14. 72-74. Rejected as preliminary agency action, irrelevant to this de novo proceeding. 75-76. Accepted in FOF 17-20. This is a subordinate definition and not a FOF. See FOF 30-31 and COL. Rejected in part and accepted in part in FOF 17-20, 31. Accepted in FOF 10. Accepted in FOF 13-15. Accepted as stated in the "procedural and evidentiary matters," FOF 13-15 and in the COL. 82-85. Covered in FOF 3-6, 13-15. 86. Rejected as preliminary agency action, irrelevant to this de novo proceeding. 87-88. Rejected as subordinate or unnecessary. 89. Accepted in FOF 29. 90-96. Accepted as modified to conform to the record evidence as a whole and FOF 15-16 and to reject subordinate and unnecessary material. Accepted without any connotations of the word "therefore" in FOF 4, 7-9, 21 and 29. Rejected as unnecessary and cumulative. Accepted in "organic and legislative background" and FOF 13-15. Rejected as not established upon the record as a whole; unnecessary. Rejected as a statement of position only. Joint Proposed Findings of Fact of RTCPB and Humana 1-2 Accepted in FOF 1. 3-4. Accepted in FOF 2. 5-6. Accepted in "issue" and FOF 3-4. 7. Accepted in "issue" and FOF 5-6. 8-13. Accepted in part and rejected in part as set out under "procedural and evidentiary matters," FOF 3-6, 13-15, and the COL. 14-18. Except as subordinate or unnecessary, accepted in FOF 1, 7-9, 11, 21-29. 19-27. Rejected as irrelevant preliminary action to this de novo proceeding. 28-36. Rejected in part and accepted in part upon the compelling competent, substantial evidence in the record as a whole as set forth in FOF 13-14. Also as to 33 see FOF 15. 37-52. Accepted in part and rejected in part in FOF 13-16 upon the greater weight of the credible evidence of record as a whole. Irrelevant, unnecessary and subordinate material has been rejected, as has mere argument of counsel. Accepted in FOF 17. Rejected in FOF 20, 31. Accepted as modified in FOF 20, 31. Excepting the mere rhetoric, accepted in FOF 18, 31. Accepted as modified in FOF 7, 18-20, 26, 31. 58-59. Accepted in part and rejected in part in FOF 17-20, 26, Rejected as subordinate. Rejected as recital of testimony and argument 62-63. Rejected as unnecessary. 64-67. Accepted in FOF 3-4, 6-9. The first sentence is rejected as cumulative to the facts as found in FOF 3-4, 6-9. The second sentence is rejected as not supported by the greater weight of the evidence as a whole. Rejected in FOF 4, 21. Accepted in FOF 4 and 21, 29. Rejected as unnecessary Accepted in FOF 26. Rejected in FOF 15-20, 31. Rejected as unnecessary in a noncomparitive hearing. 75-87. Except as irrelevant, unnecessary, or subordinate, accepted in FOF 5-9, 30, 31. Rejected in part as unnecessary and in part as not comporting with the greater weight of the evidence in FOF 7-10 and 30. Accepted in FOF 1, 5-9. 90-92. Accepted in FOF 5-9. Rejected in FOF 5-6. Rejected as subordinate. 95-98. Accepted in FOF 5-9. 99-102. Rejected as unnecessary. 103. Except as subordinate or unnecessary, accepted in FOF 5-9. 104-118. Except as unnecessary, subordinate, or cumulative to the facts as found, these proposals are covered in FOF 5-9, 30-31. Except as Subordinate, covered in FOF 6 and 31. Accepted in part in FOF 5-9, 21-29, otherwise rejected as misleading. Except as subordinate, accepted in FOF 6. Rejected as unnecessary. Accepted in FOF 21. Accepted in FOF 21-29. Rejected in part and accepted in part in FOF 21-29. Rejected as subordinate and unnecessary in part and not supported by the greater weight of the credible evidence in 21-29. 127-128. These proposals primarily recite testimony by Mr. Grono, an administrator of a psychiatric hospital for very severely disturbed persons (Grant Center). This evidence by itself is not persuasive in light of Dr. Luke's study and other admissions of the parties referenced in FOF 21-29. Upon the greater weight of contrary evidence, it is rejected. 129. Rejected as subordinate except partly accepted in FOF 29. 130-133. Rejected upon the greater weight of the evidence in FOF 9, 11 and 21-29. 134, 139. Rejected as legal argument without citation. 135-138. Rejected in FOF 21-29. 140-144. Rejected as stated as not supported by the greater weight of the credible evidence and as partly mere legal argument. See FOF 9, 21-29. 145. The first sentence is rejected upon the reference to PFOF 140-144 for the same reasons given above and the remainder is rejected as subordinate. 146. Rejected in FOF 21-29. 147. Rejected as mere legal argument without citation. 148-149. Rejected in FOF 21-29, particularly 27 upon the greater weight of the credible evidence. The mere legal argument is also rejected. 150-157. Rejected as set out in FOF 28 upon the greater weight of the credible evidence. Uncited argument and statements of position have likewise bean rejected. 158, 160. Rejected as mere argument without citation. 159. Rejected as subordinate and not dispositive of any material issue at bar in FOF 23. 161. Rejected as mere argument. 162-167. Rejected as not supported by the greater weight of the credible evidence in FOF 30-32. Also 167 is rejected as mere argument without citation. 168. Accepted in part and rejected in part in FOF 30-32. 169. Accepted but subordinate. 170. Rejected as unnecessary and cumulative to the facts as found in FOF 31. 171-180. Covered in FOF 30-32. 181-185. Rejected as contrary to the evidence in part and in part unnecessary and cumulative to the ruling in "procedural and evidentiary matters" and FOF 7, 10-11, 21, 23, 30-32. 186-188. Rejected in FOF 7, 10 and 30 upon the greater weight of the credible evidence. 189. Rejected as unnecessary 190. Rejected in FOF 30. 191-392. Accepted but not dispositive of any material issue at bar. See FOF 30-32. 193. Rejected in FOF 30-32. 194-195. Except as subordinate or unnecessary, rejected in the several references to future establishment of referral networks. See FOF 21, 27. 196-197 & 199. Rejected as unnecessary 198. Rejected as irrelevant in part and immaterial in part upon the rulings in "procedural and evidentiary matters" and FOF 11. 200. Rejected as unnecessary 201-202. Accepted in FOF 7, 20, 26-27 and 31, but cumulative. 203. Covered in the COL. Rejected in FOF 21-22. 204. Rejected as mere argument without citation. COPIES FURNISHED: Michael J. Glazer, Esquire AUSLEY, McMULLEN, McGEHEE, CAROTHERS & PROCTOR 227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302 John T. Brennan, Jr., Esquire BONNER & O'CONNEL 900 17th Street, N.W. Washington, D.C. 20006 James C. Hauser, Esquire Joy Heath Thomas, Esquire MESSER, VICKERS, CAPARELLO, FRENCH & MADSEN 215 South Monroe Street Post Office Box 1876 Tallahassee, Florida 32302 Fred W Baggett, Esquire Stephen A. Ecenia, Esquire ROBERTS, BAGGETT, LaFACE & RICHARD 101 East College Avenue Tallahassee, Florida 32301 Lesley Mendelson, Esquire Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Sam Power, Agency 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
The Issue The central issue in this proceeding is whether Petitioners' applications for Certificates of Need for comprehensive medical rehabilitation beds in HRS District VI should be approved. Facts stipulated by the parties are reflected in the findings of fact. Ancillary issues include whether Manatee Springs Nursing Center, Inc.'s letter of intent complied with the requirements of Section 381.709(2), F.S.; and whether Manatee Springs Nursing Center, Inc.'s and University Community Hospital's applications are incomplete for failure to include a "complete listing of all capital projects", as required by Section 381.707(2), F.S.
Findings Of Fact Stipulated Facts In their prehearing stipulation filed on 1/17/92, the parties admitted the following: The calculation of the mathematical formula contained in Rule 10-5.039(2)(a), F.A.C., re- sults in no numeric need for rehabilitation beds in District VI in the applicable planning horizon; Tampa General is an existing provider of rehabilitation services in District VI; Manatee is a superior rated licensed 120 bed nursing home facility located in Bradenton, Florida; There is no dispute regarding the existing quality of care at either Manatee or Tampa General; Manatee is not a teaching hospital; The primary purpose of Manatee's proposal is neither research nor physician education; Manatee is not proposing a joint venture; and Manatee's proposal is not related to a health maintenance organization or the needs and circumstances of a health maintenance organization. During the hearing the parties stipulated that Manatee, through its parent, the Mediplex Group, Inc. (Mediplex), has the ability to finance the project costs, and the estimated project costs reflected in its application, Table 25, sub-paragraphs (a) and (f)3., are reasonable. The Parties The applicant, UCH, is an existing acute care hospital in Hillsborough County, Florida, in HRS District VI. Its primary service area is North Hillsborough County and East Pasco County. Previously during the 1980's, UCH operated an 18-bed rehabilitation unit on its sixth floor, south wing. After renovation, the unit satisfied Commission on Accreditation of Rehabilitation Facilities (CARF) standards, and was certified by the Joint Commission on Accreditation of Health Organizations (JCAHO). The unit was abandoned after an HRS Final Order held that the unit could not be "grandfathered" as a CMR unit and that there was no need for additional beds in District VI (University Community Hospital v. Department of Health and Rehabilitative Services, 11 FALR 1150 (HRS final order entered 2/13/89). Manatee is a wholly-owned subsidiary of Mediplex, a for-profit corporation. Located in Bradenton, Manatee County, Manatee holds the License for a superior rated 120-bed skilled nursing home facility (SNF). Although licensed as a SNF, Manatee has specialized in providing rehabilitation and medical services to traumatically brain injured (TBI) and neurologically impaired patients since its opening in 1985. Manatee has never had more than 70 of its 120 licensed beds in operation and, at the time of hearing, was operating only 65 beds, because of the spatial requirements of its very intensive and extensive rehabilitation program. Manatee is currently accredited by JCAHO and by CARF. Tampa General is a 971-bed hospital located in Hillsborough County, HRS District VI. It is owned and operated by the Hillsborough County Hospital Authority, a public agency. Tampa General provides the normal range of services found in acute care hospitals, but also provides such tertiary level services as organ transplantation and CMR. It is the teaching hospital of the University of South Florida. HRS is designated by statute as the single state agency to administer the CON program. The Applications The Proposals UCH proposes to convert 20 medical/surgical beds to 20 CMR beds at a proposed cost of approximately $617,674.00, a sum which is the converted book value of its space on the 6th floor of the facility plus legal and consulting fees. The space intended for the program now includes 30 medical/surgical beds and it is unclear what will happen to the excess 10 beds. The UCH proposal is directed to stroke and orthopedic patients in its existing limited service area. Manatee's CON application is for 70 CMR beds. It proposes to delicense its 120 SNF beds. Its project cost is estimated at $859,235.00, including facility modifications and related fees. Manatee's application agrees to have its approval conditioned on limiting the CMR services to TBI and neurologically disabled patients. Capital Projects UCH prepared a capital equipment budget for 1990-91, which was finally approved by the Executive Committee of the Board of Trustees at UCH prior to August 1990. The UCH capital budget itemized planned capital equipment expenditures for the fiscal year beginning October 1, 1990 and ending September 30, 1991, so that the capital budget items were pending capital projects at the time that UCH filed its application in September 1990. Once the Executive Committee approved the 1990-91 capital budget, the hospital was authorized to purchase any capital budget item costing $25,000 or less without any additional review or approval by the Executive Committee. While the Executive Committee required an additional review of individual budget items costing more than $25,000 prior to actually being purchased, these purchases were nonetheless planned, and thus pending, at the time that UCH filed its application by virtue of being included in final UCH budget, the hospital's planning document. The fact that a budget item might ultimately be abandoned after additional review merely emphasizes that the expenditure is planned, rather than actual, and is characteristic of any pending project. UCH's capital equipment budget for fiscal year 1990-91 totalled $6.2 million, with budget items costing $25,000 or less totaling $1,936,350. UCH did not disclose in its application the capital budget items reflected in its 1990-91 capital equipment budget. UCH also failed to disclose in its application its proposed expansion of the hospital's child care center. This project was finally approved by UCH on April 25, 1990, with an estimated cost of $330,000, and was still pending when the application was filed. UCH erroneously distinguished "projects" from its capital "budget", and included in an omissions response to HRS only the $40,994,689 it determined were "projects". In 1988 Manatee began planning for additional therapy and administrative space. The approximately $2 million expansion plan was approved by HRS prior to filing the application at issue here. In neither its original application nor its response to an omissions letter did Manatee include the $2 million expansion project, even though other parent corporation expenditures were included, for example, the cost of the conversion project at issue here. The Letter of Intent Manatee filed three Letters of Intent: one letter requested a conversion of 60 nursing home beds to 60 CMR beds, and the delicensure of 30 nursing home beds with a proposed bed complement of 60 CMR beds and 30 nursing home beds; another requested a conversion of 90 nursing home beds to 60 CMR beds, with a proposed bed complement of 60 CMR beds and 30 nursing home beds; and one requested the conversion of 120 nursing home beds to 90 CMR beds. These letters were dated August 23, 1990, and were authorized by three separate resolutions enacted on August 24, 1990. The resolutions were attested to on August 24, 1990 by Jeffrey Bernfeld as Secretary of Manatee Springs Nursing Center, Inc. On August 22, 1990, Mr. Bernfeld had resigned all his positions with Mediplex Group, Inc., and its subsidiaries, including Manatee Springs Nursing Center, Inc. This resignation did not have an effective date; however, the entire Board of Directors of Manatee Springs Nursing Center, Inc. was removed on August 24, 1990 when Avon, the owner of Mediplex, closed its sale of Mediplex, including Manatee. A new Board of Directors consisting of Steven W. Garfinkle, Jaye Winkler and David Hines was appointed. Mr. Robert Eustis was appointed the Secretary of Manatee Springs Nursing Center, Inc. on August 24, 1990. One Board of directors resigned on August 24, 1990 and a new Board of Directors was appointed. The new Board of Directors enacted the resolutions authorizing the CON application; however, those resolutions were attested to by the Secretary for the resigned Board. The Board that was appointed on August 24, 1990 did not know which project Manatee Springs was going to pursue when it enacted the resolutions. The third Board of Directors that came in after August 24, 1990 decided which of the three alternatives would be submitted. The third Board enacted a resolution on September 21, 1990 which authorized the filing of the CON application which is the subject of this proceeding. Statutory Review Criteria the Health Plans (Section 381.705(1)(a), F.S.) The 1989 Florida State Health Plan is the state plan applicable to this proceeding. This plan contains five preferences applicable to CMR programs. The first State Health Plan relates to applicants proposing the conversion of excess acute care hospital beds to establish a distinct rehabilitation unit within a hospital. Only the UCH application is consistent with this preference. The second preference favors applicants proposing specialty inpatient or outpatient rehabilitation services not currently offered in the district. Neither the Manatee nor the UCH application is consistent with this preference. Manatee will offer the same services it now provides. UCH will focus on the elderly, a population already served in the district. The third preference indicates a preference for teaching hospitals. Neither UCH nor Manatee is a teaching hospital. The fourth preference states a preference for Medicaid and charity care disproportionate share providers. Neither application meets this preference. The fifth State Health Plan preference confers preference on an applicant with an existing comprehensive outpatient rehabilitation facility which proposes to provide outpatient follow-up rehabilitation services. Although both applicants provide some outpatient services, neither proved that it provides comprehensive outpatient rehabilitation, and therefore did not show compliance with this preference. The 1990 District Health Plan of the Health Council of West Central Florida, Inc., CON Allocation Factors Report (local plan) is the District Health Plan applicable to this proceeding, and also includes preferences. The local plan does not propose health service areas for CMR below the district level because of the highly specialized and nonemergency nature of the service. UCH's application violates this principle. The first preference, as in the state plan, favors disproportionate share providers, and neither applicant is entitled to this preference. Applicants who propose to convert existing medical/surgical beds is entitled to the second preference. UCH meets this; Manatee cannot, as it is not a hospital. Neither applicant has documented that existing providers who concentrate in the treatment of rehabilitation patients are not currently meeting the needs of the community, in order to be entitled to the third preference. The fourth preference targets applicants who are existing providers if the net bed need is 20 beds or less. There is no net bed need; since neither applicant currently provides CMR services under a CMR certificate of need, and neither is an "existing provider". Like and Existing Services in the Service District (section 381.705(1)(b)), F.S. and Availability of Alternatives (section 381.705(1)(d), F.S. CMR is a tertiary health service which should be offered on a regional, not community, basis. There is no credible evidence that individuals who seek CMR services are unable to access care in District VI. There are empty CMR beds at existing District CMR facilities. In calendar year 1989, Tampa General experienced 83.58 percent occupancy, and L. W. Blake Memorial Hospital experienced 70.80 percent occupancy. Even Manatee admits that it is becoming more difficult to maintain its census because of the proliferation of rehabilitation providers throughout the state. There are twelve other CARF accredited brain injury inpatient facilities in the State of Florida, two of which are in District VI, at Tampa General and Blake Memorial Hospital. All acute care hospitals provide some level of rehabilitation care. Most communities of any size have an outpatient rehabilitation center, and CMR can be found in freestanding units and in designated units of acute care hospitals, as well as in skilled nursing settings. The rehabilitation services currently offered at Manatee are different from such services provided in a hospital, but are not atypical of post acute SNF levels of care. Intensive or comprehensive rehabilitation in a hospital setting is generally brief. When patient progress is no longer served by intense and comprehensive rehabilitation in a hospital, patients are frequently referred to a provider of less intense and normally longer services. This is frequently the level found in a SNF, which facility would have fewer doctors and nurses than a CMR facility. Subacute medical rehabilitation tends to be of two types: short stay, serving patients in need of less intense level of care than CMR -- typically, patients with minimal disability following orthopedic surgery; and long stay for those patients no longer in need of a hospital level of care but requiring various levels of therapeutic intervention. Head injuries generally fall in the latter category. Payment sources are generally commercial because there is minimal funding for Medicare and Medicaid patients in these programs. Manatee provides subacute medical rehabilitation. Manatee serves patients on all levels of the Rancho Los Amigos Scale, which describes specific levels of functioning by patients recovering from head injury. Hospital based head injury programs usually admit patients at the Rancho Level III when the patient is out of coma enough to respond to the environment, and they discharge patients when they are at the Level VI designation, when there is no additional medical reason for continued stay. At level VI, the patient is usually ready for a less intense, more supervisory level of institutional care with therapeutic intervention aimed at daily living and vocational skills. Manatee is now serving patients who would not be served in a hospital CMR unit. Manatee is currently serving patients effectively and at a lower cost than a hospital. The audited financial statements filed by Manatee in its certificate of need application demonstrate a profitable operation with a very healthy operating margin and strong cash flow to assets. The care it is providing, which Manatee does not propose to change, is appropriate for its nursing home license. Manatee is staffed and equipped to provide long-term care to the patients they serve. The average length of stay experienced by Manatee is consistent with, and appropriate for a nursing home, but not for a tertiary hospital such as a CMR facility. If its CON application for CMR is denied, Manatee will continue to offer the services it presently offers. The best alternative to Manatee's proposal is its own 65 bed program operated at its existing SNF, which currently provides, at nursing home prices, the same superior care it proposes to provide. Manatee is providing a needed service which would no longer be available should the application be granted. While there may be a need to delicense the beds not in use, there is no need shown to delicense the 65 nursing home beds presently operating. Applicant's Record and Ability to Provide Quality Care (Section 381.705.(1)(c), F.S.) Both applicants have a record of good quality care and this factor is not in serious contention. Probable economies and improvements derived from operation of joint cooperative or shared health care resources (Section 381.705(1)(e), F.S.) Manatee is not proposing a joint venture. Neither project offers economies and improvements in service derived from the operation of joint ventures, cooperative or shared health care resources. Need in District VI for special services not reasonably and economically accessible in adjoining areas (Section 381.705(1)(f), F.S.) Manatee argues that approval of its application will facilitate the provision of services to children, but it already provides some pediatric services, and other programs are available. The Rehabilitation Institute of Sarasota, which is located about 25-35 minutes away from Manatee, has a specialty rehabilitation pediatric program. The need for research and educational facilities (Section 381.705(1)(g), F.S.) Neither Manatee nor UCH are teaching hospitals. Neither proposal has as its primary purpose research or physician education, although Manatee proposes a condition requiring it to plan, organize and promote an annual symposium on rehabilitation services for the neurologically impaired patient. Availability of Resources for Project Accomplishment and Operation; Effect and Extent of Accessibility of the Project on Clinical Needs of Health Professional Training Programs; and the Extent to which the Proposed Services will be Available to all Residents of the Service District (Section 381.705(1)(h), F.S.) Neither projects' need is predicated upon meeting the clinical needs of health professional training programs in the service area. Financial feasibility, availability of staffing resources and accessibility to district residents are discussed below. Financial Feasibility (Section 381.705(1)(i), F.S.) The financial feasibility of any health care facility is predicated upon utilization of the facility. In its application, Manatee projected an average length of stay (ALOS) of 160 days, based upon its historical ALOS of 180 days. Its pro forma is predicated upon the ALOS Manatee has historically experienced for brain injury patients, 160 days. However, Manatee's ALOS has decreased dramatically, and even its own planner does not believe it is reasonable to project a 160 day ALOS now. The pro forma is predicated on unreasonable utilization, ALOS and staffing projections and therefore does not evidence the feasibility of the project. The sole Manatee witness supporting financial feasibility had nothing to do with the pro forma analysis in the application, and specifically tied his opinion as to project feasibility to Manatee's continuing its historical ALOS, to retaining its present patients, and to getting more referrals from the same referral sources. These assumptions are unreliable. UCH demonstrated that it has $617,674 available to pay the costs of establishing its proposed CMR program, which sum is its estimate of the costs involved. The projected costs, however, are predicated on an unproven assumption that the space intended to house the CMR unit has already been renovated for rehabilitation services and that no additional dollars are required to be spent. Because UCH did not demonstrate that the space, as currently designed, is adequate to accommodate a 20-bed CMR unit, UCH has not shown that its projected costs are reasonable. UCH may have to redesign its CMR unit to comply with CARF standards, thereby incurring additional, unanticipated costs. UCH's projected costs are also unreasonable because UCH failed to account for the costs it will incur to relocate the 10 medical/surgical beds from the space intended to house the new unit. Having failed to demonstrate that its projected costs are reasonable, UCH has not proven that it will have the funds available to accomplish the proposed project. Impact on the cost of providing CMR services, considering the effects of competition and improvements or innovations in financing and delivery which foster competition and promote quality assurance and cost- effectiveness. (Section 381.705(1)(1), F.S.) Neither of the proposed projects will enhance competition beneficial to patients. The additional capital necessary to convert Manatee from a nursing home to a comprehensive medical rehabilitation hospital will have an impact on its cost of providing CMR services. Medicare reimbursement for the same service is greater in a hospital setting than in a nursing home setting. A hospital's cost structure is higher than that of a nursing home. Manatee's present Medicaid cap is around $94 per day. This cap would be much higher if Manatee were a licensed CMR hospital. Manatee is presently operating a very profitable facility. By its own admission, Manatee is presently a cost effective provider primarily because of the fact that it is licensed as a nursing home and not as a CMR hospital. Manatee could be an even more cost effective provider. Cost effectiveness is a goal of the CON legislation. According to Health Care Cost Containment Board (HCCCB) data, 31 percent of Manatee's total expenses go to administration and owner's compensation, compared to the district average of approximately 12 percent which is consistent with statewide experience of 8 to 12 percent administrative and owners' compensation expenses. These elevated administrative costs are not primarily attributable to the unique program at Manatee. There is no justification for changing Manatee's licensure status and reversing a practice which is endorsed by the health care system: placing patients requiring highly skilled care in the least expensive setting in which they can receive appropriate care. Tampa General is a tertiary hospital, having many speciality programs, including organ transplantation, speciality burn units, neonatal intensive care units, CMR and sophisticated heart laboratories and programs. Tampa General provides not only tertiary services, but also a full spectrum of normal hospital services. Those services are provided to a disproportionate number of indigent patients and thus a significant financial aspect of Tampa General is a payor mix with more indigent patients and fewer insured and paying patients. Tampa General does more indigent care than any other hospital in the district. Tampa General generates revenue from its tertiary services to cross-subsidize the costs of services provided to those who do not and cannot pay. The Tampa General Rehabilitation Center contributes income to the rest of the hospital and helps Tampa General carry the financial consequences of its services to indigent patients. Tampa General presented credible evidence that a CMR program at UCH would take 107 patients from Tampa General in its first year of operation alone, assuming UCH attains its projected occupancy, resulting in a loss to Tampa General of nearly $1.8 million. Once Manatee converts to a CMR hospital, it is reasonable to expect that Tampa General will lose at least 50 patients to Manatee in the first year, especially if Manatee must somehow double its projected admissions to overcome its declining ALOS and shrinking service area. The result would be a loss of more than $800,000 to Tampa General. Manatee maintains that the impact on existing providers of approving its application will be minimal because it will be serving the same patients in a hospital that it is serving now. However, if Manatee were to become a hospital it would be restricted in its ability to receive from hospital CMR programs referrals of patients in need of low intensity programs. Manatee will have to compete directly with Tampa General for patients that have not yet been admitted to a hospital program in order to compensate for the loss of this patient base. The testimony by Manatee's consultant that there would be no impact on Tampa General because Manatee would only treat brain injury patients is contrary to the weight of the evidence. About 50 percent of Manatee's patient population is brain injured. Tampa General has a brain injury program which currently refers patients to Manatee, as a SNF. These referrals will no longer be possible if Manatee is a hospital, with the result being that Manatee will direct its vigorous marketing efforts to getting such patients prior to admission to Tampa General's brain injury program. CMR specialized staff are in short supply. The proposed CMR programs, if granted, would increase demand and drive up costs for such personnel while making it more difficult for existing providers like Tampa General to efficiently use and retain specialized staff. Costs and Methods of Proposed Construction, and the availability of alternative, less costly, or more effective methods of construction (Section 381.705(1)(m), F.S.) The proposed costs and methods of construction contained in Manatee's application are reasonable; however, Manatee is currently undertaking a $2 million expansion which was approved by HRS prior to the filing of the instant CON application, but was not included in the application for evaluation. Neither were the original facility construction costs, plus improvements minus depreciation, included so that an objective cost evaluation of conversion could be made. The space proposed by Manatee is not appropriate. Currently operating as a nursing home, Manatee has the physical capacity to operate only 65 beds. Less than 1,000 square feet per bed is inadequate to meet patient needs. UCH has failed to show that the space proposed for its CMR unit is sufficient and in compliance with CARF. UCH maintains that its space was already designed to house a rehabilitation unit, so that no significant changes were required. However, UCH presented no evidence that the space proposed for the new unit, as it now exists, meets specific CARF standards. The applicant's Past and Proposed Provision of Health Care Services to Medicaid patients and the Medically indigent (Section 381.705(1)(n), F.S.) By its own admission, Manatee has a very low charity care and Medicaid level. It runs, according to HCCCB data, around 9 percent for each. If approved, its Medicaid and Medicare levels would be even lower than it is now, as it projects about 5-6 percent for each, according to Table 7 in its application (Manatee Ex. #1). Availability of Less Costly, More Efficient, or More Appropriate Alternatives (Section 381.705(2)(a), F.S.) A less costly, more efficient and more appropriate alternative is the existing health care system, including the services and programs presently offered by the applicants. There is no lack of access or availability to existing beds, which are presently underutilized. Appropriateness and Efficiency of existing facilities providing similar services (Section 381.705(2)(b), F.S.) Existing facilities providing similar services, including the 65 beds utilized at Manatee, are being appropriately utilized; however, none are operating yet at 85% occupancy which is the desired occupancy set forth in the relevant HRS rule. Probability of Serious Access Problems in the Absence of Proposed Services (Section 381.705(2)(d), F.S.) Manatee states in its application that access is being denied to prospective patients because of its licensure as a nursing home and therefore there is a need to approve its application. Even if this is true, need cannot be established when a tertiary health service is involved merely by showing that patients cannot access the facility of their choice, when other appropriate alternatives are available. The question is whether, looking at the spectrum of health care delivery, patients can obtain somewhere the services they need. Manatee cannot reasonably expect to serve all patients; just as nursing home patients are not properly served at hospitals, so also are hospital patients not served in nursing homes. This has nothing to do with need for CMR beds in District VI. Manatee did not show that patients are not able to obtain appropriate services elsewhere. Manatee is currently well utilized, and even those patients who considered using Manatee, but allegedly could not because of licensing issues were, as shown by Manatee, placed at other facilities, some of which were hospitals, and others not. UCH argues that Tampa General's rehabilitation facility is not accessible to those who cannot pay, but UCH does not specify how its application approval would remedy any accessibility problems for Medicaid or indigent patients, as it proposes to serve each type at only 2% of its total patient days. Geographical accessibility by elderly stroke patients, the population UCH seeks to serve, was not proven to be a substantial problem, even though the elderly may prefer a briefer drive time. CMR Rule Methodology Rule 10-5.039(2)(a), F.A.C. establishes the numeric formula for calculating need for CMR beds in the applicable HRS service district. As stipulated by all parties, this formula shows zero need. Subparagraph (2)(b), Incidence and Prevalence of Disabling conditions and chronic illness in the District Neither applicant addressed unique incidence and prevalence in the district as required by Subparagraph (2)(b) 1 of the rule. Instead, UCH used national incidence rates and applied them to the population of District VI. Given the tertiary nature of CMR, it would be inappropriate to approve UCH based upon an institution specific analysis. UCH's methodology is effectively impeached by the fact that it provides that 122 additional beds were needed in District VI for 1989, when the existing 112 CMR beds in the district experienced only an 72% occupancy in 1989. In its case presentation, Manatee used statewide incidence rates to project need, along with methodologies utilized by other states. Manatee used these same rates and methodologies, along with its own historical ALOS, to project a need for brain injury/neurological beds in District VI. Manatee's District VI CMR bed methodology is problematic and unacceptable. First, the base year population estimate relied on to project the district population is approximately 35,000 more than was actually counted under the recent U.S. Census for District VI. Second, the ALOS used to project patient days is different from the recent actual experience in the district. And third, the result of this need methodology, showing a need for 112 additional beds, more than double the current inventory, is counterintuitive given current utilization rates for CMR. The ALOS used by Manatee in its need projections was longer than the statewide ALOS for head injury. There is no CMR hospital in the State of Florida with an average length of stay higher than 75 days. The average length of stay for the last three months of 1991 at Manatee was 57.2 days. Manatee will not increase access to patients with commercial insurance nor will admissions increase if approved. Manatee fully expects that it will continue to negotiate with various payor sources even if it becomes a licensed CMR hospital. Blue Cross/Blue Shield of Florida defines a rehabilitation hospital as any facility accredited by the CARF. Most commercial insurers precertify admissions and are extremely stringent with regard to both admission and continuation of stay at the hospital level of care. Many of the patients denied hospital level of care are those most appropriate for the level of care currently provided by Manatee. Additionally, insurance companies are generally flexible in providing coverage at the least intense appropriate level of care. Converting Manatee from a nursing home to a hospital will actually decrease, rather than increase the number of patients able to access an appropriate level of rehabilitation. The Medicare criteria for admission to a CMR hospital are much more stringent than those to a skilled nursing home facility. Medicare patients who might otherwise qualify for admission to a skilled nursing facility would find it much harder to qualify for a CMR hospital. Approval of the Manatee Springs application will not increase access to either Medicaid or Medicare patients, including children, who, by Manatee's own admission, are paid for by the Medicaid program. As found above, if awarded a CON for CMR, Manatee will provide fewer, not more, Medicaid patient days as a percent of total patient days. Additional Rule Criteria There is a shortage in central Florida of specialized personnel needed for rehabilitation both in skilled nursing and in a hospital. There is competition between Tampa General and Manatee Springs for staff. If granted, the proposals would increase demand for specialized staff and increase the cost for staff, while making it more difficult for existing providers to efficiently use and retain their current staff. New rehabilitation facilities must be able to project a minimum of 65 percent occupancy during the first year of operation based upon the formula in the rule. Although Manatee projected utilization levels exceeding the rule requirements, Manatee did not prove that it will be able to attain its projected occupancies. It is also unlikely that UCH will attain the occupancy levels required by the rule. UCH itself projects an occupancy rate below the 65% minimum standard for the first year of operation. For the second year UCH projects that patient days will increase by 1,460, a 30% increase from the first year. Such a dramatic increase is doubtful when the population is expected to grow at a rate well below 30%, and the increase is inconsistent with actual districtwide experience in which CMR patient days increased by only 947 from 1989 to 1990. A proposal to establish a new rehabilitation unit will not normally be approved unless the average annual occupancy rate for all existing CMR units within the service district exceeds 85 percent occupancy for the most recent 12 month period available to the Department three weeks prior to the publication of the fixed need pool. The average occupancy rate in the district for this period was 72.49 percent. According to subparagraph (c) of the rule, applicants for comprehensive rehabilitation services should demonstrate that at least 90% of the target population resides within two hours driving time under average traffic conditions of the location of the proposed facility. Manatee's primary service area includes HRS District V, VI and VIII. Its secondary service area includes all of Florida, and parts of Georgia and Louisiana. This target population cannot drive to the Manatee facility in two hours under average traffic conditions. UCH's proposed localized service area is well within the two hour limit. Each applicant proposes to participate in the Medicare and Medicaid programs. Each applicant proposes to provide the minimum scope of rehabilitation services required by Subparagraph (c) 4. of the rule. Each applicant proposes to meet CARF standards for hospital based rehabilitation services as required by subparagraph (c) 5. of the rule; however, neither demonstrated its proposal meets CARF standards. Each applicant proposes to make the services contained in Subparagraph (d) of the rule available through affiliation or contractual agreement. In summary, the applicants meet very few of the factors, standards and criteria of Rule 10-5.039, F.A.C. Those few factors do not demonstrate a need for additional CMR beds in District VI.
Recommendation Based on the foregoing, it is hereby, recommended that the Department of Health and Rehabilitative Services enter its Final Order denying the University Community Hospital and Manatee Springs Nursing Center, Inc., certificates of need for comprehensive medical rehabilitation beds in District VI. RECOMMENDED this 19th day of March, 1992, in Tallahassee, Leon County, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of March, 1992. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 91-1510 AND 91-1511 The following constitute disposition of the findings of fact proposed by the Petitioners. University Community Hospital These findings have been adopted in full or in substantial part in the recommended order submitted herewith: 1 (except for the statement that the unit currently satisfies CARF, which was unproven), 2-8, 9a. and b., 10a., 11, 21, 27 (except for the conclusion that the projects list was complete), 29-32, 34-41, and 43. These findings are rejected as contrary to or unsupported by the weight of evidence: 1 (as to CARF accreditation now), 9.c., 10.b., 13, 14, 18, 20 (as to no additional money needed), 22, 26, 27 (as to the conclusion regarding completeness), 28, 44 and 45. These findings are rejected as cumulative, unnecessary or irrelevant: 12, 15-17, 19, 23-25, 33, and 42. Manatee Springs Nursing Center, Inc. These findings have been adopted in full or in substantial part in the recommended order submitted herewith: 1, 2, 3a., 3b., 3j., 3l., 3n., 3o., 3p., 3q., 3s., 3u., 3x.3, 4a., 4b., 8a., 10, 11, 15, 19, 22d., 23b., 27, 30, 35, 37, 40, 41, 47 and 48. These findings are rejected as contrary to or unsupported by the weight of evidence: 3w., 8c.3, 8c.4, 13, 14, 16, 17, 18, 20, 21, 22 (as to conclusion regarding the preference), 23 (as to the conclusion regarding meeting the preference), 24 (as to the conclusion), 31, 32, 34, 36, 42, and 43. These findings are rejected as cumulative, unnecessary or irrelevant: 3c., 3d., 3e., 3f., 3g., 3h., 3i., 3k., 3m., 3r., 3t., 3v., 3x1, 3x2, 3x4, 3x5, 3x6, 3x7, 4c., 4d., 4e., 4f., 4g., 4h., 4i., 5, 6, 7a.-d., 8a. 1-3, 8b.1, and 8c.1 & 2, 9, 11, 12, 15, 23a & c, 25, 26, 28, 29, 33, 38, 39, 44, 45, 46, and 47. COPIES FURNISHED: Cynthia S. Tunnicliff, Esquire Martha Harrell Hall, Esquire W. Douglas Hall, Esquire P. O. Drawer 190 Tallahassee, FL 32302 John Radey, Esquire Elizabeth McArthur, Esquire Jeffrey L. Frehn, Esquire 101 N. Monroe St., #1000 Tallahassee, FL 32308 Alfred W. Clark, Esquire P.O. Box 623 Tallahassee, FL 32308 Charles D. Hood, Jr., Esquire P.O. Box 15200 Daytona Beach, FL 32115 Lesley Mendelson, Esquire Dept. of Health and Rehabilitative Services 2727 Mahan Drive Tallahassee, FL 32308 R. S. Power, Agency Clerk Dept. of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, FL 32399-0700 John Slye, General Counsel Dept. of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, FL 32399-0700
The Issue BAMI and VENICE filed competing applications for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida. The sole issue is which application should be granted, and which should be denied.
Findings Of Fact DHRS is the state agency empowered to review, issue, deny, and revoke certificates of need for health care projects. 381.494(8), Fla. Stat. (1981). In January, 1982, VENICE and BAMI separately applied to DHRS for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida. When the applications were filed, Florida law required the appropriate health systems agency to initially review applications for certificates of need. On March 10, 1982, the Project Review Committee of the South Central Florida Health Systems Council, Inc.--the appropriate health systems agency--considered the competing applications, then voted to approve the proposal submitted by VENICE, and deny the proposals submitted by BAMI and a third applicant (not involved in this proceeding). On March 27, 1982, the Board of Directors of the South Central Florida Health Systems Council, Inc. disagreed with the Project Review Committee's recommendation and voted to recommend (to DHRS) approval of the BAMI proposal and disapproval of the VENICE proposal. DHRS then independently reviewed the two competing applications. On April 30, 1982, it issued a (free-form) certificate of need to BAMI to construct a 75,000 square foot, 100-bed acute care hospital in Englewood. Conversely, it denied VENICE's application, asserting: (1) that the interest and depreciation expense per projected patient day for the first two years of operation of the BAMI proposal was less than that projected for the VENICE proposal; (2) that the estimated labor and materials cost per square foot for the BAMI proposal was lower than the amount estimated for the VENICE proposal; (3) and that the provision for 30 semiprivate rooms in the BAMI proposal offered patients an alternative unavailable in the all-private room hospital proposed by VENICE. VENICE thereafter requested a formal hearing to contest DHRS's action, which request resulted in this proceeding. Bami BAMI seeks a certificate of need to construct a new 100-bed acute care hospital in Englewood, Florida, to be known as Englewood Community Hospital. BAMI proposes to relocate and merge its existing Englewood Emergency Clinic and Primary Care Center into the proposed Englewood Community Hospital. The service area for the BAMI proposal includes the following communities in Sarasota, Charlotte, and Lee counties: Englewood, North Port, Warm Mineral Springs, El Jobean, Grove City, Rotunda West, Placida, Cape Haze, and Boca Grande. The proposed hospital contains 92 medical/surgical beds and 8 intensive care unit (ICU) beds. The 92 medical/surgical beds contain a mix of 32 private be and 60 semiprivate beds. The hospital will provide ambulatory surgical services, diagnostic and special procedures, radiology services, nuclear medicine, ultrasonography, cardio-pulmonary, emergency room, and clinical laboratory services. The following services would be shared with its affiliate, Fawcett memorial Hospital in Port St. Charlotte, Florida: business office, medical records, data processing, materials management, personnel, education, public relations, administration, dietary, bio-medical engineering, laboratory, sterile processing, vascular laboratory, and occupational therapy. The proposed hospital will be a wholly-owned subsidiary of BAMI, and will have its own board of directors, board of trustees, and medical staff. BAMI is an experienced health care provider. Its principals have been in the health care business since 1964, and have built and operated 25 health care facilities in the mid-western United States. BAMI owns and operates several health care facilities in Florida: the 400-bed Fort Myers Community Hospital in Fort Myers, Florida; the 254-bed Fawcett Memorial Hospital in Port Charlotte, Florida; the 120-bed Kissimmee Memorial Hospital in Kissimmee, Florida; the Englewood Emergency Clinic and Primary Care Center in Englewood, Florida; the Ambulatory Surgical Center in Tampa, Florida; and the Emergency Clinic and Primary Care Center in Bonita Springs, Florida. BAMI also owns two smaller hospitals, one in Georgia and the other in Alabama. It is experienced in building and opening new hospitals, having built both the Fort Myers Community Hospital and the Kissimmee Memorial Hospital. It also expanded Fawcett Memorial Hospital from 96 beds to 254 beds. BAMI has financial assets of approximately $63,842,400 and a net worth exceeding $13.5 million. Venice VENICE seeks a certificate of need to construct a 100-bed satellite acute care hospital in Englewood, to be known as the Englewood-North Port Hospital. The service area for this proposed hospital consists of Englewood, North Port, Rotunda West, Placida, Warm Mineral Springs, Boca Grande, and Cape Haze. VENICE's proposed hospital contains 96 medical/surgical beds and four ICU beds. No semiprivate rooms will be available. All of the 96 medical/surgical beds will be placed in private rooms. The proposed satellite hospital will share the following services with VENICE's existing 300-bed "mother" hospital in Venice, Florida: specialized laboratory services, physical therapy, nuclear medicine, pulmonary functions, and specialized radiology services. For specialized and more sophisticated services, patients will be transported from the Englewood hospital to the larger hospital in Venice. The following support services will also be shared with the "mother" hospital: purchasing, bulk storage, laundry, dietary management, data processing, financial management, personnel recruitment, and educational services. In order to share these services, the existing Venice Hospital will be required to operate a transportation system. For many years, VENICE has owned and operated Venice Hospital, a fully licensed and accredited 300-bed general acute care hospital at 540 The Rialto, Venice, Florida. Venice neither owns nor operates any other hospital, although it has applied for a certificate of need to construct a 50-bed psychiatric hospital. The present management of Venice Hospital is inexperienced in the construction and opening of new hospitals. II. COSTS AND METHODS OF CONSTRUCTION Construction costs for the competing BAMI and VENICE proposals are broken down into categories and depicted in the following table: COMPARATIVE CONSTRUCTION COSTS CATEGORY BAMI VENICE Total Project Cost $13,355,000 $18,170,000 Total Project Per Bed Cost 135,500 181,700 Total Direct Construction Equipment Cost for and Fixed 11,670,190 13,874,516 Gross Square Feet 75,327 75,000 Construction Costs 155 173 Per Square Foot Number of Stories One Two Expansion Potential 100 additional 200 additional EQUIPMENT Movable 3,500,000 2,272,444 Bami Construction of the BAMI hospital can begin by September 1, 1983, and be completed by December 31, 1984. The new hospital can be opened by January 1, 1985. The BAMI hospital will be a one-story building, a design which is efficient for a hospital of this size. It will consist of a steel structure with curtain walls. The building is functional and economical, and can be expanded horizontally to 200 beds with minimum disruption to existing services and staff. The design of this hospital is similar to the 120-bed Kissimmee Memorial Hospital built by BAMI in 1979. BAMI's cost estimates are based on the actual costs of constructing the Kissimmee Memorial Hospital. BAMI proposes to construct the hospital by using an affiliate, F & E Community Developers of Florida, Inc. The use of an in-house contractor will allow BAMI to build the hospital in a short time period, at less cost and with higher quality. BAMI's proposal contains both active and passive energy conservation elements. The passive elements include overhangs, shaded glass, and movable windows. Active elements include the selection of quality equipment and a computerized control system for the electric reheat heating/ventilation/air conditioning ("HVAC") system. The architectural and construction plans for BAMI's proposed hospital are virtually complete. Schematic drawings were submitted and approved by DHRS in August, 1981. Preliminary plans have also been approved by DHRS. DHRS approval entailed a review of architectural, electrical, and mechanical preliminary drawings. Venice If the VENICE proposal is approved, construction could begin between April and July, 1984. The hospital could open for occupancy on January 1, 1986, a year later than BAMI's proposal. VENICE's architectural and construction plans are at an early stage, consisting only of a program summary and block design. Architectural, electrical, and mechanical preliminary drawings have not yet been submitted to DHRS and approved. The construction cost estimates submitted by VENICE are less reliable than those submitted by BAMI, since they were derived from less developed plans and were based on assumptions presented by persons who did not testify at hearing. VENICE's proposed hospital consists of a reinforced concrete structure with a modular precast concrete exterior. Although it will consist of two stories, the building will be stressed for the subsequent addition of two stories. When and if it is expanded to four stories, it would be a 300-bed hospital. The planned vertical expansion increases the initial cost of the building by approximately ten percent. Because of the extensive sharing of medical and support services between the proposed satellite hospital and the "mother" hospital in Venice, the ancillary medical and support facilities of the satellite have been down-sized. The VENICE proposal will also require horizontal expansion in the future. Areas such as radiology, laboratory, and emergency rooms will require immediate expansion as beds are added to the facility. It has not been shown at what point, in the planned expansion, VENICE's proposed hospital would become a free-standing hospital--when it would no longer be required to rely on its "mother" hospital in Venice. VENICE proposes an energy efficient facility. The multiple-story design minimizes site use and roof coverage. The relatively narrow wings provide for optimum use of daylight. VENICE contends that its HVAC system is more cost effective than the system proposed by BAMI. This contention is not substantiated by convincing evidence. The VENICE witness who testified on this question was an architect, not a mechanical engineer. He was unfamiliar with the computerized energy control system proposed by BAMI and used assumptions made by others who did not testify at the hearing. Bami III. HOSPITAL EQUIPMENT BAMI's proposed movable hospital equipment will cost approximately $3,500,000. Included are three radiology rooms: one general radiographic room, one standard R and F room, and one R and F room with angiographic capability. Also included are 8 ICU beds, four operating "rooms--two major and two minor-- nuclear medicine, and ultrasound capability. Venice The equipment cost for the VENICE proposal is $2,272,444. Included are 3 operating rooms, one with cystographic capability; four ICU beds and two radiology rooms--one R and F, and one general radiographic. More sophisticated diagnostic procedures, such as nuclear medicine and specialized radiology, will be provided at the "mother" hospital in Venice, not at the proposed Englewood satellite. To utilize these procedures, patients will be transported from Englewood to Venice. VENICE acknowledges that its proposed hospital will utilize less sophisticated diagnostic equipment than BAMI's. VENICE's equipment cost would have to be increased approximately $700,000 if it were to provide eight ICU beds and specialized radiology and nuclear-medicine to match BAMI's proposal. The equipment cost differential indicates the different levels of care proposed by the two hospitals. The VENICE proposal requires the development of a transportation "shuttle" system between the "mother" hospital in Venice and the satellite in Englewood. The system would consist of two trucks in addition to vans or ambulances. The plans for this essential transportation system are, however, not fully developed. The need for van or ambulance transportation between the two facilities has not been fully considered. Further, the transportation plan estimates a 25-minute one-way driving time between Englewood and Venice year- round. During the busy winter months, it is likely that the driving time will increase. Although VENICE proposes to lease the necessary trucks, neither the leasing costs nor associated costs have been fully taken into account. IV. FUNDS FOR OPERATING AND CAPITAL EXPENDITURES Bami BAMI will finance the $13,555,000 required to open its proposed hospital with bond proceeds, an equipment lease, and an equity contribution. It will obtain $7,905,000 from taxable bonds with a maturity of 25 years, and an interest rate of 12.5 percent. There will be a 2-year holiday on principal payments. BAMI will finance the $3,500,000 equipment cost pursuant to a lease agreement with Financial and Insurance Services, Inc., with an eight-year term and an interest rate of 15 percent. BAMI will make an equity contribution of $2,150,000. This will be in the nature of a contribution of capital from a parent corporation to a subsidiary corporation. As of September 30, 1982, BAMI had a net worth exceeding $13,500,000. BAMI will provide up to $1,000,000 in operating capital to cover initial start-up costs of the proposed hospital. In addition, BAMI has obtained a $5,000,000 line of credit which will be available to cover any potential cash shortages occurring during the start-up phase of the hospital. Venice VENICE will obtain the $18,170,000 required for its proposal from tax- free bond financing and an equity contribution. The bonds, which will have a maturity of 30 years and an interest rate of 10.52 percent, will be an obligation of the Venice Hospital. A debt service reserve fund of $1,900,750 will be required in order for the bonds to obtain an "A" rating. In unrelated applications, VENICE has proposed a major renovation of its existing hospital and the construction of a new free-standing 50-bed psychiatric hospital. These projects, if undertaken, will require additional equity contributions of $1,221,000 and additional bond financing in the amount of $10,370,000. To obtain the bond financing, VENICE will be required to maintain a one-to-one historical debt coverage ratio. VENICE has not convincingly established that it will be able to carry out all three projects and still maintain the required one-to-one debt coverage ratio. VENICE proposes to locate its proposed hospital on 15 acres of land costing $135,000. But the land sales contract provides only for the sale of 250 acres at a cost of $2,250,000. (The present owners wish to sell the entire 250- acre parcel and not lesser amounts.) The source of the $2,250,000 needed to acquire the property has not been identified. The bond proceeds could not be used. To purchase the 250 acres and fund the equity for its three proposed health care projects, VENICE will require $4,311,000. The source of these funds has not been identified. VENICE contends that one possible source would be Board Designated Funds. However, VENICE's audited financial statements for the period ending September 30, 1982, suggest otherwise. PROPOSED SITES Bami BAMI, through a subsidiary, has contracted to purchase approximately 12 acres as a site for its proposed Englewood hospital. The 12-acre site is part of a 60-acre parcel of land that is zoned OPI, a zoning classification which will permit the construction of a hospital. The 12-acre site is located on Morningside Drive, an access road to Pine Street. Although Morningside Drive is a dirt road, it will be paved. Under the contract, the current owner will pay all paving costs in excess of $65,000. The initial $65,000 in paving costs will be borne by BAMI and has been included in BAMI's estimated construction costs. Pine Street, a major north- south transportation artery in the Englewood area, is currently being resurfaced in both Sarasota and Charlotte counties. A second access to Pine Street has been acquired by the current owner. A watermain is available at the BAMI site. The current owner of the property will construct a sewage treatment plant and provide sewer service to the proposed hospital at prevailing rates. The sewage treatment plant will be located on a 7.5-acre portion of the 48 contiguous acres retained by the current owner. The BAMI site is located in an A-11 flood zone with an elevation of ten feet. Fill dirt will be used to raise it to an acceptable elevation of twelve feet. A current owner of the BAMI site envisions the entire 60 acres as an Englewood medical center. If necessary he will allow BAMI to purchase an additional 12 acres contiguous to the site. BAMI has not yet, however, obtained a legally enforceable right to purchase additional property adjoining its 12- acre site. Although the 12-ace site will permit the planned 100-bed future expansion, the site would be crowded with little space remaining for future improvements. Venice The VENICE site is an undesignated 15-acre portion of a 250-acre parcel of land located off State Road 777, also known as South River Road. It is uncertain whether the hospital will have one or two access roads to State Road 777. A watermain is available at the VENICE site. Sewage treatment will be provided by a nearby privately owned sewage treatment plant until the hospital, eventually, constructs its own. The zoning classification of the VENICE site will not permit construction of a hospital. Before the hospital could be built, Sarasota County would be required to rezone the property to OPI. Use of the property for a hospital is also inconsistent with Sarasota County's comprehensive land use plan, adopted October 31, 1981. Such a rezoning process would take a minimum of three or four months, and perhaps longer. Approximately 100 individual steps are involved. Hearings would be held by the Sarasota Planning Commission and the Sarasota County Commission. VENICE has not yet filed an application to rezone either the 15 acres or the entire 250-acre parcel. Neither has it shown that it is likely to succeed in having the property rezoned to a classification permitting hospital use. Bami VI. EFFICIENT AND ALTERNATIVE USES OF HEALTH CARE RESOURCES As part of its application, BAMI proposes to merge its existing Englewood Emergency Clinic and Primary Care Center into its proposed Englewood hospital. If the BAMI application is denied and VENICE's granted, BAMI will continue to operate the Emergency Clinic and Primary Care Center. As a result, the Emergency Clinic and VENICE's Englewood hospital would be providing duplicative emergency services. The costs resulting from this duplication would be approximately $894,800 in 1985; $975,300 in 1986; and $1,063,100 in 1987. For cost effectiveness, BAMI's proposed hospital will share some ancillary and support services with Fawcett Memorial Hospital in nearby Port Charlotte. Fawcett Memorial will also provide tertiary level services, such as renal dialysis and CAT scans to patients of the proposed Englewood hospital. BAMI operates a multi-hospital system, with subsidiaries which provide ancillary and specialized support services. These services include physical therapy, inhalation therapy, cardiopulmonary function, speech therapy, data processing, and collection services. Corporate level expertise in accounting, property management, pharmacy management, personnel, and marketing, is also available. The multi-hospital system allows BAMI to obtain favorable purchasing contracts and capital for future expansion. Venice Venice Hospital, the only hospital in south Sarasota County, has a high rate of occupancy. Although presently a 300-bed facility, it has an ultimate capacity of 400 beds. It recently applied for a certificate of need to add 24 ICU/PCU beds and additional beds, beyond that, are needed. It has a shelled-in fourth floor that will accommodate an additional 45-bed nursing unit. Completing the fourth floor at Venice Hospital would be a more cost-effective alternative way to add beds than constructing a new hospital in Englewood. As already mentioned, the "mother" hospital in Venice will share numerous ancillary and support services with the proposed satellite hospital in Englewood. VENICE proposes to share, among other things, its present laboratory with the proposed Englewood satellite. As a result, the laboratory in the satellite hospital has been reduced to a minimal size. It has not been convincingly established that the Venice Hospital laboratory, even if expanded as proposed, can process the additional laboratory work-load arising from an Englewood satellite. The laboratory at the existing Venice Hospital presently operates 24-hours per day, seven days a week. Even if its application to expand its laboratory is granted, the total area of the laboratory would be less than the accepted space guidelines required for a 324-bed hospital. VII. AVAILABILITY, APPROPRIATENESS, AND ACCESSIBILITY OF PROPOSED HEALTH CARE SERVICES Scope of Services Although both proposed hospitals would share services with affiliated hospitals, BAMI proposes more of an autonomous, full-service and free-standing hospital than that proposed by VENICE. BAMI will equip its hospital with a more complete and sophisticated range of diagnostic services and, unlike VENICE, has not down-sized its ancillary and support services. For the VENICE proposal to become a free-standing facility comparable to BAMI's, the space devoted to ancillary medical services and support services would have to be expanded by 30 percent and 50 percent, respectively. The costs of such an expansion have not been determined. Economic Access Both parties will enter Medicaid contracts covering their proposed hospitals. BAMI projects that .1 percent of its patients will be Medicaid; VENICE projects .2 percent. BAMI hospitals treat all emergency patients, regardless of ability to pay. Third party payment is accepted. On elective admissions, self-pay patients are requested to make reasonable deposits and sign promissory notes. In specific instances, patients can be admitted without making financial arrangements in advance. Patients are not referred to other hospitals because of inability to pay. If an indigent is defined as "one who cannot pay," Fawcett Memorial Hospital provided between $600,000 and $700,000 in indigent care during 1982. This figure represents approximately 3.9 percent of gross revenue. Similarly, Venice Hospital treats emergency patients regardless of their ability to pay. Promissory notes are obtained from self-pay patients if necessary. The credit policies of Venice Hospital are similar to BAMI's. Venice Hospital had a bad debt or charity to gross receipts ratio of between 2.5 percent and 3.0 percent in 1982. Venice Hospital also has a Hill-Burton requirement to provide indigent care in the amount of approximately $125,000 per year. This requirement stems from a federal grant awarded in 1970. Access to Osteopathic Physicians BAMI's proposed hospital will have an open medical staff, including licensed medical doctors and osteopathic physicians. BAMI has a practice of allowing osteopathic physicians on its medical staff. For several years, osteopathic physicians have been included on the staff of all BAMI hospitals. Fort Myers Community Hospital, a BAMI hospital, is one of two hospitals in the Fort Myers area with osteopathic physicians on its staff. Kissimmee Memorial Hospital, also owned by BAMI, has the only two osteopathic physicians in Kissimmee on its staff. Fawcett Memorial Hospital has the only osteopathic physician in Port Charlotte on its staff. In contrast, VENICE has not added osteopathic physicians to its staff with similar enthusiasm. It granted staff privileges to its first osteopathic physician six to nine months prior to hearing. Two months before the hearing, staff privileges were granted to a second. Venice Hospital has, however, changed its bylaws to comply with the law prohibiting discrimination against osteopathic physicians. Geographic Access The geographic locations of the sites for the two proposed hospitals, as described above, provide equal access to the service area. The BAMI site is closest to the existing population concentrations of the Englewood area, while the VENICE site is closer to Interstate 75. Both sites will require the paving of an access road to major traffic arteries. No significant advantage in access is afforded to either. VIII. COMPETITION The existing Venice Hospital currently serves the hospital needs of approximately 64 percent of the people in the greater Englewood area. These patients comprise approximately 26.8 percent of Venice Hospital's total patient days. BAMI's existing Fawcett Memorial Hospital in Port Charlotte currently serves between ten and twelve percent of the hospital needs of the people in the greater Englewood area. These patients account for approximately 11.3 percent of Fawcett Memorial's total patient load. In addition, BAMI's Englewood Emergency Clinic and Primary Care Center has treated over 20,000 patients since it opened in February, 1980. The existing Venice Hospital holds a dominant market share in the greater Englewood area. It is only twelve miles north of Englewood and is the only hospital in south Sarasota County. The closest competitor in Sarasota County is Sarasota Memorial Hospital, approximately 20 miles north of the Venice Hospital. Venice Hospital has been in operation for approximately 30 years. In contrast, Fawcett Memorial Hospital is approximately 21 miles east of Englewood. In the mid-1970s, it was converted from a nursing home to a 96-bed hospital, and in 1976, it was expanded to 254 beds. Approval of BAMI's proposal will enhance competition among hospitals serving the greater Englewood area. The competition will not, however, adversely affect Venice Hospital's long-term viability. The construction of either hospital in the Englewood area will change existing hospital utilization and physician referral patterns. New referral patterns will form and an increasingly autonomous group of physicians will develop. Local physicians will utilize the Englewood hospital, whether it is owned by BAMI or VENICE. Bami IX. PROJECTED COSTS OF PROVIDING HEALTH CARE SERVICES BAMI forecasts an occupancy rate of 60 percent at its proposed Englewood hospital in 1985; 75 percent in 1986; and 80 percent in 1987, with an average length of stay of 8.5 days. These figures are credible in view of the population growth in the Englewood area, the undisputed need for a new hospital, and the elderly population. To project total cost and gross revenue per patient day, various calculations are made. BAMI's employee salary expenses are based on its experience at nearby Fawcett Memorial Hospital, adjusted by an inflation factor. Non-salary expenses are derived from its experience at Kissimmee Memorial Hospital, a hospital of similar size with a utilization rate similar to that projected for the Englewood hospital. Depreciation of plant and equipment is calculated using the straight-line method. Revenue projections are derived using the American Hospital Association's Monitrend median inpatient revenue, inflated at 9 percent per year. An indigent/bad debt deduction of four percent of total patient revenue is used. These assumptions provide a credible basis from which total cost and gross revenue per patient day can be calculated. Using these assumptions, total costs per patient day is forecast to be $482.00 in 1975; $479.60 in 1986, and $510.32 in 1987. Gross revenue per patient day is forecast to be $552.00 in 1985; $601.68 in 1986; and $655.83 in 1987. These forecasts are credible and accepted as reasonably reliable. Venice VENICE's primary contention is that its proposed hospital, although costing more to build, will--in the long run--result in lower costs to patients and increased savings to the community. This contention was not substantiated by convincing evidence. In forecasting its costs and revenues, VENICE projected an occupancy rate of 65 percent in 1986; 80 percent in 1987; and 80 percent in 1988. The 1986 projection is unreasonably high; it envisions a 70.4 percent utilization rate during the opening month. VENICE's projected salary expenses are derived from its current experience at Venice Hospital, adjusted for inflation. Although this figure is reliable, the projected non-salary expense per patient day is not. The nonsalary expense is not based on Venice Hospital's most recent 1982 expenses, and is not adjusted by the requisite inflation factor. The depreciation schedule and assumptions used by VENICE in forecasting its revenues and costs are also questionable. Discrepancies went unexplained. The testimony of Deborah Kolb, Ph.D., an expert in health care financial and need analysis, is considered more credible. She concluded that VENICE understated 1986 depreciation expense for its proposed hospital by approximately $300,000, an error which would have increased its projected patient costs per day by $13.70. VENICE also projects room charges at its proposed hospital which are significantly lower than those projected for its "mother" hospital in Venice. This difference in room charges was not adequately explained or justified. Although VENICE's controller attributed the difference to cost savings resulting from the satellite hospital concept, these savings were not meaningfully itemized or identified in VENICE's revenue and cost projections. VENICE also failed to identify, and reflect in its projections, increased costs resulting from use of its satellite concept. For example, in 1986, 532 Englewood patient are projected as requiring sophisticated nuclear medicine tests at the "mother" hospital in Venice; 141 Englewood patient are projected as requiring special radiology tests at Venice Hospital. When asked who would absorb the costs of transporting patients between the satellite hospital in Englewood and the "mother" hospital in Venice, VENICE's controller responded that Venice Hospital would. However, those costs have not been quantified. Moreover Venice Hospital does not currently pay for ambulance transportation of its patients and does not have vans which transport patients on 24-mile round trips. This amounts to a significant and additional cost of operation, which has not been fully considered in the financial forecasts. Moreover, VENICE utilized cost per patient day based on Venice Hospital's 1981 costs rather than the higher 1982 costs. (Revenue per patient day increased 23.8 percent, in 1982.) In addition, projected revenues at VENICE's proposed Englewood satellite were not adjusted downward to take into account the less-sophisticated medical services which would be provided. As a result, VENICE's projected revenues per patient day are questionable and lack credibility. Venice Hospital received funds from three philanthropic organizations: Venice Hospital Blood Bank, Venice Hospital Auxiliary Volunteers, and Venice Health Facilities Foundation. Without the infusion of these funds, charges to Venice Hospital's patients would be higher. Venice Hospital's own fund raising literature states that patient charges, alone, do not cover the full costs of providing medical services. These community-raised funds, then, pay part of the costs of providing medical care. But in calculating cost savings to the community from its proposed Englewood hospital, VENICE has not identified or taken into account these additional funds raised from the community. VENICE's comparison of its projected patient charges with those of BAMI's is, accorded little weight. The two proposed hospitals are significantly different, one providing more extensive and sophisticated medical care than the other. This difference was not adequately taken into account in the financial comparison. Additional costs to Venice Hospital resulting from the Englewood satellite hospital were not fully considered. Comparisons based on historical charges by Venice Hospital and Fawcett Memorial Hospital are also misleading since these hospitals are different in size and occupancy rate--and the proposed Englewood hospital will duplicate neither. Moreover, Venice Hospital historical room rates used for the comparison were selectively chosen. VENICE also relies on projected HVAC life cycle savings, which, as already mentioned, were not convincingly established. Finally, the costs of acquiring VENICE's site-- necessitating a 250-acre purchase--were not fully reflected in the comparison. X QUALITY OF CARE The parties stipulated that both proposals will provide high quality medical care. The only question is whether bed-configuration will affect the quality of care provided. BAMI proposes a mix of 32 private and 60 semiprivate medical/surgical beds, with an additional 8 ICU beds. In contrast, VENICE proposes 96 private medical/surgical beds and 4 ICU beds. BAMI's mix of private and semiprivate rooms will allow consumers a choice and is preferable to VENICE's all private-room proposal. Private and semiprivate rooms confer various benefits. BAMI's proposed 32 private rooms will be adequate to serve those patients requiring private rooms while, at the same time, affording patients a choice between private and semiprivate. The VENICE proposal will not allow such a choice. It has not been shown, however, that bed configuration will affect the quality of medical care rendered patients. XI. COMPARISON: BAMI'S PROPOSED HOSPITAL IS PREFERABLE TO VENICE'S Both proposed hospitals would provide necessary and quality medical care to people in the Englewood area. On balance, however, BAMI's proposal is preferable. BAMI's free-standing hospital will provide more complete and sophisticated medical care, with less need to transport patients between "mother" and satellite hospitals. VENICE's satellite hospital will require extensive transporting of patients, food, linens, equipment, lab samples, and medications between the "mother" hospital in Venice and the satellite hospital in Englewood. BAMI, a multi-hospital system, is more experienced in constructing and operating new hospitals. The BAMI proposal will cost approximately $2,000,000 less to build, yet be of comparable quality and equipped with more sophisticated diagnostic equipment. While VENICE's construction plans are preliminary, BAMI's are detailed and virtually complete. VENICE's site requires rezoning, BAMI's does not. If BAMI's application is approved, its hospital could be opened by January 1, 1985,a year earlier than VENICE's. BAMI is financially able to begin construction immediately while VENICE--because of other projects simultaneously undertaken--may not be. Apart from zoning, both hospital sites are equally acceptable, although BAMI's 12-acre site is minimally sufficient for the anticipated future expansion to 200 beds. BAMI's financial ability to purchase is assured, while VENICE's is not. BAMI's proposal would avoid a duplication of emergency medical services in Englewood, while VENICE's would cause it. For patients preferring osteopathic physicians, BAMI's hospital would, most likely, be preferable. For patients preferring semiprivate rooms, BAMI's proposal would be preferable. Competition between hospitals serving the Englewood area would be enhanced with the BAMI proposal and decreased with VENICE's. Although VENICE argued that the costs to its patients would, over the long run, be less than BAMI's, this proposition was not convincingly proved.
The Issue The ultimate issue is whether the application of Petitioner, University Medical Park, for a certificate of need to construct a 130-bed acute care hospital in northern Hillsborough County, Florida should be approved. The factual issues are whether a need exists for the proposed facility under the Department's need rule and, if not, are there any special circumstances which would demonstrate the reasonableness and appropriateness of the application notwithstanding lack of need. The petitioner, while not agreeing with the methodology, conceded that under the DHRS rule as applied there is no need because there is an excess of acute care beds projected for 1989, the applicable planning horizon. The only real factual issue is whether there are any special circumstances which warrant issuance of a CON. The parties filed post-hearing findings of fact and conclusions of law by March 18, 1985, which were read and considered. Many of those proposals are incorporated in the following findings. As indicated some were irrelevant, however, those not included on pertinent issues were rejected because the more credible evidence precluded the proposed finding. Having heard the testimony and carefully considered the Proposed Findings of Fact, there is no evidence which would demonstrate the reasonableness and appropriateness of the application. It is recommended that the application be denied.
Findings Of Fact General Petitioner is a limited partnership composed almost entirely of physicians, including obstetricians/gynecologists (OB/GYN) and specialists providing ancillary care, who practice in the metropolitan Tampa area. (Tr. Vol. 1, pp. 103-104). Petitioner's managing general partner is Dr. Robert Withers, a doctor specializing in OB/GYN who has practiced in Hillsborough County for over thirty years. (Tr. Vol. 1, pp. 24- 26, 28-29.) Dr. Withers was a prime moving force in the founding, planning and development of University Community Hospital and Women's Hospital. (Tr. Vo1. 1, pp. 26-28, 73; Vol. 4, pp. 547-548.) Petitioner seeks to construct in DHRS District VI a specialty "women's" hospital providing obstetrical and gynecological services at the corner of 30th Street and Fletcher Avenue in northern Hillsborough County and having 130 acute care beds. 1/ (Tr. Vol. 1, pp. 34, 74-75, Vol. 5, pp. 678-679, Northside Ex.-1, pp. 1-2, Ex.-4A.) The proposed hospital is to have 60 obstetrical, 66 gynecological and 4 intensive care beds. (Tr. Vol. 8, P. 1297, Northside Ex.-1 Table 17, Ex.-B.) DHRS District VI is composed of Hardy, Highlands, Hillsborough, Manatee and Polk counties. Each county is designated a subdistrict by the Local Health Council of District VI. Pasco County, immediately north of Hillsborough, is located in DHRS District V and is divided into two subdistricts, east Pasco and west Pasco. If built, Northside would be located in the immediate vicinity of University Community Hospital (UCH) in Tampa, Hillsborough County, Florida. Less than 5 percent of the total surgical procedures at UCH are gynecologically related, and little or no nonsurgical gynecological procedures arc performed there. (Tr. Vol. 4, p. 550.) There is no obstetrical practice at UCH, although it has the capacity to handle obstetric emergencies. The primary existing providers of obstetrical services to the metropolitan Tampa area are Tampa General Hospital (TGH) and Women's Hospital (Women's). (Tr. Vol. 1, p. 79, Northside Ex.-4, Tr. Vol. 7, pp. 1074-1075.) TGH is a large public hospital located on Davis Islands near downtown Tampa. (Tr. Vol. 1, pp. 47-48, Vol. 8, pp. 1356, 1358.) TGH currently has a 35 bed obstetrical unit, but is currently expanding to 70 beds as part of a major renovation and expansion program scheduled for completion in late 1985. (Tr. Vol. 7, pp. 1049, 1095, Vol. 8, pp. 1367-1368, Vol. 10, P. 1674, Northside Ex.- 2, P. 3.) In recent years, the overwhelming majority of Tampa General's admissions in obstetrics at TGH have been indigent patients. (Tr. Vol. 1, P. 61, Vol. 8, pp. 1375- 1379; Vol. 9, P. 1451; TGH Ex.-3.) Tampa General's internal records reflect that it had approximately 2,100 patient days of gynecological care compared with over 38,000 patient days in combined obstetrical care during a recent eleven month period. (TGH Ex.-3..) Women's is a 192 bed "specialty" hospital located in the west central portion of the City of Tampa near Tampa Stadium. (Tr. Vol. 1, pp. 63-64, 66-67; Vol. 10 P. 1564; Northside Ex.-4.) Women's Hospital serves primarily private-pay female patients. (Vol. 1, pp. 79, 88-89; Vol. 6, pp. 892-893.) Humana Brandon Hospital, which has a 16 bed obstetrics unit, and South Florida Baptist Hospital in Plant City, which has 12 obstetric beds, served eastern Hillsborough County. (Tr. Vol. 7, P. 1075; Northside Ex.-2, P. 3; Northside Ex.-4 and Tr. Vol. 1, P. 79; Northside Ex.-4.) There are two hospitals in eastern Pasco County, which is in DHRS District V. Humana Hospital, Pasco and East Pasco Medical Center, each of which has a six bed obstetric unit. Both hospitals are currently located in Dade City, but the East Pasco Medical Center will soon move to Zephyrhills and expand its obstetrics unit to nine beds. (Tr. Vol. 1, pp. 108- 109; Tr. Vol. 7, P. 1075; Vol. 8, pp. 1278-1281; Northside Ex.-4.) There are no hospitals in central Pasco County, DHRS District V. Residents of that area currently travel south to greater Tampa, or, to a lesser extent, go to Dade City for their medical services. (Tr. Vol. 2, pp. 266-267, 271-272; Vol. 7, p. 1038.) Bed Need There are currently 6,564 existing and CON approved acute care beds in DHRS District VI, compared with an overall bed need of 5,718 acute care beds. An excess of 846 beds exist in District VI in 1989, the year which is the planning horizon use by DHRS in determining bed need applicable to this application. (Tr. Vol. 7, pp. 1046-1047, 1163, 1165-66; DHRS Ex.-1.) There is a net need for five acute care beds in DHRS District V according to the Department's methodology. (Tr. Yolk. 7, pp. 1066, 1165; DHRS Ex.-1.) The figures for District VI include Carrollwood Community Hospital which is an osteopathic facility which does not provide obstetrical services. (Tr. Vol. 1, P. 158; Vol. 7, p. 1138; Vol. 8, P. 1291.) However, these osteopathic beds are considered as meeting the total bed need when computing a11 opathic bed need. DHRS has not formally adopted the subdistrict designations of allocations as part of its rules. (Tr. Vol. 7, pp. 1017-1017, 1019; Vol. 8, pp. 1176, 1187.) Consideration of the adoption of subdistricts by the Local Health Council is irrelevant to this application. 2/ Areas of Consideration in Addition to Bed Need Availability Availability is deemed the number of beds available. As set forth above, there is an excess of beds. (Nelson, Tr. Vol. VII, P. 1192.) Tampa General Hospital and Humana Women's Hospital offer all of the OB related services which UMP proposes to offer in its application. These and a number of other hospitals to include UCH, offer all of the GYN related services proposed by Northside. University Community Hospital is located 300 yards away from the proposed site of Northside. UCH is fully equipped to perform virtually any kind of GYN/OB procedure. Humana and UCH take indigent patients only on an emergency basis, as would the proposed facility. GYN/OB services are accessible to all residents of Hillsborough County regardless of their ability to pay for such services at TGH. (Williams, Tr. Vol. IX, P. 1469; Baehr, Tr. Vol. X, P. 1596; Splitstone, Tr. Vol. IV, P. 582; Hyatt, TGH Exhibit 19, P. 21.) Utilization Utilization is impacted by the number of available beds and the number of days patients stay in the hospital. According to the most recent Local Health Council hospital utilization statistics, the acute care occupancy rate for 14 acute care hospitals in Hillsborough County for the most recent six months was 65 percent. This occupancy rate is based on licensed beds and does not include CON approved beds which are not yet on line. This occupancy rate is substantially below the optimal occupancies determined by DHRS in the Rule. (DHRS Exhibit 4; Contis, Tr. Vol. VII, P. 1069.) Utilization of obstetric beds is higher than general acute care beds; however, the rules do not differentiate between general and obstetric beds. 3/ Five Hillsborough County hospitals, Humana Women's, St. Joseph's, Tampa General, Humana Brandon, and South Florida Baptist, offer obstetric services. The most recent Local Health Council utilization reports indicate that overall OB occupancy for these facilities was 82 percent for the past 6 months. However, these computations do not include the 35 C0N-approved beds which will soon be available at Tampa General Hospital. (DHRS Exhibit 4). There will be a substantial excess of acute care beds to include OB beds in Hillsborough County for the foreseeable future. (Baehr, Tr.w Vol. X, pp. 1568, 1594, 1597.) The substantial excess of beds projected will result in lower utilization. In addition to excess beds, utilization is lowered by shorter hospital stays by patients. The nationwide average length of stay has been reduced by almost two days for Medicare patients and one day for all other patients due to a variety of contributing circumstances. (Nelson, Tr. Vol. VII, P. 1192; Contis, Tr. Vol. VII, P. 1102; Baehr, Tr. Vol. X, pp. 1583-84; etc.) This dramatic decline in length of hospital stay is the result of many influences, the most prominent among which are: (1) a change in Medicare reimbursement to a system which rewards prompt discharges of patients and penalizes overutilization ("DGRs"), (2) the adaptation by private payers (insurance companies, etc.) of Medicare type reimbursement, (3) the growing availability and acceptance of alternatives to hospitalization such as ambulatory surgical centers, labor/delivery/recovery suites, etc. and (4) the growing popularity of health care insurance/delivery mechanisms such as health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), and similar entities which offer direct or indirect financial incentives for avoiding or reducing hospital utilization. The trend toward declining hospital utilization will continue. (Nelson, Tr. Vol. VII, pp. 1192-98; Baehr, Tr. Vol. X, pp. 1584-86; etc.) There has been a significant and progressive decrease in hospital stays for obstetrics over the last five years. During this time, a typical average length of stay has been reduced from three days to two and, in some instances, one day. In addition, there is a growing trend towards facilities (such as LDRs) which provide obstetrics on virtually an outpatient basis. (Williams, Tr. Vol. IX, P. 1456; Hyatt, Tr. Vol. IV, P. 644.) The average length of stay for GYN procedures is also decreasing. In addition, high percentage of GYN procedures are now being performed on an outpatient, as opposed to inpatient, basis. (Hyatt, Tr. Vol. IV, P. 644, etc.) The reduction in hospital stays and excess of acute care beds will lower utilization of acute care hospitals, including their OB components, enough to offset the projected population growth in Hillsborough County. The hospitals in District VI will not achieve the optimal occupancy rates for acute care beds or OB beds in particular by 1989. The 130 additional beds proposed by UMP would lower utilization further. (Paragraphs 7, 14, and 18 above; DHRS Exhibit 1, Humana Exhibit 1.) Geographic Accessibility Ninety percent of the population of Hillsborough County is within 30 minutes of an acute care hospital offering, at least, OB emergency services. TGH 20, overlay 6, shows that essentially all persons living in Hillsborough County are within 30 minutes normal driving time not only to an existing, acute care hospital, but a hospital offering OB services. Petitioner's service area is alleged to include central Pasco County. Although Pasco County is in District V, to the extent the proposed facility might serve central Pasco County, from a planning standpoint it is preferable to have that population in central Paso served by expansion of facilities closer to them. Hospitals in Tampa will become increasingly less accessible with increases in traffic volume over the years. The proposed location of the UMP hospital is across the street from an existing acute care hospital, University Community Hospital ("UCH"). (Splitstone, Tr. Vol. IV, P. 542.) Geographic accessibility is the same to the proposed UMP hospital and UCH. (Smith, Tr. Vol. III, P. 350; Wentzel, Tr. Vol. IV, p. 486; Peters, Tr. Vol. IX, P. 1532.) UCH provides gynecological services but does not provide obstetrical services. However, UCH is capable of delivering babies in emergencies. (Splitstone, Tr. Vol. IV, p. 563.) The gynecological services and OB capabilities at UCH are located at essentially the same location as Northside's proposed site. Geographic accessibility of OB/GYN services is not enhanced by UMP's proposed 66 medical-surgical beds. The accessibility of acute care beds, which under the rule are all that is considered, is essentially the same for UCH as for the proposed facility. As to geographic accessibility, the residents of Hillsborough and Pasco Counties now have reasonable access to acute care services, including OB services. The UMP project would not increase accessibility to these services by any significant decrease. C. Economic Accessibility Petitioner offered no competent, credible evidence that it would expand services to underserved portions of the community. Demographer Smith did not study income levels or socioeconomic data for the UMP service area. (Smith, TR. Vol. III, pp. 388, 389.) However, Mr. Margolis testified that 24 percent of Tampa General's OB patients, at least 90 percent of who are indigents, came from the UMP service area. (Margolis, Tr. Vol. X, P. 1695.) The patients proposed to be served at the Northside Hospital are not different than those already served in the community. (Withers, Tr. Vol. II, P. 344.) As a result, Northside Hospital would not increase the number of underserved patients. Availability of Health Care Alternative An increasing number of GYN procedures are being performed by hospitals on an outpatient basis and in freestanding ambulatory-surgical centers. An ambulatory-surgical center is already in operation at a location which is near the proposed UMP site. In fact, Dr. Hyatt, a UMP general partner, currently performs GYN procedures at that surgical center. (Withers, Tr. Vol. I, P. 150; Hyatt, Tr. Vol. IV, pp. 644, 646. Ambulatory surgical centers, birthing centers and similar alternative delivery systems offer alternatives to the proposed facility. Existing hospitals are moving to supply such alternatives which, with the excess beds and lower utilization, arc more than adequate to preclude the need for the UMP proposal. (Nelson, Tr. Vol. VII, P. 1204, 1205, 1206; Williams, Tr. Vol. IX, pp. 1453, 1469; Contis, Tr. Vol. VII, pp. 1154; Contis, Tr. Vol. VII, pp. 1151, 1154.) Need for Special Equipment & Services DHRS does not consider obstetrics or gynecology to be "special services" for purposes of Section 381.494(6)(c)6, Florida Statutes. In addition, the services proposed by UMP are already available in Hillsborough and Pasco Counties. (Nelson, Tr. Vol. VII, pp. 1162, 1210.) Need for Research & Educational Facilities USF currently uses Tampa General as a training facility for its OB residents. TCH offered evidence that the new OB facilities being constructed at Tampa General were designed with assistance from USF and were funded by the Florida Legislature, in part, as an educational facility. (Powers, Tr. Vol. IX, P. 1391; Williams, Tr. Vol. IX, pp. 1453-1455.) The educational objectives of USF for OB residents at Tampa General are undermined by a disproportionately high indigent load. Residents need a cross section of patients. The UMP project will further detract from a well rounded OB residency program at Tampa General by causing Tampa General's OB Patient mix to remain unbalanced. (Williams, Tr. Vol. IX, P. 1458; Margolis, Tr. Vol. X, P. 1695.) UMP offered no evidence of arrangements to further medical research or educational needs in the community. (Nelson, Tr. Vol. VII, P. 1213. UMP's proposed facility will not contribute to research and education in District VI. Availability of Resources Management UMP will not manage its hospital. It has not secured a management contract nor entered into any type of arrangement to insure that its proposed facility will be managed by knowledgeable and competent personnel. (Withers, Tr. Vol. I, p. 142.) However, there is no alleged or demonstrated shortage of management personnel available. Availability of Funds For Capital and Operating Expenditures The matter of capital funding was a "de novo issue," i.e., evidence was presented which was in addition to different from its application. In its application, Northside stated that its project will be funded through 100 percent debt. Its principal general partner, Dr. Withers, states that this "figure is not correct." However, neither Dr. Withers nor any other Northside witness ever identified the percentage of the project, if any, which is to be funded through equity contributions except the property upon which it would be located. (UMP Exhibit 1, p. 26; Withers, Tr. Vol. I, P. 134.) The UMP application contained a letter from Landmark Bank of Tampa which indicates an interest on the part of that institution in providing funding to Northside in the event that its application is approved. This one and one half year year old letter falls short of a binding commitment on the part of Landmark Bank to lend UMP the necessary funds to complete and operate its project and is stale. Dr. Withers admitted that Northside had no firm commitment as of the date of the hearing to finance its facility, or any commitment to provide 1196 financing as stated in its application. (UMP Exhibit I/Exhibit Dr. Withers, Tr. Vol. I, P. 138.) Contribution to Education No evidence was introduced to support the assertion in the application of teaching research interaction between UMP and USF. USF presented evidence that no such interaction would occur. (Tr. Vol. IX, P. 1329.) The duplication of services and competition for patients and staff created by UMP's facility would adversely impact the health professional training programs of USF, the state's primary representative of health professional training programs in District VI. (Tr. Vol. IX, pp. 1314-19; 1322-24; 1331-1336.) Financial Feasibility The pro forma statement of income and expenses for the first two years of operation (1987 and 1988) contained in the UMP application projects a small operating loss during the first year and a substantial profit by the end of the second year. These pro formas are predicated on the assumption that the facility will achieve a utilization rate of 61 percent in Year 1 and 78 percent in its second year. To achieve these projected utilization levels, Northside would have to capture a market share of 75-80 percent of all OB patient days and over 75% of all GYN patient days generated by females in its service area. (UMP, Exhibit 1; Withers, Tr. Vol. I, P. 145, Dacus; Tr. Vol. V, P. 750-755.) These projected market shares and resulting utilization levels are very optimistic. It is unlikely that Northside could achieve these market shares simply by making its services available to the public. More reasonable utilization assumptions for purposes of projecting financial feasibility would be 40-50 percent during the first year and 65 percent in the second year. (Margolis, Tr. Vol. X, P. 1700; Baehr, Tr. Vol. X, pp. 1578, 1579, 1601.) UMP omitted the cost of the land on which its facility is to be constructed from its total project cost and thus understates the income necessary to sustain its project. Dr. Withers stated the purchase price of this land was approximately $1.5 million and it has a current market value in excess of $5 million. (Withers, Tr. Vol. I, pp. 139, 140.) Dr. Withers admitted that the purchase price of the land would be included in formulating patient charges. As a matter of DHRS interpretation, the cost of land should be included as part of the capital cost of the project even if donated or leased and, as such, should be added into the pro formas. UMP's financial expert, Barbara Turner, testified that she would normally include land costs in determining financial feasibility of a project, otherwise total project costs would be understated (Withers, Tr. Vol. I, P. 141; Nelson, Tr. Vol. VII, pp. 1215, 1216; Turner, Tr. Vol. X, P. 1714.) In addition, the pro formas failed to include any amount for management expenses associated with the new facility. Dr. Withers admitted UMP does not intend to manage Northside and he anticipates that the management fee would be considerably higher than the $75,000 in administrator salaries included in the application. (Withers, Tr. Vol. I, pp. 143, 144.) Barbara Turner, UMP's financial expert, conceded that the reasonableness of the percent UMP pro formas is predicated on the reasonableness of its projected market share and concomitant utilization assumptions. These projections are rejected as being inconsistent with evidence presented by more credible witnesses. The UMP project, as stated in its application or as presented at hearing, is not financially feasible on the assumption Petitioner projected. VIII. Impact on Existing Facilities Approval of the UMP application would result in a harmful impact on the costs of providing OB/GYN services at existing facilities. The new facility would be utilized by patients who would otherwise utilize existing facilities, hospitals would be serving fewer patients than they are now. This would necessarily increase capital and operating costs on a per patient basis which, in turn, would necessitate increases in patient charges. (Nelson, Tr. Vol. VII, pp. 1217-1219; Baehr, Tr. Vol. X, P. 1587.) Existing facilities are operating below optimal occupancy levels. See DHRS Exhibit 4. The Northside project would have an adverse financial impact on Humana, Tampa General Hospital, and other facilities regardless of whether Northside actually makes a profit. See next subheading below. The Northside project would draw away a substantial number of potential private-pay patients from TGH. Residents of the proposed Northside service area constitute approximately 24 percent of the total number of OB patients served by TGH. The Northside project poses a threat to TGH's plans to increase its non- indigent OB patient mix which is the key to its plans to provide a quality, competitive OB service to the residents of Hillsborough County. (Nelson, Tr. Vol. VIII, P. 1225; Margolis, Tr. Vol. X, P. 1695.) Impact Upon Costs and Competition Competition via a new entrant in a health care market can be good or bad in terms of both the costs and the quality of care rendered, depending on the existing availability of competition in that market at the time. Competition has a positive effect when the market is not being adequately or efficiently served. In a situation where adequate and efficient service exists, competition can have an adverse impact on costs and on quality because a new facility is simply adding expense to the system without a concomitant benefit. (Baehr, Tr. Vol. X, p. 1650.) Competition among hospitals in Hillsborough County is now "intense and accelerating." (Splitstone, Tr. Vol. IV, p. 558.) Tampa General is at a competitive disadvantage because of its indigent case load and its inability to offer equity interests to physicians in its hospital. (Blair, Tr. Vol. VI, pp. 945, 947-948); Powers, Tr. Vol. IX, P. 1405.) Tampa General Hospital is intensifying its marketing effort, a physician office building under construction now at Tampa General is an illustration of Tampa General's effort to compete for private physicians and patients. (Powers, Tr. Vol. IX, pp. 1405-1406.) The whole thrust of Tampa General's construction program is to increase its ability to compete for physicians. (Nelson, Tr. Vol. VII, P. 1224; Powers, Tr. Vol. IX, p. 1442.) The Tampa General construction will create new competition for physicians and patients. (Contis, Tr. Vol. VII, p. 1099.) Patients go to hospitals where their doctors practice, therefore, hospitals generally compete for physicians. (Splitstone, Tr. Vol. IV, P. 563; Blair, Tr. Vol. VI, pp. 898, 928.) Because many of the UMP partners are obstetricians who plan to use Northside exclusively, approval of the Northside project would lessen competition. (Popp, TGH Exhibit 18, P. 11.) It is feasible for Tampa General to attract more private pay OB patients. (Williams, Tr. Vol. IX, pp. 1460- 1461.) At its recently opened rehabilitation center, Tampa General has attracted more private pay patients. (Powers, Tr. Vol. IX, pp. 1393-1396.) USF OB residents at Tampa General are planning to practice at Tampa General. (Williams, Tr. Vol. IX, pp. 1460-1461.) The state-of-the-art labor, delivery, recovery room to be used at Tampa General will be an attractive alternative to OB patients. (Williams, Tr. Vol. IX, pp. 1460- 1461); Popp, TGH Exhibit 18, p.26) IX. Capital Expenditure Proposals The proposed Northside hospital will not offer any service not now available in Tampa. (Hyatt, TGH Exhibit 19, p. 21).
Recommendation Petitioner having failed to prove the need for additional acute care beds to include OB beds or some special circumstance which would warrant approval of the proposed project, it is recommended that its application for a CON be DENIED. DONE and ORDERED this 25th day of June, 1985, in Tallahassee, Florida STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of June, 1985.
The Issue The issue to be determined in this bid protest matter is whether Respondent Department of Health’s (DOH or the Department) intended award of the contract arising out of Invitation to Negotiate No. DOH-17-026 (ITN) for the Children’s Medical Services Managed Care Plan (CMS Plan) to Intervenor Wellcare of Florida, Inc., d/b/a Staywell Health Plan (Staywell), was contrary to its governing statutes, rules, or the solicitation specifications.
Findings Of Fact In 2011, the Florida Legislature created part IV of chapter 409, Florida Statutes, titled “Medicaid Managed Care.” See ch. 2011-134, Laws of Fla.; §§ 409.961 – 409.985, Fla. Stat. In so doing, the Florida Legislature designated the Agency for Health Care Administration (AHCA) as the single state agency authorized to make payments under Title XIX of the Social Security Act. § 409.902(1), Fla. Stat.; see also 42 U.S.C. § 1396-1396v. The Florida Legislature established the Children’s Medical Services Program to “[p]rovide to children with special health care needs a family-centered, comprehensive, and coordinated statewide managed system of care that links community-based health care with multidisciplinary, regional, and tertiary pediatric specialty care.” § 391.016(1), Fla. Stat.6/ The Department oversees and operates the Children Medical Services Network, a statewide managed care service system that includes health care providers. See §§ 391.021(1) and 391.026(8), Fla. Stat. The Department also operates the CMS Plan, which serves approximately 62,000 children with special healthcare needs who are eligible for Medicaid and the Children’s Health Insurance Program under Title XIX and Title XXI of the Social Security Act. The Department operates the CMS Plan under a contract between the Department and AHCA (the Prime Contract), which is part of AHCA’s Statewide Medicaid Managed Care Program (SMMC). Under the Prime Contract, the Department performs certain functions, including care coordination and clinical eligibility determinations. The Department subcontracts out other functions to two integrated care system subcontractors, CCP and Ped-I-Care. CCP and Ped-I-Care provide member services, utilization management, and service authorizations, and contract with medical network providers to deliver services in the areas of the state for which they are responsible. CCP is a provider services network (PSN) owned by the North Broward Hospital District and the South Broward Hospital District.7/ Currently, CCP is the exclusive subcontractor for CMS member services for the state of Florida south of the Interstate 4 (I-4) corridor. Ped-I-Care is the exclusive subcontractor for the portion of the state north of the I-4 corridor. INVITATION TO NEGOTIATE DOH 17-026 On January 20, 2018, the Department issued the ITN for the CMS Plan. On February 28, 2018, the Department issued Addendum 1 to the ITN, which replaced the original ITN in its entirety. Thereafter, the Department issued four additional addenda to the ITN. Cheryl Young, the director and chief executive officer of the CMS Plan, testified that the ITN contemplated a “new” or “improved” healthcare model, after soliciting public input from stakeholders, families, and providers in three public meetings. Ms. Young further testified that the Department engaged with national experts for input on developing health service systems for medically complex patients. Ms. Young also testified that the Department spoke with its 41 medical directors, as well as the Florida Legislature, concerning this healthcare model. Ms. Young testified that the Department’s intention in the ITN was “to help families navigate a complicated healthcare system.” She further stated that “instead of incentivizing fee- for-services payments or where providers get paid, a model where providers are paid for quantity, we wanted to move to a value- based care with the rest of the nation where quality and improved health outcomes for families were incentivized in the model.” Ultimately, under this “new” model contemplated in the ITN, instead of paying network providers a fee-for-service rate (as the Department did under the current CMS Plan), the vendor would receive a per-member per-month capitation rate and have flexibility to negotiate payment of network providers to incentivize overall health outcome goals. Under the “new” model contemplated in the ITN, the Department would subcontract its care coordination function, but the Department’s other previously existing functions with respect to the CMS Plan, including clinical eligibility determinations, would remain the responsibility of the Department. Section 3.3 of the ITN, titled “Specific Goals,” stated: The Department intends to award one state- wide Contract to a Respondent to assist with the administration of the CMS Plan. The Department will award additional contracts only if there is no acceptable state-wide Respondent for all areas of the state. The Department reserves the right to award more than one contract based on regional clusters. Respondents may propose more than one contract based on regional clusters. Respondents may propose statewide or on a regional cluster with either a full risk model or a phased in risk model. Respondents may opt to be full risk in one or two regional clusters and partial risk in others and may submit a statewide and regional cluster reply simultaneously. The ITN identified the “regional clusters” as follows: Northern Florida-AHCA Regions 1-4; Central/Southwestern Florida– AHCA Regions 5-8; and South/Southeastern Florida-AHCA Regions 9-11. Section 3.3 of the ITN further stated: Respondent should offer comprehensive, quality-driven provider networks, streamlined processes that enhance the enrollee and provider experience, expanded benefits targeted to improve outcomes for enrollees, top quality scores, and high rates of enrollee satisfaction to deliver an efficient, high-quality, innovative, cost- effective, and integrated health care delivery model. Additionally, section 3.3 of the ITN stated that the Department intended to award a contract to a Respondent that offers “innovative and evidence-based approaches” in meeting certain requirements set forth in Attachment A-2, Core Provisions, while addressing the following goals under the CMS Plan: Reduce potentially preventable inpatient and outpatient hospital events, and unnecessary ancillary services; Culturally competent, linguistically appropriate, family centered and participant driven care; and Care that is evidence based, where possible and evidence-informed or based on promising practice when evidence-based approaches are not available. Section 3.4 of the ITN, titled “Legal Authority,” stated: Children’s Medical Services Managed Care Plan (CMS Plan, [sic] a Medicaid specialty plan for children with chronic conditions operated by the Department, as further defined in Chapter 391, Chapter 409, Parts II and IV, including section 409.974(4), Florida Statutes, through the AHCA Prime Contract. The ITN instructed Respondents to submit replies through completing Attachment A-1 to the ITN. The ITN stated that the Department “would evaluate and score replies to establish a reference point from which to make negotiation decisions.” After negotiations, the Department would “award [a contract] to the responsible, responsive Respondent determined to provide the best value, based upon the negotiations.” “Criteria #1-Statewide or Regional Reply,” found in Attachment A-1 to the ITN, directly requested whether a Respondent’s reply was statewide or for a regional cluster, the priority of the reply, and whether the reply was risk or non- risk. Attachment A-1 to the ITN requested replies to a total of 57 criteria. Additionally, it requested that Respondents provide a cost reply, provided that the Department would “review and consider the cost replies submitted by Respondents who are invited to negotiations during the negotiation phase[,]” and stated that during negotiations, the Department would evaluate the cost reply “utilizing rates determined by state of Florida actuaries as part of the total reply by the Respondent.” The ITN allowed a prospective Respondent to submit written questions to the Department concerning the ITN prior to submitting replies. For example, Addendum 2 to the ITN was a partial response to questions the Department received on February 21, 2018. Addendum 3 to the ITN was a final response to questions the Department received on February 21, 2018, as well as additional questions the Department received on March 7, 2018.8/ In Question 28 of Addendum 2 to the ITN, CCP asked, and the Department answered, as follows: Q28) 3.3 Specific Goals: The Department intends to award one state-wide Contract to a Respondent to assist with the administration of the CMS Plan. The Department will award additional contracts only if there is no acceptable state-wide Respondent for all areas of the state. If a Respondent in a regional cluster submission outperforms a Respondent in a statewide submission, or otherwise presents efficiencies or other quality advantages to the Department, will the Department retain the discretion to award a regional cluster in lieu of, or in addition to, an acceptable statewide award? A28) Additional points/preference will be given to state-wide bids regardless of risk type. The Department will award contracts by Regional Cluster only if there is no acceptable state-wide Respondent for all areas of the state. The Department reserves the right to award a contract for multiple regional clusters in that instance, or if necessary, a single contract for each regional cluster. In Question 33 of Addendum 2 to the ITN, CCP asked, and the Department answered, as follows: Q33) Criteria 1 Does a Respondent get extra points for each cluster in which it proposes to assume full risk as opposed to proposing as risk phase alternative? A33) Additional points/preference will be given to state-wide bids regardless of risk type. The Department will award contracts by Regional Cluster only if there is no acceptable state-wide Respondent for all areas of the state. The Department reserves the right to award a contract for multiple regional clusters in that instance, or if necessary, a single contract for each regional cluster. As noted in the Evaluation Criteria for #1, additional points are awarded to regional bids on an at-risk basis over regional bids on a non-risk basis. In Question 159 of Addendum 3 to the ITN, CCP asked, and the Department answered, as follows: Q159) Qualification of Respondent Eligibility What is the minimum and maximum number of Plans required per cluster to be awarded? A159) Only one Respondent will be selected per cluster with preference given to Respondents with statewide and multiple cluster proposals. In Question 162 of Addendum 3 to the ITN, CCP asked, and the Department answered, as follows: Q162) PSN Certification Assuming, there is a PSN preference, will there be a minimum or maximum number of PSNs required per cluster? A162) Only one Respondent will be selected per cluster with preference given to Respondents with statewide and multiple cluster proposals. The undersigned finds that the ITN clearly stated that the Department intended to award a single, statewide contract to a single Respondent. The Department answered questions in Addenda 2 and 3 to the ITN that consistently and unambiguously restated this preference for a single, statewide contract to a single Respondent. The ITN further clearly stated that it would award contracts to Respondents with regional cluster proposals if there was no acceptable statewide Respondent. The ITN is silent as to whether the Department would apply a preference for a PSN. In addition to Question 162 to Addendum 3 to the ITN (quoted in paragraph 25, supra), in Question 161 of Addendum 3 to the ITN, CCP asked, and the Department answered, as follows: Q161) PSN Certification Per 609-974(1) [sic] and 409.966, F.S. will the Department apply the PSN preference in the selection process? A161) Requirements are reflected in the ITN. The undersigned finds that the ITN makes no provision for the application of a PSN preference, and that Addendum 3 makes clear that the Department intentionally omitted a PSN preference in the ITN. CCP did not timely protest the specifications in the ITN or any of the Addenda pursuant to section 120.57(3). EVALUATION The Department received replies to the ITN from three Respondents prior to the 3:00 p.m., April 27, 2018, deadline: Staywell; (b) Sunshine; and (c) CCP. Staywell and Sunshine both proposed to enter into a statewide contract with the Department. CCP proposed to enter into a contract for the South/Southeastern Regional Cluster--AHCA Regions 9 through 11-- with the Department.9/ The Department found that the replies from Staywell, Sunshine, and CCP were responsive and responsible. The Department appointed five evaluators to evaluate the replies (evaluation team): (a) Dr. John Curran; Dr. Steven Freedman; (c) Dr. Dennis Kuo; (d) Andrea Gary, the Department’s bureau chief of CMS Plan Administration; and (e) Kelli Stannard, the Department’s director of Clinical Operations and Specialty Programs for CMS. Members of the evaluation team received training, in the form of a power point presentation, that instructed them on the evaluation of the ITN. This training material, inter alia, instructed the evaluation team to evaluate each Respondent’s reply pursuant to section 287.057, Florida Statutes, as well as the criteria contained in the ITN. As provided in the ITN, the point value awarded for a statewide response was worth a maximum of 100 raw points and 200 weighted points, out of a total weighted score of 4,513. The evaluation team scored the replies as follows: (a) Staywell – 3,565.20 points; (b) Sunshine – 3,370.40 points; and (c) CCP – 2,843.20 points. The Department invited all three Respondents to negotiate. As Ms. Young testified: We invited all three respondents because going into negotiations we did not know if we would be able to successfully negotiate with a statewide vendor, so we wanted to have all three at the table and make the same asks of all of them related to the important service delivery components set forth in the ITN and other matters. NEGOTIATIONS The Department appointed seven negotiators to negotiate with the Respondents (negotiation team): (a) Andrea Gary, who served on the evaluation team; (b) Kelli Stannard, who also served on the evaluation team; (c) Cheryl Young; (d) Michele Tallent, the Department’s deputy secretary for Operations; (e) Antonio Dawkins, the Department’s director of Contracts and a Florida-Certified Project Management Professional10/; (f) Stacey Lampkin, a nonvoting member who is an actuary with Mercer Health and Benefits, LLC; and (g) Tom Dahl, a nonvoting member who is an actuary with Mercer Health and Benefits, LLC. Members of the negotiation team received training, in the form of the PowerPoint presentation that the evaluation team also received, that instructed them on their responsibilities as negotiators. The scoring and ranking from the evaluation team did not carry over into the negotiations. Ms. Gary and Ms. Stannard, who also served as members of the evaluation team, testified that they knew only their scores and had no knowledge of the aggregate scores or ranking from the evaluation team. The ITN contained “notes” under various evaluation criteria that stated: Note: Pursuant to section 409.966(3)(c)6., Florida Statutes, reply to this submission requirement will be considered for negotiations. Section 409.966(3)(c)6., which is part of the “Medicaid Managed Care” provisions of Florida’s Medicaid law, and which governs AHCA as the designated single state agency authorized to make payments for medical assistance and related services under Title XIX of the Social Security Act, is not applicable to the Department. Ms. Young testified that these notes in the ITN were typographical errors because the Department is exempt from AHCA’s competitive procurement process. The undersigned finds Ms. Young’s explanation persuasive. See § 409.974(4), Fla. Stat. (“Participation by the Children’s Medical Services Network shall be pursuant to a single, statewide contract with [AHCA] that is not subject to the procurement requirements or regional plan number limits of this section.”). The negotiation team met prior to negotiating with any of the Respondents in a “strategy session” to discuss how they would approach the negotiations. The negotiation team discussed what tools they would use to gather information on what they deemed the best value criteria and outlined a schedule. During this strategy session, the negotiation team developed a document, titled “Best Value Criteria,” which was also referred to throughout this proceeding as the “Best Value Matrix.” As CCP has contended that the Department acted in an arbitrary and capricious manner by its use, and revision, of the best value matrix, its origin and development are set forth below. Ms. Trahan, the Department’s procurement officer for the ITN, testified that, prior to negotiations, she communicated with Ms. Young (and others) via e-mail to provide a document they referred to as the “negotiation topics tool” that Ms. Trahan had recommended to use for this ITN. Ms. Trahan testified that the “negotiation topics tool” was a template that the Department previously used in its procurements. Ms. Trahan testified that she prepared a template that incorporated criteria from the ITN, with space for the negotiators to make notes. In this same e-mail, Ms. Trahan also stated that she would request a best value matrix from AHCA. The best value matrix is a document that differs from the negotiation topics tool. Ms. Young testified that she asked AHCA and other agencies, during planning meetings related to the ITN, about best value matrices that those agencies used during procurements. In particular, Ms. Young stated that she discussed with AHCA the process for negotiating numerous items related to serving applicable populations served by the SMMC and wanted to include those items in the Department’s negotiations with potential vendors, so those vendors would be aware of these items. Additionally, as these items would become components of the new contract, Ms. Young testified that she wanted to review AHCA’s best value matrix template. Ms. Young testified that, while drafting the best value matrix, she did not include criteria contained in section 409.966. Ms. Young testified that section 409.966, which governs AHCA procurements, did not apply to the Department, which is statutorily exempt from AHCA’s procurement requirements. As similarly stated in paragraph 42, supra, the undersigned finds Ms. Young’s testimony persuasive. See § 409.974(4), Fla. Stat. (“Participation by the Children’s Medical Services Network shall be pursuant to a single, statewide contract with [AHCA] that is not subject to the procurement requirements or regional plan number limits of this section.”). Accordingly, the Department’s decision to not use the criteria in section 409.966 in the best value matrix is logical and supported by the statute, and its reference in the ITN was an error and of no consequence in the evaluation or negotiation of the Respondents’ proposals. The best value matrix changed as the Department moved through the negotiation process. The initial best value matrix contained over 200 items, and the final version that the evaluation team used and completed contained 54 items. The items contained in the best value matrix matched the criteria in the ITN. During the negotiations, the negotiation team removed items from the best value matrix that were nonnegotiable and that all Respondents had agreed to. The best value matrix contains a column for each Respondent who responded to the ITN. It also contains rows that provide categories, and items, that matched the criteria from the ITN. The negotiation team placed an “X” in the column for each Respondent who met the particular criteria from the ITN. The negotiation team did not place an “X” in the column if a Respondent did not meet a particular criteria from the ITN. The best value matrix ultimately tallied the overall number of “Xs” each Respondent received from the negotiation team. CCP argues that the Department did not disclose to CCP its use of the best value matrix during negotiations, and that the best value matrix contained criteria not disclosed in the ITN. The negotiation team developed the best value matrix to assist it in the negotiations phase. It did not contain a new set of criteria separate and apart from the ITN. The items listed in the best value matrix all came from the criteria in the ITN. The Department gave all Respondents the opportunity to provide information to the negotiation team and afforded equal amounts of time and opportunities to meet with the negotiation team. The negotiation team held two negotiation meetings with each Respondent. The negotiation team first held in-person negotiation meetings with Sunshine, Staywell, and CCP on June 11, 12, and 13, 2018, respectively. At its first negotiation meeting on June 13, 2018, CCP submitted to the negotiation team a document, titled “CMS Additional Offerings to the Department.” This document listed a variety of additional items and incentives that CCP proposed to provide if selected. At the final hearing, Ms. Lerner, the executive vice president and chief operating officer of CCP, confirmed that CCP presented this document to the Department to demonstrate its willingness to provide “additional offerings” that included items not required in the ITN. Ms. Lerner further testified that CCP presented this document for the Department’s consideration of “additional benefits criteria.” Following the in-person negotiation meetings with each Respondent, the negotiation team met alone and held additional strategy sessions to discuss information received from Respondents and to determine additional information it wanted to request from Respondents. The negotiation team thereafter requested that each Respondent provide clarifications regarding their replies and additional information based on discussions during negotiations. All three Respondents submitted this additional information that the negotiation team requested. The Department also required the Respondents to submit revised cost replies, including an updated actuarial memorandum. All three Respondents submitted the revised cost replies with an updated actuarial memorandum that the negotiation team requested. Staywell’s cost reply submission contained an updated actuarial memorandum that its in-house actuary completed and certified. Attachment D to the ITN, titled “Cost Reply Instructions,” and more specifically, subsection 3, titled “Actuarial Memorandum Requirements,” provides the ITN’s requirements for this submission. After reviewing Attachment D, the undersigned notes the ITN did not require that an independent actuary certify the actuarial memorandum. The negotiation team held a second round of negotiation meetings with the Respondents, via telephone conference call, on June 18, 2018. As part of these second negotiation meetings, the Department provided each Respondent with a document, titled “DOH 17-026 CMS Managed Care Plan Negotiation Topics,” which set forth the rates the Department requested the Respondents use, as well as the contract terms the Department required of the Respondents in order for the Department to consider them for the contract award. The Department asked each Respondent to complete and return this document, indicating whether it agreed or whether it was submitting a counteroffer to the items that were negotiable. CCP agreed to all of the items that the Department requested, including the proposed rates. Staywell agreed to all of the items that the Department requested, including the proposed rates, and offered an enhanced primary care provider ratio. Sunshine submitted counteroffers for several items. The rates that CCP and Staywell agreed to for the South/Southeastern Regional Cluster, AHCA Regions 9-11, were the same. BEST VALUE DETERMINATION AND INTENDED AWARD On June 25, 2018, the negotiation team met for a final time to review the information that the Respondents submitted following the second round of negotiations. At that meeting, the negotiation team finalized the best value matrix, and then proceeded to put an “X” in a Respondent’s column that corresponded to each item (criteria from the ITN) if the Respondent had addressed the item to the negotiation team’s satisfaction. An “X” did not represent a “point” that the negotiation team awarded. The best value matrix, which was a spreadsheet, calculated the number of “Xs” (of the 54 possible) for each Respondent, with Staywell totaling 53, CCP totaling 46, and Sunshine totaling 43. CCP contends that the best value matrix incorporated criteria that were not contained in the ITN--“added value.” CCP contends that the negotiation team’s use of the “added value” criteria was an arbitrary and capricious means to take points away from CCP. Ms. Young testified that “added value” meant that an item was “important to the negotiating team” that was “not consequential” and which did not provide any extra weight to the negotiation process. Ms. Tallent testified that “added value” meant “an item that the team felt added value to the lives of the children and their families[,]” that had “no additional scoring to it.” As stated in paragraph 55, supra, CCP submitted to the negotiation team during the in-person negotiation meeting a document titled “CMS Additional Offerings to the Department.” This document listed a variety of additional items and incentives that CCP proposed to provide if selected. The undersigned finds that the Department did not apply the concept of “added value” in an arbitrary and capricious manner. Rather, the Department’s witnesses credibly testified that “added value” simply reflected the negotiation team’s belief that certain items in the best value matrix (which were ITN criteria) were important. CCP provided the negotiation team with its “CMS Additional Offerings to the Department” that included items CCP hoped the negotiation team would consider. CCP’s argument that the Department considered “added value” as an additional undisclosed criteria, when it submitted a document with “additional offerings” it hoped the negotiation team would consider, is unavailing and unpersuasive. CCP further contends that the negotiation team should have credited it with an “X” for certain items in the best value matrix where it received no “X.” These contentions will be dealt with in the following paragraphs. Care coordination experience relevant to medically complex/CMS comparable employees/added value. Dr. Venereo, CCP’s senior vice president and chief medical officer, testified that CCP was aware of this criteria from the ITN, and addressed it in its response. He testified as follows: We drew upon our experience basically in two lines of business. We currently assist CMS care coordination program because we do utilization management for CMS, and care coordination and utilization management go hand in hand. There is a lot of compatibility and interaction, so we assist CMS in that. We also have a proportionately high number of complex children in our MMA line of business. However, on cross-examination, Dr. Venereo admitted that CCP does not currently provide care coordination under its contract with the Department, and that under its Medicaid Managed Assistance (MMA) contract with AHCA, only provides care coordination in Broward County. The undersigned finds that the Department’s decision to not award an “X” to CCP for this category was neither arbitrary nor capricious.11/ Inclusion of community specific resources available to care coordination and care management and enrollees, including but not limited to Medicaid/CHIP financial eligibility, SNAP, WIC utility payment assistance, referrals to Legal Aid, parenting/wellness classes. Mr. Mink, the chief information officer for CCP, testified that CCP was aware of this criteria, and addressed it in its response. Mr. Mink testified that while CCP certainly addressed some of the resources necessary for this criteria, other resources were not in place during the time of negotiations. For example, Mr. Mink testified that at the time of negotiations, enrollees could not directly access CCP’s Family Resource Database, but that CCP was negotiating a contract with “Aunt Bertha”--a community-based referral platform--to allow access to the database. Ms. Lerner, the Executive Vice President and Chief Operating Officer of CCP, testified that CCP did not have a web page in place at the time CCP was in negotiations that addressed all of the items in this criteria. The undersigned finds that the Department’s decision to not award an “X” to CCP for this category was neither arbitrary nor capricious.12/ Providing additional services above and beyond transition from institutions. Ms. Lerner testified that CCP was aware of this criteria, and addressed it in its response. Ms. Lerner testified, and the undersigned’s review of CCP’s response to this criteria demonstrated, that CCP’s response was that “CCP agrees to provide additional services above and beyond transition from institutions for those services deemed medically necessary.” Further, CCP’s response references its detailed response to evaluation criteria 7, concerning its Disease Management Program. Given CCP’s unremarkable response to this criteria, the undersigned finds that the Department’s decision to not award an “X” to CCP for this category was neither arbitrary nor capricious. Well defined process for ensuring no service breaks when transitioning between XIX and XXI. Mr. Mink testified that CCP was aware of this criteria, and addressed it in its response. CCP’s response during negotiations was: CCP understands the differences between Title XIX and Title XXI benefits since we currently support these two populations. Our eligibility onboarding process will be utilized to assist in transitioning members from one plan to the other explaining the differences to the member of care giver between each plan. Our care managers will facilitate this transition assuring there are no service breaks by coordinating care between the state agency, the member and providers. Mr. Mink further testified that CCP did not include in its response concerning this “well defined process” the utilization of technology, although CCP included the use of technology in its response to the ITN. Given CCP’s unremarkable response to this criteria, which requests a “well defined process,” the undersigned finds that the Department’s decision to not award an “X” to CCP for this category was neither arbitrary nor capricious. Vendor willing to include national standards for transition of care in policy and process for transition? Added value. Dr. Venereo testified that CCP was aware of this criteria, and addressed it in its response. Dr. Venereo testified that the “six core elements of transition in healthcare are embedded into our care coordination model[.]” However, CCP inexplicably failed to reference the applicable national standards in its reply, or when it had the opportunity to address these standards during negotiations. The undersigned finds that the Department’s decision to not award an “X” to CCP for this category was neither arbitrary nor capricious. Extent to which telemedicine will be used to address accessibility in rural areas? (Want specifics from respondents on this question – how they’ll implement the new AHCA requirement) Percentage goals for increasing the numbers of providers using telemedicine in rural areas? ADDED VALUE. Mr. Mink testified that CCP was aware of this criteria, and addressed it in its response. Mr. Mink testified that rural areas are not a large concern for CCP because most of its service area (the South/Southeastern AHCA Regional Cluster) is mostly metropolitan. Mr. Mink also testified that CCP addressed use of telemedicine for its members that may be mobility-challenged or in rural areas. The ITN, which expressed a statewide preference, does not indicate whether the Department would apply different weights in evaluation or determine best value by regional cluster. CCP’s decision to seek only a contract for the South/Southeastern Regional Cluster--AHCA Regions 9 through 11-- necessarily affected its ability to respond to this criteria. The undersigned finds that the Department’s decision to not award an “X” to CCP for this category was neither arbitrary nor capricious. Offers the most [expanded benefits] of relevance to add value to child’s life. Ms. Lerner testified that CCP was aware of the criteria of “expanded benefits,” and addressed it in its response. The ITN contained criteria 17, the expanded benefits tool, and criteria 18, titled “Additional Expanded Benefits,” and an “Additional Expanded Benefits Template.” With respect to criteria 18, the Department asked each Respondent to identify each additional expanded benefit that it proposed to offer its enrollees by eligible population. The negotiation team determined that Staywell listed a higher number of additional expanded benefits than CCP, and thus awarded Staywell an “X.” This is entirely consistent with this criteria, which specifically asks for the response that “[o]ffers the most [expanded benefits] of relevance to add value to child’s life.” The undersigned finds that the Department’s decision to not award an “X” to CCP for this category was neither arbitrary nor capricious. Even if CCP had received an “X” in every category on the best value matrix where it did not receive an “X” (with the exception of the category “Agrees to operate statewide”), CCP and Staywell would have received the same number of “Xs”. Ultimately, the negotiation team determined that Staywell provided the best value to the state. On June 25, 2018, the Department’s procurement officer submitted a Recommendation of Award Memorandum, which the Department’s chief of staff signed, accepting the recommendation to award the CMS contract to Staywell. On June 26, 2018, at 11:00 a.m., the Department posted its Notice of Intent to Award the CMS contract to Staywell. At noon on June 26, 2018, members of the negotiation team briefed the secretary of the Department on the intended contract award.13/ CCP filed a timely notice of intent to protest the Department’s decision to award the CMS contract to Staywell. On July 9, 2018, CCP filed a Formal Written Protest and Petition for Formal Administrative Hearing. On August 6, 2018, CCP filed an Amended Formal Written Protest and Petition for Formal Administrative Hearing. ADDITIONAL ISSUES CCP raises numerous additional issues concerning the ITN. First, CCP argues that the Department’s procurement was biased, raising a contract dispute between the Department and CCP that resulted in a favorable settlement for CCP while the procurement was pending. CCP presented no evidence that any evaluator or negotiator was biased against CCP as a result of that settlement or any other reason. Ms. Lerner testified that nothing that members of the negotiation team did during any of the negotiation team meetings in which she participated indicated that they were biased in any way with respect to CCP. Lupe Rivero, the senior vice president of Government Programs and Business Development for CCP, testified that CCP’s relationship with the Department was as a “true partner.” The undersigned finds no evidence of bias in this procurement process. Second, CCP contends that Staywell’s cost reply is not financially feasible given what Staywell proposed regarding projected managed care savings, administrative cost reductions or efficiencies, and the cost of enhanced benefits. CCP supported this argument through the testimony of Edward Maszak, CCP’s senior vice president of Finance and chief financial officer, who it designated as a “financial expert for managed care organizations.” As detailed in the Preliminary Statement section of this Recommended Order, the undersigned conducted a hearing consistent with section 90.702 and the requirements of Daubert and its progeny, to determine whether Mr. Maszak was qualified to testify as an expert in this designated field. After conducting such a hearing, the undersigned permitted Mr. Maszak to offer his expert testimony in this designated field. The undersigned further cautioned that it was uncertain what extent Mr. Maszak’s expert testimony could aid the trier of fact in this bid protest proceeding, and further noted that the undersigned would gauge the credibility of the testimony and afford such testimony its appropriate weight, given Mr. Maszak’s inherent bias as an executive with CCP. Mr. Maszak’s testimony demonstrated that he is a highly skilled and experienced certified public accountant who has relevant and extensive experience in the healthcare field, particularly with managed care organizations. Mr. Maszak testified that he reviewed the financial information contained in Staywell’s reply, along with achieved savings reports it filed with Florida, and the financial reports of two other large Medicaid companies. Mr. Maszak also reviewed data he could find online, such as analyst reports and SEC reports on Yahoo! Finance. Mr. Maszak stated that he reviewed these various documents to conduct a feasibility study of Staywell’s ability to achieve the savings it provided in its reply. Mr. Maszak testified that he did not know if Staywell or any of its affiliates achieved similar savings elsewhere, and did not have any other information about Staywell’s finances. Mr. Maszak testified as follows as to the standards he followed in preparing this feasibility study: Again, so WellCare in their application said they were going to reduce behavioral health, mental health services by 22 percent. They are going to save the State money. So I looked everywhere I could possibly look where that has been done. So that’s the standard you have to meet when you do a financial feasibility study. You cannot just make a statement. It has to be corroborated with some kind of evidence, right? Just like in this proceeding. So that’s the standard that you have to meet as an accountant, a CPA, to certify, to attest that every single assumption in there is real. So I looked high and low, everywhere I could find information to support that WellCare put in their application, and I could not find good sources to support anything that they made. Mr. Maszak ultimately testified that, in his opinion, the award to Staywell is not financially feasible. He based his opinion on three areas: (a) the medical cost assumptions proposed; (b) the administrative cost reductions or efficiencies proposed; and (c) the amount of benefits, particularly expanded benefits, proposed. Mr. Maszak assumed, to achieve lower administrative costs, that Staywell would have to cut personnel and salaries. However, Mr. Maszak also testified that he had no knowledge of Staywell’s internal operations other than the items and documents he reviewed as detailed in paragraph 90, supra. Mr. Maszak’s feasibility study also failed to take into account the economies of scale in its administrative costs that Staywell may realize through offering services statewide. Staywell offered the testimony of Jeff Skobel, its vice president of Regional Finance, who assisted in the preparation of Staywell’s cost proposal. Mr. Skobel testified that Staywell’s proposed savings, or managed care savings adjustment cuts, did not represent cuts in service, but changes in the utilization cost of the program. Mr. Skobel further testified that Staywell plans to achieve proposed savings by reducing avoidable hospitalizations and appropriate emergency room use through case management, using value-based purchasing to create financial arrangements with providers to incentivize increased qualitative care, and ensuring that behavioral healthcare patients adhere to their prescription schedules. In sum, while Mr. Maszak is a highly qualified CPA who has expansive expertise in the healthcare field, his methodology and assumptions in ultimately opining that Staywell’s cost proposal was not financially feasible is directly rebutted by additional evidence that Staywell presented. Further, the evidence that Staywell presented as to its proposed savings under the ITN was also presented to and reviewed by the negotiation team. The undersigned finds that Mr. Maszak’s expert opinion on the financial feasibility does not assist the undersigned in evaluating the agency’s proposed action, as the Legislature has prescribed in section 120.57(3). CCP proposed the same rates as Staywell for the South/Southeastern Regional Cluster. The undersigned finds there is no credible evidence that demonstrates that Staywell’s proposed rates are not feasible. Third, CCP argues that the proposed contract award to Staywell is contrary to competition because it provides too large a market share of Medicaid managed care procurements in Florida. The undersigned finds no legal basis for this argument, as discussed in the Conclusions of Law, and also finds there is no factual basis for this argument. Mr. Maszak testified that, if Staywell receives all contract awards that the Department and AHCA have awarded it in procurements that are subject to protest, it will have 34.2 percent market share in Florida. Mr. Maszak, in looking at four other states, testified that no other plan in those states has a market share as great as Staywell’s in Florida, with the largest share by any one plan in those states being 27.87 percent. Mr. Skobel testified that Mr. Maszak did not review plans with market shares larger than 27.87 percent, including states where only three plans operate and receive an almost equal market share. Mr. Skobel testified that Staywell’s affiliates have market shares in other states, including Georgia, that are larger than the market share Staywell will have in Florida if it wins all contracts subject to protest. Fourth, CCP argues that if the Department awards the contract to Staywell, it will prevent competition because no other vendor will be able to serve this population and gain experience. CCP’s current contract, which was awarded without competition, establishes it as the exclusive contractor providing integrated care services for the CMS Plan south of the I-4 corridor. The undersigned finds that the intended contract award is not contrary to competition.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, the undersigned RECOMMENDS that the Department of Health enter a final order denying the protest of CCP. The undersigned further RECOMMENDS that the Department of Health award the contract for the Children’s Medical Services Managed Care Plan under Invitation to Negotiate No. DOH-17-026 to Wellcare of Florida, Inc., d/b/a Staywell Health Plan. DONE AND ENTERED this 19th day of November, 2018, in Tallahassee, Leon County, Florida. S ROBERT J. TELFER III 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 19th day of November, 2018.
Findings Of Fact Introduction On October 15, 1986 University Community Hospital, Inc. (UCH or applicant), which operates an acute care facility in Tampa, Florida, filed an application with respondent, Department of Health and Rehabilitative Services (HRS), seeking a certificate of need (CON) authorizing approval for a new thirty-bed comprehensive medical rehabilitation (CMR) unit to be established by converting and delicensing thirty medical/surgical beds to CMR beds at an estimated cost of $325,240. As a health care provider, UCH is licensed by and subject to the regulatory authority of HRS. On February 20, 1987, and in conjunction with the above application UCH submitted a written request to HRS seeking exemption of an existing rehabilitation unit from CON review. In its request, UCH represented that its rehabilitation unit was providing CMR services prior to July 1983 and thus was eligible to have those beds grand fathered without the need for CON review. This was because prior to July 1983, HRS did not consider CMR services as a separate specialty requiring a CON. After requesting and receiving additional information from the applicant, HRS issued proposed agency action on September 23, 1987, denying the application for a CON. As grounds, HRS stated that "there is a projected District 5 (sic) surplus of 12 rehabilitation beds in the 1991 planning horizon" and that "Tampa General Hospital's 60 rehabilitation beds were occupied at an 84 percent (occupancy) during the preceding calendar quarter; L. W. Blake's 28 rehabilitation beds were occupied at a 74 percent occupancy for the same period; (and) the district had a combined occupancy of 79 percent which is below the 85 percent occupancy standard." By letter dated October 1, 1987, HRS determined preliminarily that nine existing rehabilitation beds at UCH qualified for an exemption from CON services based on HRS's finding that UCH was operating a nine-bed CMR unit prior to July 1983. This written advice was authored by HRS's administrator of community health services and facilities, Sharon M. Gordon-Girvon. Hillsborough County Hospital Authority is a public agency operating two acute care hospitals in Tampa, Florida, one being the Tampa General Hospital (TGH). Citing a potential adverse effect on its CMR unit if UCH's application was approved, TGH filed a petition to intervene in support of HRS's proposed agency action on November 6, 1987. This petition was granted on December 18, 1987. In addition, on March 8, 1988, TGH requested a formal hearing to contest HRS's preliminary determination that UCH was entitled to nine CMR beds by virtue of having operated the same prior to July 1983. In general terms, TGH asserted that HRS had no authority to grant an exemption, but if it did, UCH did not qualify for one. The two cases were consolidated on May 3, 1988. The Applicant and Protestant UCH is a community hospital that began service to patients on July 15, 1968. Its facility is located at 3100 East Fletcher Avenue, Tampa, Florida. It is managed by a twenty person board of trustees and currently is licensed by HRS for four hundred and four beds offering medical/surgical, diabetes, oncology, pediatric and rehabilitative services. UCH is accredited by the Joint Commission on Accreditation of Hospitals (JCAH). The facility provides health care services in HRS District 6, an artificially created health planning area that includes Hillsborough, Polk, Manatee, Hardee and Highlands Counties. In January 1987, UCH executed a contract with HRS and became a participant in the Medicaid program. As such, it receives reimbursement from HRS for services provided to Medicaid patients. Created by special act of the legislature, the Hillsborough County Hospital Authority operates two public, not-for-profit hospitals in Hillsborough County, those being TGH and Hillsborough County Hospital. TGH is a 770-bed facility providing services within HRS District 6. Since it provides sophisticated services to patients who are on average much more severely ill than patients at community hospitals such as UCH, TGH can be described as a tertiary hospital. Since 1984 TGH has operated a CON-approved and licensed sixty-bed CMR unit connected to its main acute care facility and is the only level one trauma center on the west coast of Florida. Also, TGH is the primary provider of indigent care in the district, carrying a disproportionate share of the indigent care burden. In 1987 alone, its indigent care costs totaled almost $30 million. C. Grandfathering of Beds Prior to July 1983, HRS determined whether there was a need for various types of hospital beds (e.g., general medical/surgical, critical care, psychiatric and rehabilitation) under its general acute care bed need rule now codified as Rule 10-5.011(1)(m), Florida Administrative Code (1987). Thus, prior to July 1983, CMR services were not recognized by HRS as a separate bed category for CON and licensure purposes, and the conversion by a hospital of licensed acute care beds to rehabilitation beds did not constitute a change in service. In January 1982 UCH established a nine-bed rehabilitation unit on the sixth floor of the south wing of its facility. The unit was established because UCH believed there to be a lack of rehabilitation care in the community. These beds came from its licensed medical/surgical inventory. At that time, only TGH offered CMR services in Hillsborough County and had sixteen beds dedicated to that specialty. According to UCH's chief physical therapist, the unit was "full from the first week." In its 1982-83 licensure application, which is a filing that must be made with HRS every two years, UCH reflected that its bed inventory included nine dedicated to rehabilitation care. On May 16, 1983, UCH, through its counsel, inquired of HRS whether a proposal to convert nine more licensed medical/surgical beds to CMR beds at a cost of less than $600,000 would be subject to CON review. 1/ Also, it requested that, in the event HRS determined that a CON was needed, the request letter be treated as a letter of intent. One week later, HRS responded by letter and requested further information. Among other things, HRS asked for "a detailed description of rehabilitative care currently being provided in the nine beds dedicated to rehabilitative use." This information was provided to HRS by UCH by letter dated June 6, 1983. It included a lengthy description of the care being provided in the nine beds dedicated to rehabilitative use. According to the response, UCH was providing, among other things, a "comprehensive rehabilitation service, or intensive care providing a coordinated multi- disciplinary approach to patients with severe physical disabilities." This letter was followed on June 30 by another letter from UCH's counsel advising HRS that it understood HRS's position that a project to change the rehabilitation beds to CMR beds would be subject to CON review and that UCH contemplated no such change in service. Effective June 8, 1983, HRS adopted a rule which prescribed a separate bed need methodology for rehabilitation beds. Effective July 1, 1983, the legislature amended Section 395.003, Florida Statutes (1983), by adding a new subsection (4) which required that all licensees providing rehabilitation services thereafter reflect the number of beds in that category on the face of their hospital license. At the same time, the legislature amended Section 381.706, Florida Statutes (1983), to require CON approval for any change in the number of rehabilitation beds by a provider. Thus, on and after July 1, 1983, CMR services were recognized as a separate bed category for licensure and CON purposes. On July 19, 1983, or after the above changes took effect, HRS advised UCH that, because UCH had not sought accreditation for its rehabilitation unit from the Commission on Accreditation of Rehabilitation Facilities (CARF), and its unit did not meet the minimum size requirements (twenty beds) for a rehabilitation unit under then-existing HRS Rule 10-5.11(24)(c)3.a., Florida Administrative Code (1983), it had concluded UCH was not providing CMR services as defined by its rule. The letter pointed out also that any effort by UCH to establish an eighteen bed unit would require a CON pursuant to the recent change in the general law. Finally, HRS advised UCH that it could "continue to provide rehabilitative care in the existing unit, using the nine (9) medical/surgical beds dedicated for that care" and that it could also "provide rehabilitative care on the third floor and use an additional nine (9) medical/surgical beds." HRS added that such beds would "not be considered to constitute comprehensive medical rehabilitation care and the beds dedicated to such care will be counted as medical/surgical beds." Because of a demand for more rehabilitation beds, UCH made a decision to expand its rehabilitation unit in the winter of 1983-84 from nine to fourteen beds. In August 1984 UCH expanded its unit to eighteen beds. It did not seek HRS's approval for either expansion project because of its interpretation of HRS's letter of July 19, 1983, that CON approval was not necessary for units having less than twenty beds. Responding to the changes in the general law, HRS undertook to inventory the existing rehabilitation beds in the state. To this end, its office of comprehensive planning sent a questionnaire to all hospitals, including UCH, in late 1983 inquiring whether they provided CMR services. To verify the accuracy of the responses, but not for the purpose of determining whether CMR services existed prior to July 1983, HRS checked whether CON authorization had been issued previously to the facility, whether the facility reported CMR services to the newly created Hospital Cost Containment Board, and whether the facility reported CMR beds in its biannual licensure application. In its reply to the questionnaire, UCH reported it had a twenty-bed rehabilitation unit. In 1983, UCH requested that the federal Health Care Financing Administration (HCFA), which operates the federal Medicare program, recognize its rehabilitation services as being exempt from diagnostic related groups (DRG). If the request was approved, this meant that UCH could be reimbursed on a cost-basis for services rendered to Medicare patients in its rehabilitation unit instead of under the DRG system which reimbursed the facility on a flat rate basis regardless of the length of stay of a patient. HCFA granted the request for exemption of the nine beds effective October 1, 1983. On October 1, 1984, HCFA recognized an exemption for eighteen beds. This exclusion was renewed after a subsequent survey of the unit in 1985. When these exemptions were granted, HCFA did not enforce a federal requirement that a facility be licensed for CMR services in order for HCFA to recognize the exemption. In 1984-85, HRS became aware of certain DRG-exempt rehabilitation units in the state that were not licensed by HRS for CMR services. As noted in a later finding, these providers, including UCH, were allowed to seek a CON exemption and demonstrate that they were providing CMR services prior to July 1983. This opportunity was given partly because HCFA began enforcement of its policy that CMR services be licensed by the state before an exemption would be recognized. Indeed, HCFA revoked UCH's exclusion from Medicare's prospective payment system effective October 1, 1987, on the ground UCH's unit was not licensed by the state. It was later reinstated in 1988, for nine beds after HCFA became aware of HRS's preliminary determination on October 1, 1987, that UCH was entitled to a CON exemption. Because of this limited exemption, UCH now accepts no more than nine Medicare patients at any one time in its unit. On March 18, 1985 UCH's chief executive officer, Terry L. Jones, filed with HRS the facility's biannual licensure application which reflected, inter alia, the facility's then current bed utilization. According to UCH's filing, UCH had three hundred sixty medical/surgical beds, twenty-six pediatric beds and eighteen CMR beds. A copy of the application has been received in evidence as TGH exhibit 102. After receiving the application, HRS advised UCH by letter dated April 25, 1985, that "(HRS's) records (did) not indicate 18 comprehensive medical rehabilitation beds... Please explain." In reply to this, Jones advised HRS by letter dated April 29, 1985 that "a copy of our authorization for rehabilitation beds is attached." This "authorization" was a copy of HRS's July 19, 1983 letter. In July 1985 HRS issued License No. 1779 for the continued operation of UCH's facility. In an undated transmittal letter, HRS stated in part: Please be advised that part of the application pertaining to licensure of 18 comprehensive medical rehabilitation beds is hereby denied because you have failed to obtain a Certificate of Need or exemption from review pursuant to Section 381-493 through 381-499, Florida Statutes (F.S.) and Rule 10-5, Florida Administrative Code (F.A.C.). Certification as an excluded unit by the Department of Health and Human Services, Health Care Financing Administration does not eliminate the Certificate of Need requirements. (Emphasis added.) UCH was offered a point of entry to contest this decision. After receiving the above advice, UCH did not request a hearing but simply inquired of HRS as to whether the eighteen beds should be counted under its general medical/surgical bed component. According to UCH, it did not contest the decision because HCFA continued to recognize UCH's unit as being exempt from the DRG's. On May 16, 1986, Jones and HRS's licensure supervisor, John Adams, had a telephonic conversation concerning the status of the eighteen rehabilitation beds. To confirm the substance of this conversation, Jones advised Adams by letter as follows: I wanted to confirm our conversation today regarding our "rehabilitation" beds licensure to avoid any future problems. You suggested that our 18 beds used for rehabilitation are appropriately licensed under medical/surgical. The beds are not Comprehensive Medical Rehabilitation beds and should not be listed under the Rehabilitation section. The beds could be listed under the "Other" category with an explanation that they are medical rehabilitation, but as you suggest, it would probably further confuse the issue. We intend to continue to offer rehabilitation care with these beds, and understand they do not require a C.O.N. as they are not Comprehensive Rehabilitation Beds. (Emphasis added) On or about May 6, 1986, someone at HRS's office of licensure and certification amended UCH's 1985-86 licensure application to reflect eighteen "Rehab" beds instead of eighteen CMR beds as originally recorded on the application by UCH. In early 1986, TGH became concerned that UCH was providing CMR services without the necessary authority from HRS. It voiced these concerns to HRS on several occasions. On April 30, 1986, HRS advised TGH by letter that UCH had "authorization to use eighteen medical/surgical beds for the purpose of rehabilitation of patients in the hospital" but it did "not have approval for a comprehensive rehabilitation center." It added that HRS had been assured by UCH that UCH was not operating a comprehensive rehabilitation center. By letter dated October 6, 1986 TGH's counsel complained again to HRS's secretary that UCH was operating beyond its licensed authority. UCH learned of this complaint and responded by letter to HRS that its unit was established in 1982, nine beds "for rehabilitation purposes" had been approved by HRS in July 1983, and it had received permission to add nine more beds to its unit in 1983 because of its insufficient size (less than twenty beds) and failure to meet CARF standards. On January 4, 1987, responded to UCH's letter and advised that, based upon a site visit, it now believed UCH was providing CMR services. The letter advised further that HRS had erred in 1983 by telling UCH that its rehabilitation unit was exempt from CON review because of its size (less than twenty units). This was because HRS now construed its Rule 10-5.11(24) governing size of units to apply only to proposed CMR units and not existing CMR units. In view of this error, HRS offered UCH the opportunity to request an exemption of its rehabilitation unit from CON review. This prompted UCH's request for exemption for its nine beds dedicated to rehabilitative care prior to July 1983. In March 1987, an on-site inspection of UCH's facility was made by Robert E. Pannell, HRS's consultant for health services and facilities. This visit was prompted by UCH's request for exemption made on February 20, 1987. The results of that visit are reflected in a report and recommendation dated July 31, 1987, and received in evidence as joint exhibit 5. According to the report, UCH was providing CMR services prior to July 1983, and was entitled to an exemption. In reaching that conclusion, Pannell utilized ten criteria developed during the course of previous investigations. Except for the criteria relating to unit size and compliance with CARF standards, which Pannell deemed to be inapplicable, Pannell concluded that UCH satisfied all others. These included the categories of distinct unit, range of services, provision of service prior to June 1983, team approach/team meetings, length of stay over twenty-eight days, separate policies and procedures, types of patients treated and individualized patient goals. These criteria generally track the CMR rule. Pannell's recommendation was reviewed and concurred in by two other HRS administrators, and proposed agency action granting the exemption was issued by HRS on October 1, 1987. The evidence is conflicting as to whether UCH actually provided CMR services as defined in HRS's rule prior to July 1983. This matter is crucial since eligibility for an exemption is contingent on such a showing. The UCH rehabilitation unit was not specifically designed for rehabilitation care and did not satisfy the CARF standards prior to July 1983. Indeed, UCH has been upgrading its program and facilities since that date to comply with those standards. In 1986, UCH requested and received from HRS authorization to make a complete renovation of its sixth floor "rehabilitation unit" at a cost of $300,000. After doing so, the unit satisfied CARF standards and later became accredited by JCAH. 2/ Prior to 1986, UCH's rooms were not designed for rehabilitation care and were like those in any medical-surgical unit. For example, they did not allow wheelchair accessibility, there were no central bathing facilities and the individual bathrooms were not wheelchair accessible. As to the requirement that the unit have separate policies and procedures for rehabilitation services, UCH's policy manual on this subject was not drafted until 1984. As to the requirement that the unit have individualized patient goals, UCH's patients did not have an overall rehabilitation patient care plan prior to July 1983. Rather, there were separate patient goals in separate sections of the medical record pertaining to each discipline, such as physical therapy and nursing. Until the 1986 renovation project was completed, UCH's rehabilitation unit did not have a physical therapy room on the same floor as the patients. Physical therapy, if needed, was provided on the first floor of the facility. Thus, prior to that date, therapy was provided to rehabilitation patients bedside, exactly as medical rehabilitation services are provided bedside to general medical-surgical patients throughout the hospital. Further, the nine beds dedicated to rehabilitative care were mixed in with non-rehabilitative beds so that a semiprivate room might have one dedicated to rehabilitative care and the other used by a patient not receiving that type of service. According to HRS's supervisor of medical facilities, a rehabilitation unit is not considered to be a physically distinct unit unless all patients and support services are in the same area of a floor and not scattered throughout the hospital. In addition, the area devoted to CMR services must house only patients receiving CMR services. There is a distinction between medical rehabilitation services and CMR services. Medical rehabilitation services provided in a hospital setting include such services as physical therapy, occupational therapy and speech therapy and are routinely available to patients in general medical-surgical beds. Further, medical rehabilitation services have neither an integration of the disciplines nor the full-time assignment of the various specialties (e.g., physical therapy, occupational therapy, speech pathology, rehabilitation nursing, social services, psychologist and the like) to the care of the patient. In contrast, CMR services are a specialized, intensive type of rehabilitation service that involve a coordinated, multi-disciplinary approach to a person's disability. Indeed, CMR services are defined by statute to be a "tertiary" service that is specialized and concentrated in a limited number of hospitals to ensure the quality, availability and cost-effectiveness of that service. In summary, there is a marked difference between the two in the level of care and intensity of services. Prior to July 1983 UCH's nine bed unit provided medical, but not comprehensive medical, rehabilitation services to its patients. Application for Additional Beds - Statutory and Rule Compliance Need for New Beds - Subsection 381.705(1)(a), F.S. At hearing, UCH amended its request to seek only twenty CMR beds. If the amended application is approved, UCH will convert and delicense a comparable number of medical/surgical beds from its inventory. There are no capital costs associated with the project. As noted earlier, UCH lies within HRS District 6 which is composed of Hillsborough, Polk, Manatee, Hardee and Highlands Counties. Presently, the only existing CMR units in the District are sixty beds at TGH and twenty-eight beds at L. W. Blake Hospital in Bradenton, Florida. In addition, just prior to final hearing in this cause, Winter Haven Hospital (in Polk County) opened a twenty- four bed CMR unit at its facility giving a total of one hundred twelve beds in the District. The need for new facilities is measured in relation to the applicable district plan and state health plan. The district (local) plan, while having broad policy goals applicable to health planning in general, is nonetheless inapplicable since it fails to address the need for rehabilitation services. Rule 10-5.011(1)(n), Florida Administrative Code (1987), is the HRS specialty bed need rule applicable to CMR services. The methodology has been incorporated into the state health plan and is an important consideration in the evaluation process. Under this rule, the bed need or surplus is projected five years into the future from the application filing year. In this case the so-called planning horizon against which the need for CMR beds is to be tested is July 1991. According to HRS's proposed agency action to deny the application, there is a projected surplus of twelve rehabilitation beds in District 6 in the 1991 planning horizon. In addition, the proposed agency action found that the occupancy rate for TGH's unit was 84 percent during the "preceding calendar quarter," L. W. Blake Hospital had a 74 percent occupancy rate for the same period, and the district as a whole had a combined occupancy rate of 79 percent which is below the HRS 85 percent occupancy standard. Bed need or surplus for the district is calculated by first determining the number of projected acute care discharges, broken down by age group, from hospitals in the district for the horizon year. The rule then sets as a standard 3.9 CMR beds per 1,000 acute care discharges in the target year, with those beds occupied at an average rate of 85 percent, assuming an average length of stay of twenty-eight days. In this case, the formula yielded a gross need for 1991 of one hundred beds. The above targeted bed supply (gross need) was then compared to the actual inventory of existing and approved beds. As indicated in finding of fact 32, the actual inventory of CMR beds in District 6 was one hundred twelve beds thus indicating a surplus of twelve CMR beds. Therefore, no need was shown for UCH's proposed new CMR beds. To this extent, the application is inconsistent with the state health plan. Besides the bed need calculation, Rule 10-5.011(1)(n)2.c.(II) addresses the utilization of existing providers in a second way and provides that, even if the formula produces a need for new CMR beds, no such beds shall be authorized "unless the average annual occupancy rate for all existing comprehensive rehabilitation facilities and units within the Department service district exceeds 85 percent occupancy for the preceding calendar quarter." This standard is somewhat confusing since it uses the phrases "average annual occupancy rate" and "preceding calendar quarter" in the same sentence thereby raising the question of which time period to use. However, HRS's practice is to use the occupancy rate for the preceding calendar quarter when applying the rule to this type of application. Also, it interprets the words "preceding calendar quarter" to mean the quarter preceding the scheduled decision date on the application. Therefore, HRS determined the occupancy rate of existing district providers for the calendar quarter preceding February 27, 1987, which was the scheduled decision date on UCH's application. During this time period, TGH's sixty beds were 84 percent occupied while L. W. Blake's occupancy rate for its twenty-eight beds was 74 percent, or a weighted average of 81 percent. This was below the required district standard of 85 percent. Had HRS used the occupancy data for the calendar quarter preceding the actual decision date of September 4, 1987, the two hospitals still had a weighted average of 81 percent, or well below the necessary rate. Neither calculation includes the twenty-four beds recently opened in Polk County. Thus, occupancy was not at a level to counterbalance the oversupply of CMR beds in District 6. In an effort to show need on another basis, UCH presented evidence concerning those factors enumerated in Rule 10-5.011(1)(n)2.b.(I)-(IV) and substituted more favorable numbers into the formula. To support the use of more favorable formula data, UCH asserted that if actual admissions (4.7) and patient length of stay (35-37 days) were used, the formula would produce a need for forty-six new beds in 1991. It contended also that if national incidence and prevalence rates were applied to the District 6 population, the bed need would be in excess of three hundred. Both calculations are inappropriate since they draw upon factors already taken into account in the rule or are based on erroneous assumptions. As to evidence submitted to support the other factors for determining need, which were not a part of UCH's completed application, UCH likewise made incorrect assumptions or applied incorrect data. Thus, UCH failed to demonstrate any special circumstances that would justify a deviation from the rule methodology. Availability, Efficiency, Appropriateness, Accessibility, Extent of Utilization and Adequacy of Existing CMR Units (Subsections 381.705(1)(b) and (f), F.S. In the last three years, there have been waiting lists for admission to the rehabilitation units at TGH and UCH. However, TGH's waiting list has declined in recent times, and it now intends to intensify its marketing efforts to maintain a high occupancy level. While UCH still had a waiting list as of the time of hearing, UCH has followed the practice of placing some of these patients on the list before they were ready for rehabilitation and before being screened medically and financially to determine if they met admissions criteria. Indeed, even though UCH has experienced 1988, occupancy rates ranging from only 68 percent to 78 percent, it continues to maintain waiting lists and fails to give continual assessment to those lists. UCH's occupancy rate for its eighteen bed unit was 84 percent in 1986 and 86 percent in 1987. If the application is approved, UCH projects an 85 percent occupancy rate for the twenty-bed unit. Prior to August 1985, the unit was generally 85 percent to 90 percent full with a waiting list of three or four patients. However, until a renovation project was completed in 1986, the beds were used as medical rehabilitation beds, and utilization factors before that date are irrelevant. Further, non-licensed CMR beds are not taken into account by HRS in the licensing process. TGH's occupancy was 90.86 percent in 1986 and 88.51 percent in 1987, but the rate has declined in 1988, because of a new CMR facility in an adjoining district (New Port Richey) and a drop in the average length of stay by patients. This decline has occurred even though the demand for rehabilitation services is increasing, and it is not feasible to maintain 100 percent occupancy in a rehabilitation unit because of the way patients are historically admitted on Monday and discharged on Friday. The HRS rule contains a two hour accessibility standard. The standard is not a limitation on facilities but is designed to insure that there are facilities available to the public. The standard requires that CMR services be accessible to 90 percent of the population within two hours driving time. This means that it is not unreasonable to have patients travel up to two hours to access CMR services. In interpreting this rule, HRS includes the availability of CMR beds in adjacent districts that are reasonably accessible. Thus, Districts 5 and 8, which include communities such as Sarasota, St. Petersburg and New Port Richey, are reasonably and economically accessible in adjoining districts. CMR beds that are available, or will shortly become available, include sixty beds in St. Petersburg, forty beds in Clearwater, twenty beds in New Port Richey, and sixty beds in Sarasota. While there was an accessibility problem in the past, this problem peaked in 1986 and has been subsequently alleviated by the rejuvenation of programs in Districts 5 and 6 and the addition of twenty-four beds at Winter Haven Hospital. 3/ District 6 has experienced rapid growth and is expected to continue growing in the future. However, health planning is not done in this state on a geographically ad hoc basis, particularly for tertiary services that are planned on a regional basis. Proximity of a facility to the family of rehabilitation patients is important to the patient's recovery. This is because the training and counseling of the family is an important part of rehabilitative care. Approximately 80 percent of UCH's rehabilitation patients are elderly stroke patients. This makes driving time a significant barrier to the rehabilitation process if the families of the patients are likewise elderly and unable to drive more than a short distance. This was confirmed by the testimony of a local physician who always attempted to place patients in facilities closest to their families. However, because CMR services are not emergency health care services, HRS does not require such services to be accessible within a short drive time. Moreover, besides TGH, most of the other district facilities lie within one hour's driving time from Tampa. As to financial accessibility to CMR services within District 6, TGH provides services to indigents, medicaid and medicare patients and private pay patients. There are also financial incentives to use outpatient services whenever possible. Should UCH's application be denied, patients within District 6 will not experience any problems in obtaining CMR services. Quality of Care - Subsection 381.705(1)(c), F.S. UCH is accredited by the Joint Commission on Accreditation of Health Care Organizations (JCAH). At hearing, HRS expressed no concern over UCH's ability to provide quality of care. If approved, UCH's twenty-bed unit will meet all criteria in Rule 10- 5.011(1)(n). UCH has agreed to provide all programs and range of services specified by the rule. The unit now meets CARF standards. Finally, UCH has a fully developed referral system. Availability and Adequacy of Existing Providers - Alternatives - Subsection 381.705(1)(d), F.S. There are no alternatives to CMR services for patients who need inpatient comprehensive rehabilitation services. This is because only a CMR unit offers the comprehensive specialized services needed by CMR patients. In this proceeding, UCH does not propose an alternative to CMR services. Rather, it proposes an alternative site from that offered by other CMR providers in the district. Although there is a growing number of comprehensive outpatient rehabilitation facilities (CORF) in the district, these do not provide the same level of care as do CMR units. Availability of Resources, including Manpower - Subsection 381.705(1)(h), F.S. There is a general, overall shortage of specialized staff in the Tampa area. However, UCH does not have any problem attracting and keeping qualified staff for its eighteen-bed rehabilitation unit or finding qualified physical therapists to provide rehabilitation services. This was confirmed by HRS's administrator of community health services and facilities. Financial Feasibility - Subsection 381.705(1)(i), F.S. The proposed project, if approved, is financially feasible from both an immediate and long-term standpoint. Impact on Costs of Health Care - Subsection 381.705(1)(i), F.S. The evidence is conflicting as to whether the project will impact adversely or favorably upon UCH's costs of providing health care. It is found that the project will have a beneficial effect on UCH's cost of providing health care since the unit provides a positive cash flow and offsets in part its uncompensated indigent care costs. It will also prevent UCH from going into an operating deficit. Provision of Services to Indigents and Medicaid Patients - Subsection 381.705(1)(n)1, F.S. Historically, UCH has not provided a high percentage of care to Medicaid and indigent patients. In its application, UCH proposes a patient mix that includes 2.5 percent indigent care and 2.5 percent medicaid. Also, UCH proposes to screen patients seeking rehabilitation care and deny admission to the unit if they lack a funding source. I. Impact on TGH. TGH's CMR unit is a significant contributor to TGH's overall financial soundness. Admissions, revenues and operating margin from the unit have increased each year. Because of large indigent care costs (which totaled almost $30 million in 1987), TGH depends on cross-subsidization of profits from private paying patients to offset the cost of indigent care and other laudable purposes such as being the primary teaching hospital for the University of South Florida. Therefore, it is necessary that TGH's CMR unit be fully utilized in order to maximize the return on its investment. TGH currently attracts patients from roughly a 72-mile radius and is impacted by providers in District 6 and adjoining districts. UCH's proposed CMR service area will overlap with TGH's existing service area and thus adversely impact on TGH's admissions. Indeed, TGH's profit margin in its CMR unit could be wiped out with a 10 percent drop in the occupancy rate. Around sixty percent of UCH's rehabilitation admissions come from in- house. Virtually none of its patients come from Pinellas or Polk Counties but it does get a significant number from Pasco County. TGH also admits patients from Pasco County and would be adversely affected by this competition.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application for a Certificate of Need and the request for exemption of nine beds be DENIED. DONE AND ORDERED this 28th day of December, 1988, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 1988.
The Issue Whether, on balance, Certificate of Need (CON) Application No. 10945 submitted by Encompass Health Rehabilitation Hospital of Escambia County, LLC (Encompass or Petitioner) to establish a 50-bed comprehensive medical rehabilitation hospital in Service District 1 satisfies the applicable statutory and rule criteria and should be approved or denied.
Findings Of Fact Overview CMR Services CMR Inpatient Services is defined as: An organized program of integrated intensive care services provided by a coordinated multidisciplinary team to patients with severe physical disabilities, such as stroke; spinal cord injury; congenital deformity, amputation, major multiple trauma, fracture of femur (hip fracture); brain injury, polyarthritis, including rheumatoid arthritis; neurological disorders, including multiple sclerosis, motor neuron diseases, polyneuropathy, muscular dystrophy, and Parkinson’s disease; and burns. See Fla. Admin. Code R. 59C-1.039(2)(d). The Florida Legislature has also determined CMR to be a tertiary health service. A “tertiary health service” means: health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost- effectiveness of such service. Examples of such service include, but are not limited to, pediatric cardiac catheterization, pediatric open-heart surgery, organ transplantation, neonatal intensive care units, comprehensive rehabilitation, and medical or surgical services which are experimental or developmental in nature to the extent that the provision of such services is not yet contemplated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. See § 408.032(17), Fla. Stat. CMR services are a defined benefit of the Medicare program. Federal regulations define the type of patients that are appropriate for hospital-based rehabilitation, as opposed to rehabilitation offered in less intense settings, such as nursing homes. CMR services are designed to take care of patients recovering from acute episodes such as a severe illness, spinal cord injury, trauma injury, brain injury (both traumatic and non-traumatic), stroke, amputation, and the like, all of which limit certain of the patient’s functions for normal life. A CMR facility is required to provide intensive therapy on a consistent basis. A physician is on call 24 hours a day, seven days a week, coupled with 24-hour nursing coverage. The patient must be seen three times a week by a physician. The types of patients eligible to receive CMR services are heavily regulated. The federal Center for Medicare and Medicaid Services (CMS) establishes the admission requirements for CMR facilities and patients. CMS maintains 13 diagnoses to determine which patients are appropriate for receiving CMR Services (the CMS 13). The CMS 13 includes a determination that the patient is able to participate in a minimum of three hours of therapy a day, five days a week. The therapy includes a combination of physical, occupational, and/or speech therapies. The CMS 13 criteria for admission have become much more stringent over time. Whether a patient meets the CMS 13 is a decision within the professional judgment of the medical director of the CMR facility. A CMR facility is required to attest to CMS that 60 percent of the CMR facility’s patients fall within the 13 diagnoses for CMS. Encompass’s Proposal – The CON Application Encompass’s CON application proposes the construction and operation of a 50-bed freestanding rehabilitation hospital in Escambia County, conditioned on the provision of service to Medicaid and indigent populations, and on providing the latest state-of-the-art rehabilitation equipment. Escambia County is in AHCA Service District 1, which includes Escambia, Okaloosa, Santa Rosa and Walton Counties. See § 408.032(5), Fla. Stat. There is no published need for additional CMR beds in District 1. Therefore, in an attempt to justify its proposal in the absence of a published numeric need, Encompass argues that “not normal” circumstances indicate a need for a CMR hospital consisting of 50 beds. Encompass’s determination of need is premised upon its own, and its consultants’, examination of the elderly population, total population, utilization of existing providers, and available CMR beds, as well as upon Encompass’s experience in other markets. Presently, within District 1, there are two existing CMR facilities, West Florida, located in Pensacola, Escambia County; and Fort Walton Beach, located in Destin, Okaloosa County. Between the two providers, there are 78 licensed CMR beds available: West Florida has 58 licensed beds and Fort Walton Beach has 20 licensed beds. An additional 10 beds are in the process of opening at Fort Walton Beach. Both West Florida and Fort Walton Beach submitted written statements of opposition to the requested CON and presented testimony at the public hearing in opposition to the project. Following review and analysis of Encompass’s CON Application, AHCA preliminarily denied the application and determined that, “[b]ased on the application, not normal circumstances were not established to outweigh the absence of published numeric need.” AHCA recommended denial of the Encompass’s CON Application in its State Agency Action Report (SAAR). The Parties Encompass Health Rehabilitation Hospital of Escambia County, LLC Encompass, the applicant, is a limited liability company formed solely for purposes of applying for a CON. Encompass is a wholly owned subsidiary of Encompass Health Corporation. Encompass’s parent corporation, Encompass Health Corporation was formerly known as HealthSouth Corporation, a CMR provider with facilities in Florida. In the CON Application and in the course of this proceeding, Encompass, as the applicant for the CON, utilizes and relies on data from its parent corporation Encompass Health, f/k/a HealthSouth. During the course of the proceedings, the parties tended to refer to the applicant interchangeably as Encompass and HealthSouth. For identification purposes in this Recommended Order, “Encompass” shall refer to the LLC applicant, and the parent corporation shall be referred to as “Encompass Health Corporation.” Encompass Health Corporation is a leading CMR provider that operates 127 CMR hospitals throughout the United States and Puerto Rico. Encompass Health Corporation has significant experience in developing and opening new CMR hospitals and has opened or expanded several hospitals in Florida and other states in recent years. AHCA AHCA is the state agency charged with administering the CON program. AHCA’s determination of “no need” in District 1 was made using a rule-based formula to determine when new CMR beds are needed. AHCA’s rule also recognizes that “special circumstances” may justify approval of additional CMR hospitals, even in the absence of numeric need. West Florida and Fort Walton Beach West Florida and Fort Walton Beach both operate existing CMR units within District 1. Both are also part of the Hospital Corporation of America’s (HCA) North Florida Division. HCA is the second largest provider of hospital-based acute rehabilitation services in the United States. West Florida operates a 58-bed CMR unit within its acute care hospital in Pensacola located in northeast Escambia County. West Florida’s acute care hospital has expanded its services to include a freestanding emergency room in Perdido Bay and expanded pediatric services. West Florida accepts patients from a number of different hospitals in District 1 including facilities affiliated with the Sacred Heart and Baptist Hospital systems in the greater Pensacola area, as well as other hospitals. The facilities associated with Sacred Heart and Baptist Hospital are also trauma centers, which serve as a significant referral course for West Florida. West Florida also receives acute care patients discharged from West Florida in need of CMR services. West Florida currently has approximately 19 full-time nurses. Ten of those RNs are Certified Rehabilitation Nurses, and nine are working to become certified. Fort Walton Beach operates a 20-bed freestanding CMR unit in Destin, Okaloosa County, within District 1. Pursuant to AHCA’s rules, since Fort Walton operated at 80-percent occupancy for more than 12 consecutive months, it applied to AHCA for approval of 10 additional beds. AHCA granted approval for the additional beds, which were set to open in August 2018. The Fort Walton Beach CMR facility is affiliated with Fort Walton Beach Medical Center (Medical Center) located in Fort Walton Beach. The Medical Center has 237 licensed beds and operates a Level II Trauma Center. For calendar year 2017, the Medical Center had approximately 13,600 inpatient admissions; 55,000 outpatient visits; and about 66,000 ER visits. At the same time, Fort Walton Beach CMR Facility had 402 admissions. The Medical Center provides a diverse range of service lines, including cardiovascular; ortho-neuro services, which include orthopedics and spine procedures; stroke; neurological interventions and emergency services. The Medical Center provides both administrative and capital support to Fort Walton Beach. Fort Walton Beach’s nursing staff consists of 25 RNs, two of which are certified rehabilitation nurses, and three of which are certified nursing assistants. Fixed Need Pool In accordance with Florida Administrative Code Rule 59C-1.039(5), twice a year AHCA calculates and publishes a numeric need for additional CMR beds in each of Florida's eleven districts. In determining fixed need for each district, the formula in the rule considers, among other factors, the number of current CMR beds, historical utilization of CMR services and population growth. Rather than setting a target or using statewide use rates, the formula carries local CMR use rates forward in its calculations. Unique factors in each district, such as demographics, cultural influences, and physician referral patterns, result in a wide variation in CMR service utilization between the districts, which influences the results of AHCA’s calculations. For the 2017 batching cycle, application of the Agency's formula determined that District 1 had an excess capacity of CMR beds, and that no additional beds were needed in District 1 for the January 2023 planning horizon. AHCA published the results, but no challenge was filed to the published fixed need pool. Statutory and Rule Review Criteria Section 408.036(1)(f) designates CMR services as a tertiary healthcare service subject to the requirements of CON review. The CON review criteria applicable to this case are found in sections 408.035(1)(a)-(i), 408.037, 408.039, and in rules 59C-1.008, 59C-1.030, and 59C-1.039. Statutory Criteria Section 408.035(1)(a) – The need for the healthcare facilities and health services proposed. In calculating a zero need under applicable rule methodology, AHCA projected a total need for 56 CMR beds for District 1’s year 2023 horizon. The overall utilization rate for CMR services in District 1 at the time Encompass submitted its CON Application was 57.3 percent. Currently, there are 88 licensed beds in District 1, 58 at West Florida, and 20 at Fort Walton Beach, with an additional 10 beds approved at Fort Walton Beach. On a percentage basis, there are approximately 40 percent more CMR beds in District 1 than the projected need for year 2023. Instead of challenging AHCA’s published need of zero, Encompass submitted its CON Application for the construction of a 50-bed CMR hospital in District 1 by asserting that the presence of “not normal” circumstances established need for its proposed hospital. In support of its argument that “not normal” circumstances demonstrate need, Encompass’s CON application asserts a) lack of access, and b) lack of choice, for CMR services in District 1. Regarding lack of access, Encompass contends that a) lower CMR bed supply inhibits access; b) when CMR bed supply expands, CMR admissions increase; and c) referral patterns demonstrate limited access to existing CMR beds. At hearing, all parties presented evidence and testimony of their respective health planners to address whether the above-listed factors claimed by Encompass support a finding of “not normal” circumstances. Each of the above-listed factors is addressed under separate headings, below. Lack of Access Whether Lower CMR Bed Supply Inhibits Access Encompass argues that District 1 has less access to CMR care because, when compared to other districts, District 1 has fewer CMR beds per capita. This argument, however, fails to take into account the differences in CMR services demanded and utilized among districts. Demand is often unique to each district. When the data regarding beds per capita is considered, with the understanding that demand and utilization vary from district to district, the data demonstrates that District 1 is not out of the ordinary. The data for District 1, whether for the population as a whole, or for the population of 65 or older, which uses more CMR services, reflects that the ratio in District 1 is higher than some districts and lower than others. When looking at the 65+ age bracket, District 1 has a ratio of 0.66 CMR beds to every 1,000 persons, compared to the state average of 0.70. Moreover, the average for Florida is inflated due to high ratios in some counties around the state, such as Broward County. Although the need for CMR services is reviewed on a district-wide basis, Encompass proposes to operate its facility in Escambia County. Escambia County has a ratio of 1.12 CMR beds to every 1,000 persons age 65 years and older. Adding the 50 CMR beds requested by Encompass to the existing beds in Escambia County would result in a ratio of two beds for every thousand in population, which is 2.4 times higher than the state average. These ratios do not support a finding that there is inadequate access for CMR services in District 1, and do not demonstrate need. Whether When CMR Bed Supply Expands, CMR Admissions Increase HealthSouth’s examples Encompass urges that increasing the number of available CMR beds will increase CMR utilization in District 1. In support, Encompass presented the testimony of its healthcare planning expert, Ms. Gordon-Girvin, who presented evidence of HealthSouth’s experience in other areas of Florida, such as Ocala and Altamonte Springs. On the other hand, the Intervenors’ expert in health planning and finance, Mr. Sullivan, opined that the answer to low utilization is not to add additional beds. He explained that, while new healthcare facilities may result in additional utilization, that increase can often be explained by aggressive marketing. Mr. Sullivan also noted that the resulting increased utilization of CMR beds over SNF beds does not necessarily mean that those patients are receiving the most appropriate care for their needs. Mr. Sullivan also noted possible detrimental effects to the healthcare delivery system posed by unnecessary utilization of the more expensive CMR services when lower cost SNF services would be more appropriate. Mr. Sullivan’s opinions on this issue are credited. With respect to Ms. Gordon-Girvin’s calculations regarding the increases in usage experienced at HealthSouth’s facilities in Ocala and Altamonte Springs, Mr. Sullivan explained, and Ms. Gordon-Girvin acknowledged, that while that may be true for those facilities, those projects were significantly different than Encompass’s proposal for District 1. In Ocala and Altamonte Springs, HealthSouth placed a facility in a market where there was relatively high utilization of existing providers, or an absence of available beds. In contrast, District 1’s utilization of CMR services is relatively low. Stagnant Use in District 1 The 78 existing beds in District 1, with a current overall utilization rate of 57.3 percent, have not been highly utilized for quite some time. Encompass argues that the utilization rate is artificially low because West Florida denies admission for CMR services to otherwise eligible patients because of medical complexity, physician shortages, and nurse shortages. Encompass argues that the denied admissions to West Florida are “not normal” circumstances that justify Encompass’s proposed project. According to data compiled by Ms. Gordon-Girvin from admission logs for West Florida, in year 2015, West Florida denied admission to 199 potential CMR patients. Of those 199 denials, the logs indicate that 116 were denied because of lack of staff, 76 because of medical complexity, seven for lack of bed availability, and one because the admission would have violated the 60/40 rule which requires that at least 60 percent of patients fall into particular diagnosis categories. For year 2016, the West Florida logs indicate that 216 patients were denied CMR admission; 48 due to lack of staff, 144 because of medical complexity, and 24 for physician choice. At hearing, West Florida adequately addressed its historical admission denials to overcome the implication that there is lack of access or “not normal” circumstances in District 1. It was shown that, even though there may have been a logged “denial” of admission for one day, there were instances of other admissions at West Florida that same day. In addition, the data was insufficient to demonstrate that any of the denied patients did not receive CMR services in District 1 or elsewhere. The evidence does not otherwise support a finding that West Florida artificially capped admissions at its CMR facility. In 2015 and 2016, HCA’s data collection system utilized by West Florida to document admission denials was not as accurate as its current system, and had limited documenting options. As a result, some of the referrals documented as denied admissions were actually postponed admissions for a day or two. HCA has recently developed a much more robust reporting system, which is used by West Florida and Fort Walton Beach. The new reporting system shows that in 2017, only approximately 50 patients were denied because of staffing. While there were a number of admissions denied by West Florida in 2015 and 2016 because of lack of staff, those numbers, when compared to the overall daily census for those years, were not significant enough to demonstrate “not normal” circumstances. Even if they were, the evidence did not show that such constraints exist today. West Florida is now appropriately staffed with physicians and nurses. West Florida employs an inpatient rehabilitation administrator, a director of therapy, a director of nursing, and a director of therapists who manage therapy for inpatient rehabilitation, acute care, and outpatient therapy. Mr. Ulmer as the CEO for West Florida also makes rounds on the CMR unit. West Florida currently staffs two physicians including its medical director, Dr. Verbois and a mid-level provider to assist Dr. Verbois. At the time of the hearing, West Florida was in the process of recruiting another physician. West Florida also expects to begin a graduate medical education program in the summer of 2019, and it is expected that the program director for that program and its residents would also be located at West Florida. It is expected that the program director would spend approximately 50 percent of his or her time in clinical work. West Florida, as typical in the industry, is staffed to meet the expected average daily census. It has developed a float pool of approximately 18 full-time nurses who have been trained to be able to cover for other nurses who may be out for whatever reason. The float nurses assist at West Florida when there is a need for additional coverage. West Florida has also brought in additional travel nurses. In addition, West Florida has an internal escalation process in place to review the cases and ensure the patients get the best care possible. With respect to denied admissions at West Florida based on medical complexity, the evidence was insufficient to show that the denials support a finding of “not normal” circumstances. The evidence was also inadequate to support a finding that Encompass’s program, if approved, would be able to accept the denied patients or would increase access for those patients. Medicare has stringent guidelines for CMR admissions. Accordingly, West Florida does not admit patients that require certain services due to the medical complexity of the patient, especially when the facility does not offer additional services necessitated by the medical complexity of the patient. Whether a patient is appropriate for care in a particular CMR facility is based on the independent professional judgment of the evaluating physician. If a patient’s condition is too medically complex such that the patient requires a level of care not provided at the CMR facility, that CMR facility would not be able to admit the patient. There is nothing “not normal” about a rehabilitation facility, at one time or another, denying admission to patients who are too medically complex. Dr. Verbois, a physiatrist with years of CMR experience, who has been the medical director for West Florida for 18 years, credibly explained her role in reviewing referrals against the CMS criteria for admission. At West Florida, Dr. Verbois uses her professional medical judgment to determine the medical complexity of the patient. Examples of patients that may be denied admission due to the patient’s medical complexity include patients that are not stable and not able to withstand the intense therapy, such as severe burn patients; patients who are being monitored by telemetry; ventilator dependent patients; patients who are hooked to a wall suction; patients with tracheotomy size of 8 or greater; as well as patients who are newly placed on a parenteral nutrition through a central line (total parenteral nutrition or TPN). In addition, patients with a “total assist” functional independence measure are potentially too medically complex, depending on their specific circumstances. Encompass asserts that HealthSouth has a history of accepting medically complex patients as evidence that its proposed facility in Pensacola would be able to accept the patients denied by West Florida due to their medical complexity. Ms. Lori Bedard, regional vice president of operations for Encompass Health for the southeast region, testified as to the experience with HealthSouth accepting high acuity patients including TPN patients, tracheotomy patients, as well as total assist patients. As an example of a measure of the high acuity patients accepted by HealthSouth, Ms. Bedard cited that the HealthSouth Spring Hill facility has a case mix index (CMI) of 1.3. The higher the CMI value, the higher the complexity accepted. While a CMI of 1.3 for HealthSouth’s Spring Hill facility is high, the CMI for West Florida is higher at 1.6. Further, although Ms. Bedard testified generally that HealthSouth takes TPN, tracheotomy patients, and total assist patients, with the exception of the tracheotomy patients, Ms. Bedard did not testify or otherwise address whether HealthSouth accepts all of those types of patients, and she did not testify that Encompass would be able to take all of those types of patients. Encompass did not otherwise explain how it intends to accept the type of patients deemed by West Florida as medically too complex. According to Dr. Verbois, West Florida accepts certain types of TPN patients as well as certain types of total assist patients. In Dr. Verbois’s opinion, which is credited, Encompass would not be able to take the type of patients West Florida denies as too medically complex because those patients simply do not meet the CMS criteria for admission. In sum, Encompass’s reliance on 2015 and 2016 data reflecting a relatively small number of patients not admitted to West Florida does not demonstrate “not normal” circumstances, does not represent the experience at West Florida’s CMR unit today, and does not demonstrate need in District 1 for additional CMR beds. Rather, the evidence shows, and it is found, that there is no need to increase the number of beds. The addition of 10 new beds at Fort Walton Beach further supports this finding. Ratio between CMR beds and SNF beds SNFs, commonly known as nursing homes, serve post-acute patients but do not offer the same intensive rehabilitation offered in a CMR facility. SNFs typically serve a lower acuity patient population than CMRs. Stays in SNF facilities are typically longer than in a CMR facility. Not every patient that benefits from a SNF would be appropriate for treatment in a CMR facility. Encompass asserts that there is an institutional bias for placing patients in nursing homes versus CMR facilities within District 1. According to a ratio analysis presented in the application and explained at the hearing by Ms. Gorden- Girvin, when the ratio of the number of CMR beds as compared to SNF beds increases, the number of hospital discharges to CMS increases. Ms. Gordon-Girvin determined that in District 1 there is a ratio of seven discharges to SNFs for every one discharge to a CMR, as compared to a five-to-one statewide average. According to Ms. Gorden-Girvin, this ratio indicates a demand in District 1 for more CMR services. The methodology utilized for Ms. Gorden- Girvin’s ratio analysis is not a standard health-planning tool for calculating or otherwise demonstrating need for CMR services. Looking at the utilization numbers for SNF facilities versus CMR facilities in District 1 does not demonstrate need or “not normal” circumstances for additional CMR beds or the presence of any barriers to access. The data utilized by Ms. Gordon-Girvin to derive the ratio only showed the recommended discharge and did not indicate why the patient may have been recommended for a SNF instead of a CMR. The evidence was otherwise insufficient to show a causal link between the number of SNF beds and CMR beds and a lack of access to CMR beds. There are several plausible explanations for the larger utilization of SNF facilities, including that there may simply be a greater need for SNF facilities in District 1. As SNFs and CMRs generally serve different populations, the relevance of a comparative ratio between the two in an attempt to justify need is minimal. Instead of looking at the ratio of discharges to the two different types of facilities, the proper ratio to be examined relative to need is District 1’s population to the number of CMR beds, and the proposed location for the requested project. As previously noted, while the need for CMR services is reviewed on a district-wide basis, Escambia County, where Encompass proposes to locate the project, has a ratio of 1.12 CMR beds to every 1,000 persons age 65 years and older. Adding another 50 CMR beds proposed by Encompass would result an inventory of two beds for every thousand in population, which is 2.4 times higher than the state average. Existing ratios indicate adequate access for CMR services in District 1. Whether Referral Patterns Demonstrate Limited Access to Existing CMR Beds In addition to other arguments raised by Encompass regarding access, a chart contained in Encompass’s CON application indicates that only five patients were transferred from West Florida’s acute care unit; virtually no patients were transferred from other acute care hospitals in District 1; and 8,155 patients were transferred from clinics and physician’s offices. The information contained in the CON Application on this point is in error and is, therefore, unpersuasive on the issue of access. Rather, a significant majority of CMR patient referrals in District 1 come from acute care hospitals, other than the facilities affiliated with the CMR units themselves. The three main referral centers for West Florida are the large health providers in Escambia County including Baptist Hospital, Sacred Heart, and West Florida. Fort Walton Beach receives a significant number of referrals from Sacred Heart of the Emerald Coast, an acute care hospital, other facilities in Bay and Escambia counties, and the Fort Walton Beach Medical Center. In 2017, Fort Walton Beach received 50 referrals from the Pensacola area and accepted approximately 20 to 23 of the referred patients. The evidence does not support a finding that there is lack of access for CMR services in District 1. b. Lack of Choice In support of its claim that there is a lack of choice, Encompass maintains that low numbers of CMR beds relative to SNF beds, coupled with HCA’s two facilities having all of the CMR beds in District 1, limits choice, and suppresses market entry. Encompass asserts that additional CMR beds are needed to increase competition and provide choice. However, unlike some other types of healthcare services, CMR services are tertiary services, which, by definition, should be concentrated in a limited number of facilities to ensure quality, availability, and cost-effectiveness. See § 408.032(17), Fla. Stat. (quoted above). Lack of competition for CMR services in District 1 does not support a finding of “not normal” circumstances or otherwise demonstrate need for Encompass’s proposal. 2. Section 408.035(1)(b) – The availability, quality of care, accessibility, and extent of utilization of existing healthcare facilities and health services in the service district of the applicant. Consistent with the finding that there is no need for the 50-bed facility in Escambia County proposed by Encompass, the existing CMR services provided by West Florida and Fort Walton Beach in District 1 are accessible and available. The evidence did not otherwise demonstrate that an award of a CON to Encompass would improve availability or accessibility to quality CMR services in District 1. Of further note, Encompass includes in its application utilization projections based on a hypothetical, which reduces the ratio of SNF to CMR cases from 7:1 to 6:1, rather than directly projecting future CMR demand. Based on this hypothetical ratio, Encompass projects that CMR cases in District 1 will increase from 977 in 2016 to 2,541 in 2023 for a total increase of 160 percent, even though the population growth in this area is only 1.3 percent annually. These are projections that do not accurately reflect utilization and are unrealistically overstated. 3. Section 408.035(1)(c) – The ability of the applicant to provide quality of care and the applicant’s record of providing quality care. Encompass’s CON application accurately describes quality measures that would be utilized by Encompass if its CON application was approved, including quality metric reports that would track lengths of stay, discharges, and patient improvements. The reports would also track accreditation and regulatory compliance. Regarding accreditation, the evidence indicates that, while one of Encompass Health’s facilities in Florida is accredited by the Commission on Accreditation of Rehabilitation Facilities (CARF), Encompass Health has focused on obtaining accreditation for its facilities from the Joint Commission on Accreditation of Health Care Organizations (the Joint Commission). On the other hand, both West Florida and Fort Walton Beach have accreditation from CARF, described by the Intervenors’ expert in CMR administration as intensive and specific to the operations of rehabilitation hospitals and programs related to rehabilitative care. There is no indication that Encompass would seek CARF certification if its program were approved. In fact, Encompass makes no commitment to seek any particular accreditation in its application. However, all of Encompass Health’s Florida facilities are accredited by the Joint Commission, with some holding Joint Commission certifications for various specialty treatment programs. An actual commitment by Encompass to seek accreditation from the Joint Commission or pursue certifications from CARF would have made a stronger showing. Nevertheless, the strength of Encompass Health’s programs and systems available to Encompass, together with Encompass Health’s history of quality care, was sufficient to support a finding that, if approved, Encompass would have the ability to provide quality CMR services. 4. Section 408.035(1)(d) – The availability of resources, including health and management personnel, for project accomplishment and operation. The parties stipulated that Encompass has the funds necessary for capital and operating expenditures for its proposed hospital. Currently, however, Encompass does not have any employees dedicated to staff the proposed facility. While Encompass has a track record of recruiting and retaining rehabilitation liaisons, therapists, nurses, and doctors of physical medicine (physiatry), existing providers in District 1 have experienced difficulty in recruiting physicians and nurses to staff their CMR facilities. If approved, Encompass would face the same challenges in recruiting professional staff. In addition to West Florida and Fort Walton Beach, District 1 currently has at least two major health systems, Sacred Heart and Baptist, along with numerous SNF facilities. Recently, a new SNF facility opened near West Florida, resulting in two nurses leaving West Florida to work at the new facility. The ability to recruit professional staff is negatively impacted by the fact that the area is not a major destination with large airports. In addition, District 1 has a large population of military families that tend to move frequently, leading to more frequent turnover of professional staff than in areas not as affected by military transfers. Although Encompass’s application has a plan outlining recruiting, the plan does not specifically address recruiting difficulties in the Pensacola area. Approval of the application would place further demand on an already limited supply of healthcare staff. 5. Section 408.035(1)(e) – The extent to which the proposed services will enhance access to healthcare for residents of the service district. In addition to the access issues related to need already addressed, rule 59C-1.039(6) provides that geographical access for CMR 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.” Current access to existing providers under this standard is sufficient. Moreover, an award of the CON to Encompass will not improve clinical or programmatic access since Encompass does not propose services that are not currently offered in the District at West Florida and Fort Walton Beach. Encompass did not identify any specific subgroup of services that patients are otherwise not able to access from a clinical standpoint. Furthermore, based on the condition in Encompass’s application to serve only 2.25 percent of Medicaid, charity care, and self-pay, coupled with the fact that Encompass’s facilities (or HealthSouth as a whole) do not serve a high percentage of Medicaid or self-pay patients, Encompass will not enhance access to care for indigent or Medicaid patients as it will focus on serving the better paying patients (i.e., Medicare and commercially insured patients). In sum, the evidence did not show that approval of Encompass’s application would improve CMR service access for residents in District 1. 6. Section 408.035(1)(f) – The long-term financial feasibility of the proposal. The parties stipulated that Encompass has the funds necessary to fund the construction and opening of its proposed facility, but did not stipulate to the long-term financial feasibility of the project. Long-term financial feasibility is demonstrated by showing a profit during the projection period, based on reasonable and defensible assumptions and data sources. For this project, Encompass used a three-year time period for its projections. In criticizing Encompass’s projections as unreasonable, the Intervenors’ healthcare finance expert pointed out that Encompass’s projections were based on Encompass Health’s Ocala facility, which is a different operation than the proposal; were not reviewed with Encompass to match its expectations for the facility; used a full first-year example instead of a start-up year; and did not coordinate staffing requirements with Encompass’s expectations for staffing the proposed operations. These criticisms are legitimate. The lack of communication between the experts hired to prepare the application and those who would be responsible for Encompass’s operations was apparent. While all agreed that Encompass Health’s facilities in Florida all experience profitability in their second year of operation, that is not sufficient to show long-term financial feasibility of the proposed facility. In addition, while, because of inflated cost projections, it appears that funds would be available to pay for staffing expected by those who would actually run the facility, even though much different from staffing proposed in the application, the changes between the application and what is expected cannot be ignored. Considering the disconnects between the application and actual expectations, it is concluded that the application financial projections are not based on reasonable and defensible assumptions and data sources so as to provide a reliable basis for determining long-term financial feasibility of the project. 7. Section 408.035(1)(g) – The extent to which the proposal will foster competition that promotes quality and cost-effectiveness. Under this statutory criterion, the consideration is whether there is a need for greater competition to stimulate and promote quality and cost-effectiveness. Considering the fact that District 1’s utilization of existing CMR beds is relatively low at 57.3 percent, it is apparent that the Encompass project will not promote cost-effectiveness, but rather would promote unnecessary duplication of services. Instead of promoting or enhancing quality, approval of the project would add additional pressures on limited staffing resources in District 1 necessary to maintain current staffing and quality. The evidence was otherwise insufficient to show that additional competition would stimulate quality or cost- efficiency. 8. 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. Encompass has not chosen a location for its proposed facility within Escambia County nor does it have a letter of intent in place to purchase a particular parcel. However, the architect that designed the proposed facility and testified regarding estimates of project costs, Fred Frederick, provided undisputed, credible testimony that Encompass can construct its proposed facility up to code and at the costs estimated in the CON application. The number of square feet for the proposed project reflected in the application is consistent with the floor plan Encompass submitted with the application. The estimated cost of $284 per square foot is adequate even if construction does not begin for approximately one year. A 7.9-acre lot is large enough to accommodate the 50-bed design Mr. Frederick created and Encompass’s estimated purchase price of $3 million for 7.9 acres is reasonable. The cost estimates for environmental impact, site survey, site preparation, water, sewer, utility, landscaping, sidewalks and roads, materials, and testing are reasonable and in line with other Encompass Health projects. The architectural fee of $1.3 million, construction supervision of $300,000, other contingencies of $1.15 million, and $3.45 million for equipment reflected on Schedule 1 are reasonable. In sum, all of Encompass’s project costs were reasonably estimated and accurate. 9. Section 408.035(1)(i) – The Applicant’s past and proposed provisions of healthcare services to Medicaid patients and the medically indigent. Encompass’s application includes a condition that states: “Medicaid, Medicaid Managed Care, Charity Care and Self Pay patients will represent a minimum of 2.25 percent of patient days.” Provision of CMR services to only 2.25 percent of services to the self-pay, charity care, and Medicaid population falls well below the other existing providers in the area. For example, Fort Walton Beach provides 16 percent and West Florida provides 12.4 percent of its services to self-pay, charity care, and Medicaid patients. In addition, for the past four years, Encompass Health’s hospitals in Florida combined have provided only 2.8 percent of services to self-pay, charity care, and Medicaid. This is on the low end of the average for the state. These service levels are not favorable to the application. Rule Review Criteria 90. Rules 59C-1.008, 59C-1.030, and 59C-1.039 govern review of CMR CON applications. The provisions of the rules are generally addressed above as to each of the statutory criteria. In addition, Encompass asserts entitlement to the application of the rule preference in rule 59C-1.039(5)(f)2., relative to the provision of service to Medicaid-eligible persons. The CON application proposes to minimally serve Medicaid patients, although, as previously indicated, Encompass’s proposed service levels to self-pay, charity care, and Medicaid patients are low when compared to the levels of those populations currently served by the Intervenors. Adverse Impact In addition to the adverse impact upon recruiting previously discussed, West Florida and Fort Walton Beach provided expert testimony credibly demonstrating the material adverse financial impact that approval of Encompass’s CON application would have on existing providers. Given current CMR utilization levels, the addition of another 50 CMR beds in Escambia County would create an oversupply, negatively impacting the existing providers by reducing the number of referrals. As previously noted, Encompass’s application contains utilization projections that assume dramatic growth in CMR utilization, which are unreasonably overstated. CMR utilization in District 1 is likely to be far slower, and Encompass’s patients would likely come primarily from existing providers. The Intervenors’ expert in health planning and finance, Daniel Sullivan, calculated the number of patients that West Florida and Fort Walton Beach would lose to Encompass should the application be approved under three different scenarios. The calculations were on a District-wide basis, as were the Encompass utilization projections. If Encompass had done their projections on a county basis, the impact on West Florida would be much greater. If Encompass’s projection to serve 1,095 patients in 2023 were accurate, Encompass would need to capture 102 percent of the current market of CMR patients in District 1. Scenario one assumes that 100 percent of these 1,095 cases come from existing providers; scenario two assumes 75 percent of the 1,095; and scenario three assumes that only 50 percent of the 1,095 cases come from existing providers. Even under the most conservative 50-percent estimate, West Florida would lose 322 discharges and Fort Walton Beach would lose 174 discharges. This represents half of each facility’s current volumes and would cause a significant adverse impact on both West Florida and Fort Walton Beach. Any of the three scenarios represents a substantial adverse impact on West Florida and Fort Walton Beach’s programs. The most conservative 50-percent loss under scenario three results in a contribution margin loss of $4.9 million for West Florida and of $2.0 million for Fort Walton Beach. Such losses would be significant and material, both financially and operationally, to the survival of the West Florida and Fort Walton Beach programs. Moreover, if the Encompass application is approved, West Florida and Fort Walton Beach will be forced to bear a disproportionate share of the lower-paying patient population (i.e., Medicaid, self-pay). Encompass’s proposal to serve 2.25 percent of the Medicaid population does not increase financial accessibility and would have a negative effect on financial access to CMR services by prohibiting the existing providers from operating at the same level as they have historically, further discouraging the facilities from adding new services and equipment. Encompass’s CON application should not be approved.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law it is, RECOMMENDED that the Agency for Health Care Administration enter a final order denying CON Application Number 10495 filed by Encompass. DONE AND ENTERED this 31st day of January, 2019, in Tallahassee, Leon County, Florida. S JAMES H. PETERSON, III 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 31st day of January, 2019.
The Issue Whether the Department of Health and Rehabilitative Services should issue certificates of need, in District 11, for the addition of 33 comprehensive medical rehabilitation beds to West Gables Rehabilitation Hospital, and/or for the establishment of a 45-bed comprehensive medical rehabilitation hospital to HealthSouth Rehabilitation Corporation.
Findings Of Fact HealthSouth filed CON Application No. 6654 on March 25, 1991, to convert space in HealthSouth Regional Rehabilitation Center for use as a 45-bed inpatient comprehensive medical rehabilitation ("CMR") unit. The parties stipulated that HealthSouth filed an adequate letter of intent, corporate resolution, notice of publication, and a complete application. HealthSouth is an eight-year old proprietary company specializing in the provision of rehabilitative services through the ownership and operation of inpatient and outpatient rehabilitation facilities across the United States, and some acute care hospitals specializing in orthopedic and neurological conditions. HealthSouth Regional, a 180-bed facility, presently licensed as a skilled nursing facility ("SNF"), was acquired by HealthSouth in September, 1986. Of the 180 beds, 120 beds function as a skilled nursing facility providing long-term care, skilled nursing care and subacute medical light rehabilitation care. HealthSouth has received HRS approval to delicense the remaining 60 nursing home beds and is seeking, in this application, to renovate that space to accommodate a 45-bed inpatient CMR unit with ancillary support space for the CMR programs, for a total project cost of $2,079,000. HealthSouth presently has modified its space and provides inpatient rehabilitation services in its 45 bed rehabilitation unit. These include 10 dedicated head trauma beds and four dedicated pediatric rehabilitation beds. HealthSouth also provides outpatient rehabilitation services. HealthSouth is located in south Dade County, in HRS District 11, for Dade and Monroe Counties. If approved, it would be the southern-most inpatient CMR provider in District 11 and the State. Its service area includes central and Southwest Dade County, and Monroe County. The parties stipulated to HealthSouth's accreditation history, as follows: HealthSouth although licensed as a SNF, was first accredited by the Commission on Accreditation of Rehabilitation Facilities ("CARF") in 1989, for one year, for acute inpatient and outpatient medical rehabilitation. That accreditation was again awarded in 1990, for three years. In 1991, CARF accredited HealthSouth's brain injury acute rehabilitation and work hardening rehabilitation programs for three years. CARF applies the same standards to SNF and CMR licensed facilities. In December 1991, HealthSouth was surveyed by the Joint Commission on the Accreditation of Health Care Organizations ("JCAHO"), and accredited as an acute comprehensive medical rehabilitation unit. Baptist is a 513-bed acute care hospital located in southern Dade County, approximately 15 to 30 minutes from HealthSouth. Baptist's services include the Davis Rehabilitation facility with a 36 bed inpatient CMR unit, distributed in three "pods", one each for brain injury services, orthopedic rehabilitation, and stroke and general rehabilitation services. Baptist has 10 beds designated for treatment of head trauma. Baptist employs 170 to 180 persons in its rehabilitation program. Baptist is CARF accredited for inpatient and outpatient rehabilitation services and has JCAHO hospital accreditation. Baptist has not sought CARF specialty accreditation for its head injury program, but has used CARF guidelines in establishing the program. Disputed CMR Rule Criteria A. Need Under Rule Formula There is no numeric need for additional CMR beds in HRS District 11, using the methodology of the formula in Florida Administrative Code Rule 10- 5.039. The bed need methodology formula in the rule indicates a need for 142 beds. It is a poor indicator of need since this projection of 1996 need, is fewer beds than are currently in use, with an average daily census of 232 patients in the 288 licensed beds in the district. In addition, while the rule formula assumes a correlation in the growth of acute care and CMR admission, acute care admissions have decreased, while CMR admissions have increased. District 11 utilization and bed capacity have increased 46% from 1986 to 1990. In part, due to the short-comings of the existing rule, HRS had published a proposed CMR rule revision, which was the subject of an administrative challenge at the time of this hearing. Testimony regarding the effect of the proposed rule was proffered at hearing. Notice has been given that, subsequent to the conclusion of these proceedings, a Final Order was entered upholding the new CMR rule, and on that basis Baptist requests that the proffer of evidence regarding the effect of the new rule be received into evidence. The proffer is rejected based on the inapplicability of the new rule to this batching cycle. Notwithstanding a zero fixed need pool, based on the rule formula, HRS has a history of approving CMR beds when other statutory and rule criteria indicate need, and where special circumstances exist in a district. District Occupancy New rehabilitation units will not normally be approved unless average annual occupancy for existing CMR beds exceeds eighty-five percent (85%) for the most recent 12 months available three weeks prior to HRS' publication of the fixed need pool. Florida Administrative Code Rule 10-5.039(2)(c)2. There are 288 licensed CMR beds in District 11, 20 more approved at Mercy Hospital, and 33 more approved at West Gables, as a result of South Miami's voluntary dismissal of consolidated Case No. 91-5704, for a total of 341 CMR licensed beds. Existing CMR beds at District 11 have occupancy levels of 87%, 89%, 92%, 97% and 99%, at Baptist, Mount Sinai Medical Center, South Miami Hospital, West Gables Rehab, and Parkway Regional Medical Center, respectively. Overall district utilization has increased proportionate to the increase in available CMR beds. Two facilities operating at approximately 60 and 70% are Jackson Memorial Hospital and Bon Secours Hospital. HealthSouth has demonstrated that Jackson Memorial and Bon Secours Hospitals have historically had lower occupancy levels, which have skewed district-wide occupancy rates downward. Jackson Memorial operates 78 of its 80 CMR beds, and maintains 15 beds in designated units for its regional spinal cord and trauma center, serving 43% of patients who come from beyond the district, but with an overall occupancy consistently below 70%. Similarly, while district occupancy has increased, Bon Secours Hospital's occupancy has steadily declined since approximately 1988. In addition, due to its location in the extreme northeast of Dade County, and relative distance from HealthSouth, in the extreme southwest of Dade County, Bon Secours does not offer a reasonable alternative to CMR services at HealthSouth. Considering the special circumstances at Jackson Memorial and Bon Secours Hospitals, a need is shown for additional CMR beds as determined by the threshold consideration of the CMR rule occupancy standard. In addition, as stated by the district health plan ". . . the special status of Jackson Memorial's rehabilitation unit as a regional spinal cord center and teaching hospital seems to set most of its beds outside the available pool for the South Florida Community." Regrettably, the district plan does not quantify "most", although it does go on to state that the CMR bed supply is adequate through 1993. If "most" is equated to only 51%, then only 38 of Jackson Memorial's 78 operational beds are available for district use. This would be consistent with the data showing the 43% of Jackson Memorial's patients come from beyond the district and it is reasonable that District 11 patients in need of the types of services provided at a regional facility would also be treated at Jackson. With a total district inventory of licensed and approved beds of 341, but with two Jackson Memorial beds not in use, and at least 40 not available to serve district CMR bed need, then the available licensed and approved district bed inventory is reduced to 299. Alternative CMR rule factors - historic, current, and projected incidence; trends in utilization; existing and projected inpatients The expert health planners who testified for HealthSouth and Baptist disagree on the extent of the need beyond the existing District 11 CMR beds. Various alternative methodologies resulted in projections for a gross need ranging from 295 to 441 CMR beds. The estimates for pediatric bed need ranged from 14 to 17, and for brain injury beds from 38 to 41. HealthSouth's alternative methodology for the determination of need, based on actual district utilization for the year ending June 30, 1991, projected forward to 1996, with the assumption that the rate of utilization remains constant, showed a gross need exists for 295 rehabilitation beds in District 11. HealthSouth's expert also calculated need using the "Orange County" methodology. This has been a widely used health planning tool, although it is based on somewhat dated 1982 data from Virginia. It also uses a 30.3 day average length of stay (ALOS), although Rule 10-5.039 contains a 28 day ALOS and the District 11 actual ALOS was 33.1 days in 1989, 26.9 in 1991 and below 26 in 1991. This methodology projected a gross rehabilitation bed need of 314 beds, of which 41 beds would be required for head injury patients and 17 beds needed for pediatric patients. These categories overlap, because some pediatric patients require rehabilitation for head injuries. Therefore, the total number of head injury and pediatric beds required could be less than 58. HealthSouth's expert also prepared a projection based on District 11 incidence rates, which projected a gross rehabilitation bed need of 342, using a 36 day ALOS. Another HealthSouth incidence rate analysis, using Florida incidence rates projecting the incidence of conditions resulting in the need for inpatient rehabilitation to increase at a rate of 4% per year from 1991 to 1996, resulted in a projected need for 441 rehabilitation beds. Baptist's expert prepared a bed need projection also using an incidence analysis, which showed a gross bed need for 1996 District 11 rehabilitation beds of 321 beds, of which 38 would be for brain injury patients and 14 beds would be for pediatrics. Baptist suggests that the methodologies used by the two experts which resulted in the most similar numbers should be accepted, and that the correct projection of gross need ranges from 310 to 325 beds, 38-41 for brain injury and 14-17 pediatrics. Using 299 as the actual number of available District 11 CMR beds, rather than 277 used by HealthSouth, but accepting HealthSouth's use of District 11 incidence rate methodology which results in a gross need for 342 beds, the net need for new District 11 CMR beds is in the range of 40 to 45 beds. The district incidence rate is accepted as the most accurate indicator of need, in part, due to the following statements in the 1990-92 District XI Health Plan According to the state formula (3.9 rehabilitation admissions per 1,000 acute care discharges with a 28 day ALOS), 136 rehab beds will be needed in District XI in 1993. Despite the fairly restrictive formula, additional beds have been licensed and approved in District XI by exception. Occupancy rates continued to increase until 1987 when there was some decrease. Experience in South Florida has always been very different from the HRS rule criteria. That is, even in 1984, rehab admissions were 4.4 per 1,000 acute care discharges. This rate has increased steadily since that time. and, at p. 9., South Florida is an area that has a growing need for rehabilitation services. One third of all functionally disabled people are age 65 and over. In District XI, there are 286,863 people in this age group. [footnote omitted] at p. 14, and The greater Miami community and the Keys are areas in which sporting accidents occur. These accident victims are often left with disabling conditions as a result of their injury(s). In addition, there is a large number of motor vehicle accidents contributing to the incidence of trauma cases in the area. As a result, South Florida has a higher incidence of spinal cord injuries than the national rate. at p. 15. These statements emphasizing the differences in South Florida support HealthSouth's use of the district incidence rate, including the use of an average length of stay which is consistent with that associated with more severe CMR cases, such as spinal cord injuries. Finally, the district plan concedes that to varying degrees rehabilitation services are being offered in other settings, such as nursing homes or by home health agencies, but with Medicaid and Medicare constraints which limit the number of therapy sessions. HealthSouth's census of 29 to 34 CMR patients is consistent with the fact that alternatives are being sought as a result of demand exceeding the supply of licensed CMR beds. Jackson Memorial with 10 beds and HealthSouth with 10 beds, are the only CARF accredited brain injury programs in District 11. 1/ Jackson refers brain injury patients to HealthSouth in cases in which the patients have low levels of cognitive functioning, as measured on the RANCHO scale. Because a low level on the scale is indicative of the need for a longer stay, Jackson Memorial, as a regional trauma center, seeks to move long term patients to other facilities to keep its beds available. Jackson also transfers patients funded by the state impaired drivers and speeders trust fund and others with similarly managed care requirements to HealthSouth, because those funds pay for vocational rehabilitation only in CARF accredited brain injury programs. Baptist asserts that the total District 11 brain injury CMR bed inventory is sufficient, with 10 at Jackson, 10 at Bon Secours, 21 at West Gables, 6 at Baptist, and an anticipated brain injury program at Mercy Hospital. Baptist also asserts that CARF specialty accreditation is not required and is not a basis to determine that these programs are not capable of providing the same services as Jackson and HealthSouth provide. Even assuming that all providers are capable of providing quality care to the same patients, Rule 10-5.039(2)(b)2., Florida Administrative Code, includes trends by third party payors as a consideration of need. On that basis, distinctions made by the State of Florida Division of Vocational Rehabilitation for the Impaired Drivers and Speeders Trust Fund and other managed care payors are factors contributing to the need for CMR beds at a CARF accredited brain injury unit such as that at HealthSouth. All parties agree that it has been necessary to transfer pediatric patients out of the district for services, and that this was a critically unmet need in District 11. Only Jackson Memorial offered pediatric services, in 12 beds. Baptist asserts that an additional 6-bed pediatric unit at West Gables, which became available approximately four months prior to hearing, and Baptist's own ability to accommodate up to 4 pediatric beds in its CMR unit, have now satisfied the need. Baptist does not have a designated pediatric unit and only served one pediatric patient in 1991. West Gables and Jackson Memorial combined total of 18 beds is consistent with the projected gross need for 14 - 17 pediatric CMR beds made by experts for HealthSouth and Baptist. The calculation was made by HealthSouth using the conservative and dated Orange County methodology, which was rejected in favor of the district incidence rate as an indicator of total CMR bed need. However, HealthSouth failed to provide adequate information from which a determination of pediatric need can be made using the district incidence rate. In addition, the expert doctors who testified that pediatric needs were not being met, as of February, were generally unfamiliar with the unit recently established at West Gables. Therefore, HealthSouth has failed to provide evidence that the need for District 11 pediatric CMR services is still not met, due to numeric need or third party payor constraints. State and District Health Plans HealthSouth asserted that it meets the spirit of the applicable state and district health plans preferences for conversion of acute care beds to CMR beds; for special services not available within the district to the pediatric and brain injured patients in specialty distinct programs; to further teaching activities by its university internship site affiliations; for the provision of services to the Medicaid and medically indigent population by its commitment to 5% Medicaid, 2% indigent and by its history of commitment to Medicaid in its SNF units; and for the provision of discharge planning and comprehensive outpatient rehabilitation services through its CARF specialty accredited outpatient CMR center. HealthSouth does not meet the preference in the state health plan for the conversion of acute care beds to rehabilitation beds. While HealthSouth's proposed conversion of nursing home beds to rehabilitation beds is preferable to new construction, the state health plan preference is specific in its emphasis on acute care bed conversion. The preference in the state health plan for providers proposing specialty services not currently available in the district, is met, in part, by HealthSouth's proposal to provide specialty programs for CARF accredited brain injury, but the need for HealthSouth's pediatric rehabilitation services was not established. See, Findings of Fact 19 and 20. The third preference in the state health plan for teaching hospitals, is not met by HealthSouth. The fourth preference in the state health plan, for disproportionate share providers, is, in part, inapplicable to HealthSouth, because HealthSouth is not licensed as a hospital. The preference also applies to providers who have historically provided Medicaid and indigent care. Based on the prehearing stipulation that Baptist did not challenge the historical provision of such services, HealthSouth is determined to meet this preference. See, also, 381.705(1)(n). The final preference in the state health plan, for providers who coordinate inpatient rehabilitation services with outpatient follow-up, is met by HealthSouth. In addition to containing CON allocation factors, the local health plan contains two applicable elements, one for additional pediatric rehabilitation beds, and a second for high quality rehabilitation programs in SNF. Baptist suggests that the pediatric element is no longer a priority due to the opening of the pediatric unit at West Gables, and HealthSouth failed to provide evidence of additional pediatric CMR bed need. The element favoring high quality rehabilitation programs in skilled nursing homes, is consistent with the state health plan statement that head trauma and other specialty services in nursing homes will increase competition to existing rehabilitation hospitals. Because HealthSouth can meet CMR needs in 45 beds, with the remaining 120 SNF beds, at generally lower costs than acute care CMR hospitals, this application is consistent with the element. HealthSouth's application also meets the continuum of care and cost containment goals of the local health plan. Two of the elements of the local health plan are the same as the state health plan. There is a preference for applications proposing to convert acute care beds to rehabilitation beds and a preference for disproportionate share Medicaid and indigent providers. As was discussed above, the HealthSouth proposal does not meet those preferences. See, Findings of Fact 22 and 25. The local health plan includes a preference for rehabilitation providers whose occupancy exceeds 85%, when the District's average occupancy exceeds 80%. HealthSouth cannot meet the first part of this standard because it does not have licensed rehabilitation beds. The average utilization for the licensed rehabilitation beds in District 11 for the application based period was 74.9%. However, excluding Jackson Memorial and Bon Secours Hospitals, as special circumstances justify in this case, occupancy levels for District 11 average over 92%. See, Findings of Fact 13 and 14. HealthSouth meets the local health plan element preference for programs which meet CARF standards, as is evident from its CARF accreditation. HealthSouth meets the local health plan element favoring comprehensive discharge planning, as a part of its service. Availability, quality of care, accessibility and utilization of like and existing services, Subsection 381.705(1)(b), Florida Statutes HealthSouth, if approved, will be the southernmost provider of CMR services in District 11. The only two CARF brain injury programs in the District, are the ten beds at Jackson Memorial Hospital and the ten beds at HealthSouth. HealthSouth, Jackson Memorial and West Gables offer the distinct CMR pediatric programs. Baptist acknowledged that at the time the Applicant filed its application, Baptist had no pediatric rehabilitation program or patients and that it had only one pediatric admission in 1991. Based upon the only need calculations for pediatric beds made by both HealthSouth and Baptist, there is a gross need for 14-17 pediatric beds in District XI, which is satisfied by the 18 beds at Jackson Memorial and West Gables. There are only 20 CARF accredited brain injury beds in the District, 10 at Jackson and 10 at HealthSouth and, based upon the need for brain injury beds calculated by experts for both HealthSouth and Baptist, there is a net need in the range of 38-41 beds for brain injury patients. Based on payor trends, however, some of these beds need to be CARF accredited. No evidence was provided that existing providers do not provide adequate quality inpatient rehabilitation care, except that which results from over-utilization of all except two facilities, which operate inconsistently with the district trends. Applicant's record of and ability to provide quality care. Subsection 381.705(1)(c), Florida Statutes, and Florida Administrative Code Rule 10- 5.039(2)(c)4. and (d) 1. HealthSouth meets the Commission on Accreditation of Rehabilitation Facilities (CARF) standards for hospital based acute care comprehensive medical rehabilitation services. It is CARF accredited for comprehensive in-patient rehabilitation, out-patient rehabilitation, acute brain injury rehabilitation and work injury rehabilitation. HealthSouth is accredited as an acute care hospital by the Joint Commission on Accreditation of Health Care Organizations. The evidence demonstrates that HealthSouth provides quality care, with the appropriate medical specialists and adequate staff working as an interdisciplinary team, and meets or exceeds all program requirements. Availability of alternatives. Subsection 381.705(1)(d), Florida Statutes. HealthSouth has failed to establish that the specialized needs of children for CMR services are not currently met in the district. HealthSouth has established that individuals needing catastrophic acute CMR care for head and spinal cord injuries, particularly those with lower RANCHO Levels, or those whose third party payors require CARF accreditation do not have adequate district services. Jackson Memorial is not an available alternative to its designation as a regional trauma and spinal cord center. See, Finding of Fact 19. Jackson Memorial is also not an available alternative for vocational rehabilitation services funded by the Impaired Drivers and Speeders Fund. HealthSouth was requested by the Division of Vocational Rehabilitation, Impaired Drivers and Speeders Fund to obtain CARF specialty accreditation in CMR inpatient brain injury and thereby become an alternative provider in District XI due to limitations on patient access to Jackson Memorial. Baptist is also not an available alternative. Although Baptist provides CMR services, its lack of CARF accredited specialties prohibits its' admission of vocational rehabilitation-funded brain injury patients. All parties stipulated that outpatient CMR does not provide the intense therapy need for some CMR patients. Resources and funds for project accomplishment and operation; impact on clinical needs of health professional training programs; accessibility to district residents. Subsection 381.705(1)(h), Florida Statutes. HealthSouth has adequate specialized staffing to run its acute care CMR program as currently operated. Its staffing patterns meet CARF standards, are consistent with industry standards for acute care CMR hospitals and are appropriate to its patient mix. HealthSouth has adequate international, national and state recruitment processes. HealthSouth also participates as an internship site for clinical training programs, which allows HealthSouth to attract new employees from the students who intern at HealthSouth for six weeks to three months. HealthSouth's manpower and staffing proposals, based upon a projected licensure change, are reasonable. HealthSouth has demonstrated that it has the ability to recruit the additional staff required. See, also Florida Administrative Rule 10-5.039(2)(b)4. Costs and methods of construction. Subsection 381.705(1)(m), Florida Statutes. Renovation as an alternative to new construction. Subsection 381.705(2)(c), Florida Statutes. HealthSouth presented evidence that the construction costs of $95.00 per square foot are reasonable, based upon prior recent construction experience within South Florida, familiarity with design and construction standards for specialty hospitals in Florida, prior design and construction experience with other HealthSouth facilities. Detail plans for phasing construction were not presented, although a general description of the proposed phasing is included in the application. Overall project costs of $2,079,000 including permitting fees are reasonable. HealthSouth will be renovating the interior, but will not be making exterior wall changes, will not have to replumb or rewire the 1983 structure, but only relocate connections and will not have to purchase any equipment. HealthSouth's construction will occur to up-grade its facility from nursing home to hospital licensure construction standards. The contingency fee of 10% identified for unforeseen expenses during construction is the industry standard and is reasonable. Demolition costs of $3.50/SF for the partial demolition of the existing building are accurately projected and reasonable based upon demolition project costs experienced by HealthSouth in Dade County. Based upon the assessment of patient needs and by the occupancy experienced in HealthSouth's CMR unit, discontinuation or a reduction of the service was an option which would exacerbate the need for CMR beds in the district. The construction of a new facility is more costly than the alternative of renovating a current facility. The schematic plan for the proposed renovation meets the code and licensure requirements. Immediate and long-term financial feasibility. Subsection 381.705(1)(i), Florida Statutes. Impact on competitors and costs. Subsection 381.705(1)(e). The parties stipulated that the HealthSouth proposal is financial feasibly in the short term and that HealthSouth has adequate resources to fund capital operations. Interest on the total debt will, at current rates result in reducing projected project costs by approximately $70,000, and HealthSouth has the ability to finance the proposed renovations. Income and expense projections are reasonable, based on HealthSouth's experience in other CMR facilities. Because HealthSouth currently serves acute care CMR patients, its actual historical utilization data is a reasonable basis for projecting future utilization. Baptist noted that HealthSouth's RANCHO level II patients and others currently admitted after stays in other CMR units, would not qualify for admission to HealthSouth's CMR unit, if approved. Baptist's Exhibit 3 demonstrates Baptist's assertion that 13 patients in 1990, and 12 patients in 1991 at HealthSouth were not appropriate candidates for inpatient rehabilitation services. Given the need for 40 - 45 beds in the district, appropriate CMR patient demand should exceed any inappropriate CMR patients. Baptist has sent some of these patients to HealthSouth's SNF. These patients will continue to be able to use the SNF and have the advantage of a continuum of rehabilitation care in the same facility. Finally, non-CMR patients reasonably can be expected to be offset by those CMR patients HealthSouth has previously been unable to attract due to its SNF licensure. HealthSouth will be able to meet the CMR rule occupancy standards. See, also, Florida Administrative Code Rule 10- 5.039(2)(c)2. HealthSouth projects that charges per patient day and its fee structure for CMR patients currently treated at HealthSouth will remain the same. The projected in-patient revenue per patient day of $874.00 for 1992 is the current rate at HealthSouth for CMR patients. While the charges HealthSouth projects are, in general, among the lower charges in the district, they are not all inclusive. Ancillary charges, drugs, therapies and supplies would be billed to patients above the per diem charge. The salary expense projections made at the time of the application are consistent with those paid in the industry and those currently paid by HealthSouth, and are reasonable. According to Baptist, HealthSouth's expenses are understated on its pro forma projections. Although Baptist concedes that these errors do not affect the long term financial feasibility of the project, Baptist contends that the errors do affect the patient charges and costs. Specifically, Baptist asserts that it is unlikely that HealthSouth can complete its renovations within the budgeted project costs and that HealthSouth failed to include in the pro forma a management fee of 5% of gross revenues which must be paid to its parent corporation. HealthSouth's proposed charge structure should reflect the costs of the management fee. When the pro forma is corrected to included the management fee, the proposal is still financially feasible. If HealthSouth's 5% management fee is passed directly to patients, then recalculating HealthSouth Exhibit 22, revenue per patient day would increase from $874 to $926. As ranked on HealthSouth's Exhibit 38, at $926 per patient day, HealthSouth would continue to be below the district average of $1,004 and still be second lowest charge provider in the district. Baptist's assertion that the inclusion of the management fee negates HealthSouth's ability to be a lower cost provider is rejected. HealthSouth's proposal will have little or no impact on existing providers because HealthSouth already has a CMR average daily census of 29 historically, and 34 currently. In addition, Baptist Exhibit 3 shows that Baptist transferred 8 patients to HealthSouth in 1991 due to the absence of available beds at Baptist. The approval of HealthSouth's proposal will foster competition through the availability of a lower charge provider and ultimately benefit consumers and employers by offering its lower health care costs. Past and proposed provision of services to Medicaid and medically indigent. Section 381.705(1)(n), Florida Statutes. The Applicant made a 5% and 2% commitment respectively as part of its CON application to serve Medicaid and medically indigent patients. The Medicaid commitment is 4.1% higher than the district-wide average of patient days available and will improve access within the district. There is no clear showing, however, of the lack of services to Medicaid CMR patients, except as may be assumed based on statutory and health plan preferences. Availability of less costly, more efficient, or more appropriate alternatives. Section 381.705(2)(a), Florida Statutes. HealthSouth's proposal was the most efficient, least costly alternative based on the determination of need for additional CARF accredited brain injury CMR beds in the district XI, and the lower cost of renovating a facility which is already providing these services. CMR services, due to high occupancy rates, are not reasonably available at other inpatient facilities in the district, or at Bon Secours or Jackson Memorial Hospitals. See, Finding of Fact 19. Appropriateness and efficiency of existing facilities providing similar services. Section 381.705(2)(b), Florida Statutes. The district occupancy excluding Jackson Memorial and Bon Secours Hospitals is in excess of 85% which is beyond that considered an efficient or optimal operating levels. Probability of serious access problems in the absence of proposed services. Section 381.705(2)(d), Florida Statutes. Jackson Memorial is the only hospital licensed CMR provider with a CARF accredited brain injury service with only 10 beds available. This creates a serious access problem for patients with third party payors requiring their treatment in CARF accredited brain injury units.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Health and Rehabilitative Services issue a Final Order approving Certificate of Need application number 6654 for the establishment of a 45-bed comprehensive medical rehabilitation unit and program by HealthSouth Rehabilitation Corporation, d/b/a HealthSouth Regional Rehabilitation Center. RECOMMENDED this 23rd day of June, 1992, at Tallahassee, Florida. ELEANOR M. HUNTER 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 23rd day of June, 1992.
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
