Findings Of Fact The Parties (In their stipulation, the parties have stipulated to each Petitioner's standing and that of the intervenors) Hillsborough County Hospital Authority (Tampa General) is an existing acute care hospital at Davis Island, Tampa, Florida. It provides a full range of health care services, from basic acute care services to sophisticated tertiary services. South Miami Hospital, Inc. (South Miami Hospital) is an acute care hospital in Dade County, Florida, and is an existing licensed and approved provider of comprehensive medical rehabilitation inpatient services (CMR). Naples Community Hospital is a not-for-profit hospital in Collier County, Florida, providing CMR services, among other services. St. Mary's Hospital, located in Palm Beach County, is a not-for-profit hospital providing CMR, among other services. Adventist Health System/Sunbelt, Inc. (Florida Hospital) has acute care facilities in Orlando, Altamonte Springs and Apopka, Florida, and is an existing provider of CMR services. HealthSouth Rehabilitation Corporation (Healthsouth) is an existing provider of CMR services, which currently owns and operates inpatient facilities in Florida. The Florida Department of Health and Rehabilitative Services (HRS) is the agency of the state designated by statute to administer the certificate of need (CON) program. Origin of the Rule CMR is a sophisticated service involving a team of experts working to restore a patient's functions following a severe disability such as a stroke, brain injury, or spinal cord injury. Because this service requires highly- trained, highly qualified specialists, CMR is considered a referral service to be concentrated in a few facilities; it would not be desirable to have CMR services available in every facility, as distinguished from less sophisticated levels of rehabilitation services that are more readily available. CMR was specifically designated by the legislature as a tertiary health service in 1987 revisions to the CON laws. "Tertiary health service" is defined as: ...a health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost- effectiveness of such service. Section 381.702(20), F.S. HRS developed its first CON rule addressing CMR services in 1982, wherein it adopted standards and a need methodology for review of CON applications for new or expanded CMR services. Rule 10-5.039, F.A.C. When HRS first adopted its CMR rule, the services were newly developing in Florida, and there were only two existing providers. Given the lack of historic experience and data by which to judge the need for additional services in Florida, HRS adopted its rule based on standards that had been developed in other states, where CMR services were better established. The original version of the CMR rule includes a need methodology which calculates numeric need for additional CMR hospital beds by allotting a fixed ratio of CMR beds to the number of projected acute care discharges for the projected population in a given HRS service district for the planning horizon year, five years into the future, so that the district's CMR beds will be utilized at the desired occupancy rate of 85%. Rule 10-5.039(2)(a), F.A.C. The existing rule also includes a separate standard which requires existing CMR beds in the HRS service district to have achieved an average annual occupancy rate of 85% before more CMR beds will normally be approved. Rule 10- 5.039(2)(b)2., F.A.C. The CMR rule also contains a geographic access standard, providing that CMR services should be available within two hours' drive time under normal conditions to 90% of the target population. Rule 10-5.039(2)(c)3, F.A.C. CMR services have developed in Florida over the past decade so that there are now hospital providers of CMR services in each of the eleven HRS service districts; and with the exception of the Florida Keys, all areas in Florida are within the two-hour normal drive-time access standard. Utilization of existing CMR beds has also grown over the years, although in many areas in Florida the average utilization is still below the desired minimum rate of 85%. HRS reasonably interprets the CMR bed inventory and utilization data to indicate that CMR services are now available and accessible throughout the state of Florida. HRS has not been presented with any evidence, and no evidence was presented at the final hearing in this proceeding, to show that patients in need of hospital CMR services are experiencing problems accessing those services within the two-hour drive-time standard. The development of CMR beds has exceeded the fixed rate contemplated by the existing need methodology because HRS has applied the existing rule flexibly, approving additional CMR beds in some instances despite the lack of numeric need. In some HRS districts, CMR beds are very highly utilized; and as a result, HRS approved a large number of CMR beds in the last CON review cycle despite the lack of numeric need. HRS' proposed CMR rule amendments are the result of a need to take into account the current development of CMR services in Florida. Following internal discussion, HRS convened a work group in December 1990 composed of representatives of existing providers as well as those interested in developing CMR services. HRS also solicited and received comments from providers and from local health councils in the eleven HRS districts. HRS first published proposed amendments to the CMR rule in May 1991. A public hearing was held and challenges to the proposed amendments were filed. HRS then convened another public meeting to reconsider its proposed amendments, and as a result of the input, made some changes to the first published version of the amendments. Following those changes, HRS republished the proposed amendments in the fall of 1991, and those are the amendments at issue in this proceeding. Definitions - 10-5.039(2)(b) & (2)(k) Although the definition of "charity care", as provided in proposed rule 10-5.039(2)(b), remained an issue to be litigated at final hearing, none of the challengers presented any evidence to show that the definition was unreasonable or an invalid delegation of legislative authority. The definition is specific and unambiguous. It details what constitutes charity care and distinguishes charity care from bad debt, discounts and other non-or partial payments. Proposed rule 10-5.039(2)(k) defines the term "specialty beds" as follows: A category of hospital inpatient beds for which the department has promulgated a separate rule specifying need determination criteria, including burn unit beds, hospital inpatient general psychiatric beds, hospital inpatient substance abuse beds, Level II and Level III neonatal intensive care unit beds; and the comprehensive medical rehabilitation inpatient beds regulated under this rule. This definition of specialty bed is consistent with other CON rules, for example, rules 10-5.040, 10-5.041 and 10-5.042, F.A.C., relating to psychiatric, substance abuse and neonatal intensive care services. It is also consistent with the hospital licensure statute which defines general beds as those for which the department has not adopted a specialty need methodology. Section 395.003(4), F.S., (1991). Contrary to the claim raised by Naples, the noninclusion of intensive care unit (ICU) beds does not offend the validity of this definition. A hospital license will state only the number of acute care beds, rehabilitation beds and other types for which HRS has adopted a specialty methodology. Proposed Need Methodology - 10-5.039(5)(c) The proposed amendments include a revision to the need methodology to change it from the fixed-ratio calculation (target rate methodology) described in paragraph 6, above, to a utilization-based calculation. A utilization-based numeric need methodology applies the historic utilization rate of health service to the projected future population, and is a generally-accepted health planning tool for assessing need. Healthsouth's expert raised what he admitted was the "standard objection to utilization-based methodologies" (Davidson, Tr. 278, 304), that the proposed methodology would perpetuate existing referral patterns among the eleven HRS districts, and the resulting discrepancies in use of CMR services in those districts. However, he had no evidence that the existing referral patterns are inappropriate; instead, he suggested HRS had to prove that the existing patterns are appropriate. He also admitted the anomaly that in those districts with the lowest ratio of CMR beds to population, there is also the lowest average occupancies, and said that he would not advocate approving more beds in those districts to raise their bed ratio to that experienced in other districts, when there are already empty beds. HRS considered the disparity in use rates, and its investigation revealed no empirical data to explain the difference, other than existing physician referral patterns which it cannot change. The occupancy rate adjustment in the need methodology allows those districts where the use rate is low to increase the supply over time, hence the existing patterns are not necessarily perpetuated. The Department developed a utilization based methodology because there currently exists sufficient bed capacity to meet the current need for CMR services. Likewise, use rates for CMR services differ from district to district. The demand approach model is entirely consistent with HRS' approach in other need methodologies. Critics of the proposed need methodology for CMR services argue that it will not generate enough numeric need to allow for approval of new providers. However, that observation alone is insufficient to show that the new methodology is arbitrary, capricious, or otherwise invalid. In fact, the new methodology generates substantially more numeric need than that of the existing rule. If HRS had not recently approved 250 new CMR beds, the proposed methodology would show a net numeric need. The need methodology critics also complain about the methodology's continued incorporation of 85% to adjust numeric need to the desired occupancy rate for CMR beds. No evidence was presented to HRS in its rulemaking process or in this final hearing to demonstrate that 85% is an inappropriate target for utilization of existing CMR beds. Instead, the evidence supported continued use of 85% as the desired occupancy standard, since CMR is a tertiary service, an expensive service and a lucrative service. HRS appropriately encourages existing providers to fill their beds to the maximum extent possible before approving new beds. At most, the critics suggest that an 85% target utilization rate might be too high for individual facilities in HRS districts where there exists seasonal fluctuation for CMR utilization, particularly where the facility has a limited number of CMR beds. HRS investigated the seasonal variations for CMR services, and found that variation was insignificant in almost all of the HRS service districts, and was not experienced at the same times of the year for all facilities within those districts that did show a seasonal fluctuation. HRS reasonably concluded that the seasonal fluctuations for CMR which affect individual facilities are not appropriately addressed in a methodology of statewide applicability. Even in the HRS districts where there are seasonal fluctuations, no evidence was presented that patients are experiencing serious problems accessing CMR services within a two-hour drive time. Instead, the critics could only assert that high utilization at specific facilities might mean that patients could not obtain CMR services at the facility of their choice. If seasonal fluctuations at a particular facility were to translate into serious access problems for CMR patients, then HRS would consider that as a possible "not normal" circumstance justifying approval of more beds, notwithstanding a lack of numeric need or compliance with the occupancy standard. HRS reasonably complied with the legislative directive that CMR services be regulated as tertiary health services, concentrated in a limited number of hospitals, in addressing numeric need for additional CMR services in its proposed rule. HRS also reasonably took into account the nature of CMR services, which are not acute, emergency services, but are scheduled services. Opponents to the numeric need methodology instead admit they simply disagree with the legislature. Threshold Occupancy Rate - 10-5.039(5)(d) In its proposed rule, HRS establishes a threshold occupancy rate of 80 percent. Normally, no additional CMR beds will be approved unless the average annual occupancy rate of all existing CMR providers in the district is at 80 percent. Because the significant factor in a utilization based methodology is population growth, a threshold occupancy is a necessary safeguard against overprojecting the need for beds. Also, a lower threshold allows for the appropriate achievement of the desired occupancy rate (85 percent) in the appropriate planning horizon year. Otherwise, future need could be stifled by an 85 percent threshold occupancy rate, as explained by HRS spokeswoman, Elfie Stamm. Challenges to this provision were split: some argued it should be higher; others argued it should be lower, or that there should be no threshold occupancy rate. However, no expert was inclined to state that the proposed threshold occupancy rate was wrong. Likewise, critics agreed that a minimal occupancy threshold was necessary to ensure the maintenance of service levels, staff, and staff salaries by existing providers. A threshold occupancy rate helps ensure efficiency and protects existing CMR providers from undue harm which may be caused by the approval of a new CMR program. Although the proposed threshold occupancy rate is more liberal than in the current rule, it appears to be reasonable and justified given the current expansion in utilization of CMR services. It provides a balance between the need for expansion and the need to avoid too hasty expansion. Although the difference in threshold occupancy rate and projected occupancy rate is a departure from HRS' methodologies for other services, it is a rational approach to a service in the state of flux. Facility-specific Provisions - 10-5.039(5)(e) Subsection (5)(e) of the proposed rule contains a facility-specific provision allowing under certain circumstances, approval of a highly utilized existing provider for additional CMR beds regardless of available bed capacity within a district. Specifically, this provision authorizes more beds for facilities which experience at least 90 percent average occupancy for two recent consecutive quarters and meet one of two conditions: (1) the facilities' highly utilized beds are devoted to a specialty type of CMR not otherwise available in the district; or (2) the applicant is a disproportionate share provider with a history of providing Medicaid and charity care in its CMR beds. Critics of the facility-specific expansion provision do not claim that facilities meeting the criteria in (5)(e) should not be allowed to expand. Instead, they assert simply that HRS should have written the provision differently so that more existing providers would qualify for expansion. If an existing provider does not satisfy (5)(e), however, that does not mean that HRS would not consider its application upon a showing of not-normal circumstances. HRS simply addressed in this provision those circumstances in which it would always find a bed award to be appropriate. As to the first condition, critics claim that reference to specialty CMR services that are accredited by the Commission on Accreditation of Rehabilitation Facilities (CARF) is ambiguous because CARF accredits comprehensive inpatient rehabilitation as one specialty category, as well as particular types of CMR, such as spinal cord injury or brain injury programs. However, in the context of a CON rule addressing the specialty service of CMR, HRS' stated intention that the condition apply to sub-specialties within CMR, and not to CMR generally, is clear. If a CMR facility had an overall high occupancy rate but did not have a high occupancy rate in its specialty program, it would not satisfy the facility-specific expansion provision. However, it could convert some of its specialty beds to general CMR beds and level out the occupancy rates. There is no regulatory impediment to such a conversion, since HRS does not lock providers into the number of specialty CMR beds they operate. CARF accredits programs, not beds. Although CARF apparently requires a CMR provider to report the number of beds devoted to each program, it also appears that a CMR provider can simply notify CARF of changes in the size of its various CMR programs. The evidence indicates that disproportionate providers should be considered for beds because it would help facilities in cost-shifting or supplementing the costs of providing care to Medicaid and indigent patients. Encouragement of the provision of services to Medicaid and indigent patients is a matter of state policy. Conversion of underutilized beds per Rule 10-5.039(5)(f)2. The proposed rule requires general acute-care hospital applicants to normally convert general acute-care beds for CMR beds, if they cannot reasonably project a 75% annual occupancy rate for those acute-care beds within a five-year planning horizon. Although the provision calls for these projections to be based upon historical utilization patterns, the Department considers all factors presented by an applicant for projecting future occupancy. In making its decisions, the Department must adhere to generally acceptable health planning principles. Florida has a significant problem with an excess amount of licensed acute-care beds. Currently, Florida has a surplus of over 5,000 acute-care beds. This excess capacity is not expected to be reduced until the year 2000. In order to reduce this excess capacity, the department gives preferences to hospitals proposing to convert underutilized acute-care beds. This is consistent with recommendations of the State Health Plan. Conversion is a reasonable and flexible mechanism to reduce the excess number of acute care beds. The critics' charges that this provision would require conversion of intensive care beds and that providers are not allowed to convert other underutilized beds are not valid. A hospital may freely choose whichever kinds of general acute-care beds it wishes to convert; the Department, historically, has considered the conversion of other underutilized beds (for example, psychiatric beds) and this provision is not intended to halt this practice. Priority Considerations - 10-5.039(5)(g) The proposed rule adds a provision giving priority consideration (preferences) to certain applicants who seek to add or establish CMR beds. These applicants include disproportionate share providers (Medicaid and charity care), providers proposing to serve Medicaid-eligible patients, and designated trauma centers. Preferences for disproportionate share providers and Medicaid providers are consistent with statutory certificate of need review criteria and the State Health Plan. See, Sections 381.705(1)(a), (h), (n), F.S. (1991). The preference given to designated trauma care centers is reasonable because these facilities are equipped to, and frequently do, treat patients with spinal cord injuries, strokes or other conditions which need follow-up CMR services. By this preference, the Department reasonably encourages the development and location of CMR services at facilities which have the necessary equipment and specialists to handle such patients. Generally, it is more cost effective to concentrate related services in the same facility. Utilization Reports - 10-5.039(10) Proposed Rule 10-5.039(10) requires: Facilities providing licensed comprehensive medical rehabilitation inpatient services shall provide utilization reports to the department or its designee, as follows: Within 45 days after the end of each calendar quarter, facilities shall provide a report of the number of comprehensive medical rehabilitation inpatient services discharges and patient days which occurred during the quarter. Within 45 days after the end of each calendar year, facilities shall provide a report of the number of comprehensive medical rehabilitation inpatient days which occurred during the year, by principal diagnosis coded consistent with the International Classification of Disease (ICD-9). Utilization data is an important ingredient in the planning of CMR services and the operation of the agency's CON program. HRS intends to designate the local health council as its designee for data collection. The department is authorized to require the submission of information from health care facilities in order to carry out its statutory responsibilities. Section 381.703(4)(b), F.S. (1991). Although other regulatory bodies besides the CON office of HRS might have the ability to mandate and collect the same data, none of them do so now; the form of data requested by this proposed rule provision is necessary for the rule's need methodology. 10-5.039(11): Applicability of the Amended Rule An applicability clause establishes that the amended rule shall not be applied retroactively. In other words, the Department does not intend to apply the proposed rule to applications pending in the review process or in litigation at the time the rule becomes effective. This is consistent with the department's fixed need pool rules. Since the amended rule presents a new methodology quite different from the current rule, prospective application ensures predictability for a provider. None of the parties presented any evidence with respect to unreasonableness of applying the amended rule in a prospective manner. Economic Impact Statement Pursuant to Section 120.54(2), Florida Statutes, HRS prepared an economic impact statement for the proposed rule. While the validity of HRS' economic impact statement was raised as an issue by several challengers, no evidence or testimony was presented to prove their challenge. Likewise, the challengers further failed to show how they were prejudiced by HRS' economic analysis. Issues Raised by Intervenor, Healthsouth Intervenor, Healthsouth, in its petition and at hearing raised issues beyond the scope of the challengers' petitions filed prior to the statutory 21- day deadline. Evidence was received under advisement pending an opportunity for counsel for Healthsouth to present her legal arguments as to why it should be considered. Respondent, HRS, and other parties objected to evidence on new issues and those objections were preserved. As more fully addressed in the following conclusions, those issues are considered beyond the scope of this proceeding. Even had the issues specially raised by Healthsouth been timely, no competent evidence was presented to show the rule as a whole is invalid or that it unreasonably inhibits growth of free standing facilities. Proposed Rule 10-5.039(3)(c), F.A.C. provides: (c) Minimum Number of Beds. A general hospital providing comprehensive medical rehabilitation inpatient services should normally have a minimum of 20 comprehensive medical rehabilitation inpatient beds. A specialty hospital providing comprehensive medical rehabilitation inpatient services shall have a minimum of 60 comprehensive medical rehabilitation inpatient beds. Hospitals with licensed or approved comprehensive medical rehabilitation inpatient beds as of the effective date of this rule are exempt from meeting the requirements for a minimum number of beds. (emphasis provided) There exist already in the state a significant number of free-standing rehabilitation facilities, because investor-owned facilities took the initiative in the beginning to file applications and obtain approvals. Those existing free-standing facilities and general hospitals will both benefit from the proposed rule which generates a greater bed need than the existing rule. HRS has appropriately determined that it is generally more cost effective to utilize existing facilities, through conversion or expansion, than to start with a new facility. This determination is not unique to CMR, but is consistent with the methodologies governing other health care services in the CON program.
The Issue The issue in this case is whether the methodology for grouping hospitals adopted by the HCCB pursuant to Sections 4D- 1.03, 4D-1.12(1) and 4D-1.12(2), F.A.C., constitutes an invalid exercise of delegated legislative authority as being arbitrary or capricious? Mercy has also raised one issue as to whether the grouping methodology is violative of constitutional guarantees of administrative equal protection and due process. This issue, however, is beyond the jurisdiction of the Division of Administrative Hearings.
Findings Of Fact Introduction. The HCCB and Its Hospital Grouping Function. The HCCB was formed pursuant to Part II of Chapter 395, Florida Statutes (1979). The HCCB was created pursuant to the specific authority of Section 395.503, Florida Statutes (1979), in order to further the accomplishment of legislative intent contained in Section 395.5025, Florida Statutes (1984 Suppl.): It is the intent of the Legislature to assure that adequate health care is affordable and accessible to all the citizens of this state. To further the accomplishment of this goal, the Hospital Cost Containment Board is created to advise the Legislature regarding health care costs; inflationary trends in health care costs; the impact of health care costs on the state budget; the impact of hospital charges and third-party reimbursement mechanisms on health care costs; and the education of consumers and providers of health care services in order to encourage price competition in the health care marketplace. The Legislature finds and declares that rising hospital costs and cost shifting are of vital concern to the people of this state because of the danger that hospital services are becoming unaffordable and thus inaccessible to residents of the state. It is further declared that hospital costs should be contained through improved competition between hospitals and improved competition between insurers, through financial incentives which foster efficiency instead of inefficiency, and through sincere initiatives on behalf of providers, insurers, and consumers to contain costs. As a safety net, it is the intent of the Legislature to establish a program of prospective budget review and approval in the event that competition-oriented methods do not adequately contain costs and the access of Floridians to adequate hospital care becomes jeopardized because of unaffordable costs. As a part of its responsibilities the HCCB is required, "after consulting with appropriate professional and governmental advisory bodies and holding public hearings, and considering existing and proposed systems of accounting and reporting utilized by hospitals," to specify a uniform system of financial reporting for hospitals. Section 395.507(1), Florida Statutes Suppl.) to: In order to allow "meaningful comparisons" of data reported by hospitals under the uniform system of financial reporting, the HCCB is required by Section 395.507(2), Florida Statutes (1984 Suppl.) to group hospitals according to characteristics, including, but not limited to, a measure of the nature and range of services provided, teaching hospital status, number of medical specialties represented on the hospital staff, percentage of Medicare inpatient days, average daily census, geographical differences, and, when available, case mix. In providing for grouping of hospital, the HCCB is required to establish ten general hospital groups and additional speciality groups "as needed." Section 395.507(2), Florida Statutes (1984 Suppl.). No hospital group can contain fewer than five hospitals, however. Id. Grouping is to be provided by rule. Id. Pursuant to Section 395.509(1), Florida Statutes (1984 Suppl.), every Florida hospital is required to file its budget with the HCCB for "approval." The budget is required to be filed on forms adopted by the HCCB and based on the uniform system of financial reporting. Section 395.507(6), Florida Statutes (1984 Suppl.). To determine whether a hospital's budget is to be approved, all hospitals in Florida are to be placed in groups. A hospital's budget is then compared to the budgets of the hospitals assigned to its group. Hospital groups for this purpose are established pursuant to Section 395.509(4)(a), Florida Statutes (1984 Suppl.). The provisions of Section 395.509(4)(a), Florida Statutes (1984 Suppl.), are identical to Section 395.507(2), Florida Statutes (1984 Suppl.). In determining whether a hospital's budget is to be approved, Section 305.509(2), Florida Statutes (1984 Suppl.), establishes two initial "screens" which a hospital must meet based upon the hospital's gross revenue per adjusted admission. The term "gross revenue" is defined as: the sum of daily hospital service charges, ambulatory service charges, ancillary service charges, and other operating revenue. Gross revenues do not include contributions, donations, legacies, or bequests made to a hospital without restriction by the donors. Section 395.502(11), Florida Statutes (1984 Suppl.). "Adjusted admission" is defined by Section 395.502(1), Florida Statutes (1984 Suppl.), as: the sum of acute admissions and intensive care admissions divided by the ratio of inpatient revenues generated from acute, intensive, ambulatory, and ancillary patient services to gross revenues. Gross revenues per adjusted admission (hereinafter referred to as "GRAA") is therefore the total hospital ambulatory and ancillary service charges and other operating revenue for all acute and intensive care admissions divided by the ratio of inpatient revenues from acute, intensive, ambulatory and ancillary patient services to gross revenue; or, stated more simply , inpatient revenue per admission. The "screens" which must be met in order for a hospital's budget to be approved upon initial determination are: (1) the hospital's GRAA must not be in the upper 20th percentile of the hospitals within its group; and (2) the rate of increase in a hospital's GRAA as contained in its current budget compared to the hospital's GRAA as reported in its most recently approved budget must not exceed a "maximum allowable rate of increase" if the hospital's GRAA is in the 50th to 79th percentile of the hospitals in its group. If a hospital's GRAA is in the 49th percentile or less of the hospitals in its group, its budget is automatically approved. In determining whether a hospital's GRAA fails the screens, Section 395.509(2), Florida Statutes (1984 Suppl.), provides: Percentile values for gross operating revenue per adjusted admission shall be determined monthly by the board for each group established pursuant to s. 395.507(2) by ranking projected gross operating revenues per adjusted admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment. In determining the applicability of paragraph (a) or paragraph (b), the board shall consider the basis of the projections by the hospital, including consideration of the following factors: any increase in patient admissions caused by the creation of preferred provider organizations or health maintenance organiza- tions, population increases, changes in the hospital case mix or in services offered, changes in technology, or other similar factors. If a hospital's GRAA fails either of the screens (its GRAA is in the upper 20th percentile of its group or its GRAA rate of increase is excessive and its GRAA is in the 50th to 79th percentile of its group) that hospital's budget must be reviewed by the HCCB "to determine whether the rate of increase contained in the budget is just, reasonable, and not excessive." Section 395.509(5), Florida Statutes (1984 Suppl.). Pursuant to Section 395.509(6), Florida Statutes (1984 Suppl.), the HCCB is authorized, if it first determines under Section 395.509(5), Florida Statutes (1984 Suppl.), that the hospital's rate of increase is not just, reasonable and not excessive, to amend or disapprove any hospital's budget which does not meet the two screens of Section 395.509(2), Florida Statutes (1984 Suppl.), to establish a rate of increase which is "just, reasonable, and not excessive." The HCCB's authority under Section 395.509(6), Florida Statutes (1984 Suppl.), applies only if the HCCB first complies with the following pertinent provisions of Section 395.509(5), Florida Statutes (1984 Suppl.): The board shall disapprove any budget, or part thereof, as excess that contains a rate of increase which is not necessary to maintain the existing level of services of the hospital or, if the hospital increases its existing level of services, any amount not necessary to accomplish that increase. In making such deterioration . . . the board shall consider the following criteria: The efficiency, sufficiency, and adequacy of the services and facilities provided by the hospital. The cost of providing services and the value of the services to the public. The ability of the hospital to improve services and facilities. The ability of the hospital to reduce the cost of services. The ability of the hospital to earn a reasonable rate of return. The accuracy of previous budget submissions by the hospital compared to the actual experience of the hospital the The number of patient days reimbursed by Medicare or Medicaid. The number of patient days attributable to the medically indigent. The research and educational services provided by the hospital if it is a teaching hospital. The projected expenditures or revenues for or from construction of facilities or new services which are subject to regulation under s. 381.494 may not be included in the budget of a hospital until the construction or services are approved or authorized by the state health planning agency. The cost of opening a new hospital, for first 3 years. The Challenged Rules. In carrying out its duty to establish a uniform system of financial reporting, the HCCB adopted Section 4D- 1.03, F.A.C., which provides: The Board, pursuant to Section 395.505, Florida Statutes, hereby adopts and establishes a uniform system for hospitals to file the prior year audited actual data report, the interim report of financial and statistical information. This system is described and the forms, instructions, and definitions therefor are contained in the Board's publication entitled Hospital Uniform Reporting System Manual. The Chart of Accounts adopted pursuant to Section 395.507(1), Florida Statutes, and this Chapter 4D-1, and as hereafter modified, shall be utilized by each hospital for submitting the prior year audited actual data report, the interim report and the budget report. In order to determine whether a hospital's budget should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), the HCCB adopted Section 4D-1.12, F.A.C. Sections 4D-1.12(1) and (2), F.A.C., provide: The staff shall review the budget report based upon the hospital's ranking for gross revenue per adjusted admission within its group and upon its rate of change in gross revenue per adjusted admission in the proposed budget as required in Section 395.507(6), Florida Statutes, and the most recently Board approved budget. As part of the budget report review process, groupings of hospitals shall be established according to the characteristics and methodology as outlined in Chapter V, Section B, Hospital Unit Uniform Reporting System Manual and as outlined in Section 395.507(2), Florida Statutes. Percentile values for gross revenue per adjusted admission shall be determined monthly for each group by ranking projected gross revenue per adjusted admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment. 12. Sections 4D-1.03 and 4D-1.12(1) and (2), F.A.C., are the rules challenged by Mercy. These rules, as quoted herein, were effective as of November 5, 1984. The rules were originally adopted effective June 30, 1980. The rules were amended to their present wording in response to "major" legislation enacted in 1984 which amended Part II, Chapter 395, Florida Statutes (1983), and granted authority to the HCCB for the first time to approve, disapprove or amend hospital budgets under certain circumstances. Chapter 79-106, Laws of Florida. The challenged rules essentially provide that the HCCB, when grouping of hospitals for purposes of the uniform system of financial reporting and for purposes of reviewing and comparing budgets to determine if they should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), will apply the grouping methodology outlined in Chapter V, Section B of the Hospital Uniform Reporting System Manual (hereinafter referred to as the "Manual"). Section 4D-1.18, F.A.C., also adopted effective November 5, 1984, incorporates by reference the Manual within each rule in Chapter 4D-1, F.A.C., which references the Manual. This rule has not been challenged in this proceeding. The Hospital Grouping Methodology and Its Development. Generally, Chapter V, Section B of the Manual, sets out the objective of the grouping methodology, the procedure for forming groups, a list of the variables considered in forming groups and the weight to be accorded each variable. The goals of the grouping methodology, as provided in the Manual, are to "facilitate comparison of hospitals with similar patient mix and market conditions" and to "develop groups of sufficient size . . . to assure statistically valid comparisons." Based upon the procedure for forming groups contained in the Manual, hospitals are grouped into nine, non-teaching, short-term hospital groups, one Major teaching hospital group and a number of specialty hospital groups. It is the method of grouping hospitals into nine short-term hospital groups which is at issue in this proceeding. Assignment of hospitals to the nine short-term hospital groups is accomplished through the use of the "McQueen's K-means clustering algorithm included in the cluster analysis t computer program package CLAN developed by T.D. Klastorin and Robert Ledingham (June, 1980 version)." A clustering analysis is a method of grouping a set of objects (in this case, hospitals) into relatively homogeneous groups. The goal of a clustering algorithm is to minimize the differences between the members of the group. The objects are grouped based upon a set of variables which are considered significant for purposes of comparing the objects. In order to account for the significance of each variable, the variables are weighted. The variables have a numerical score and after weighing, the weighted sum of the variables for each object is compared and the objects are grouped based upon their variable scores. There are a number of clustering algorithms which can be used to group hospitals. The HCCB chose to use the "McQueen's K-means" clustering algorithm. The use of McQueens K-means clustering algorithm has not bean challenged in this proceeding. Nor does the evidence establish that the selection of McQueen's K-means clustering algorithm is arbitrary and capricious. The clustering algorithm is performed by computer. The computer program utilized by the HCCB to perform the algorithm is called "CLAN" and was developed by T.D. Klastorin and Robert Ledingham. The evidence at the hearing supports a finding that the selection of this computer program is reasonable. Once hospitals are grouped, they are notified of their group designation and allowed to request reconsideration of their group assignment. The request must made within thirty days after notification. Following the creation of the HCCB in 1979, Price Waterhouse & Company was engaged by the HCCB as a consultant to assist in still establishing an appropriate hospital grouping methodology. The HCCB also created an advisory committee to assist the HCCB and Price Waterhouse & Company in developing the grouping methodology. This committee, designated as the Technical Advisory Committee (hereinafter referred to as the "TAC") was comprised of individuals from the hospital industry and academia and certified public accountants. The TAC worked with Price Waterhouse & Company in developing the grouping methodology and the uniform reporting system. Because of time constraints, the TAC's involvement with evaluating the methodology was limited. The HCCB ultimately decided to pattern the grouping methodology it adopted after the grouping methodology then being used by the State of Washington, as recommended by Price Waterhouse & Company. The Washington system was not adopted exactly; a number of changes to Washington's methodology were made to the grouping methodology adopted by the HCCB. Mercy has proposed several findings of fact beginning on page 35 and ending on page 38 of its proposed order concerning the "Differences in Washington Hospital Characteristics and Grouping Methodology Model." Those proposed findings of fact can be and are hereby disposed of by the following finding of fact: because of differences in the hospital industries of the States of Florida and Washington and other differences between the two States, Florida's grouping methodology cannot be justified solely on the basis that Washington's grouping methodology was used as a starting point in developing Florida's grouping methodology. Those differences, however, do not support a finding of fact that Florida's grouping methodology is arbitrary and capricious since the Washington system was not adopted without substantial modifications, including a reduction of Washington's eighteen variables initially to fourteen and ultimately to seven, and the use of unequal weighting of the variables. The TAC reviewed and discussed the grouping methodology initially approved by the HCCB prior to its approval. Some of Mercy's witnesses, who were members of the TAC, indicated during their testimony that the TAC never decided anything because no "vote" was ever taken of TAC members and that the TAC did not advise the HCCB but instead advised the staff of the HCCB. Their testimony in this regard has been given little weight. The fact that no formal "vote" was taken of TAC members does not mean that the TAC did not take a position on matters it discussed. The consensus of the TAC could be, and was, gleaned from its discussions. The staff of the HCCB in fact reported decisions of the TAC to the HCCB verbally and by minutes of TAC meetings. Although the accuracy of staff's reports was sometimes questioned, no question was raised about whether TAC had taken positions. The fact that the HCCB staff reported TAC actions to the HCCB also disputes the testimony to the effect that TAC did not advise the HCCB but instead advised the staff of the HCCB. While it may be true that TAC did not deal directly with the HCCB, its analysis was reported, to the HCCB. The HCCB ultimately adopted rules effective June 30, 1980, which incorporated by reference to the Manual, the general outline of the grouping methodology adopted by the HCCB. The TAC ceased to exist following adoption of the HCCB's initial rules. Two new advisory committees were formed: a Technical Advisory Panel (hereinafter referred to as "TAP") on grouping and a TAP for financial analysis. The grouping TAP was made up of individuals from the hospital industry. The grouping TAP met in November and December of 1980 and reviewed the results of test runs of the grouping methodology initially adopted by the HCCB. The results of the initial run were described as "bizarre." This run used equal weighting of the variables. Equal weighting was abandoned and three to four more test runs were made and reviewed by the grouping TAP. After each run the variable weights were adjusted until the results appeared to be "reasonable." The HCCB also established a committee consisting of members of the HCCB designated as the Research and Development Committee (hereinafter referred to as the "R & D Committee"). The R & D Committee reviewed the results of test runs and also found the final groups reasonable. The HCCB met in January, 1981, and adopted the grouping methodology with the adjusted variable weights arrived at as a result of the test runs for use in establishing hospital groups for use in 1981. The grouping methodology was reviewed every year after its initial adoption in 1980. The methodology was reviewed by the HCCB, HCCB's staff, the TAP's and the R & D Committee each year. Throughout the period from 1980 to the present, criticisms of the grouping methodology have been made. Some of these criticisms were agreed with and others were rejected by the HCCB or its staff. Following review of the grouping methodology by the TAP's and the R & D Committee in 1981, the original fourteen variables were reduced to eight. In January, 1982, the weight of one of the variables was changed and one variable was replaced by another variable. In December, 1982, a variable was deleted; seven variables remained. In 1983, clustering analysis was limited in its application to the formation of short-term acute care general hospital groups. In 1984, following the significant amendment of Chapter 395, Florida Statutes (1983), the HCCB adopted the present challenged rules. The rules were effective November 5, 1984. The only change in the grouping methodology approved by the HCCB was the substitution of the Florida price level index variable for percent of population over age 65. The weight assigned to the Florida price level index was the same as the weight that had been assigned to the percent of population over age 65. The changes made to the grouping methodology in 1984 were first suggested by the staff of the HCCB to the grouping TAP in June of 1984. The grouping TAP met on July 11, 1984 and considered and discussed the proposed changes. A number of problem areas were discussed. Although no test run results were presented at this TAP meeting, they were provided to TAP members before the HCCB adopted the grouping methodology changes. Concerns about the geographic or exogenous variables expressed at the grouping TAP meeting suggested a belief that too much or too little emphasis was being placed on geographic considerations. Mercy has proposed a number of findings of fact beginning on page 33 and ending on page 35 of its proposed order concerning the significance of the changes made by the Legislature in 1984 to Part II of Chapter 395, Florida Statutes (1983). Those proposed findings of fact essentially deal with the fact that the powers of the HCCB after the 1984 amendments may have a more significant impact on hospitals and that, therefore, the grouping methodology is of greater interest to hospitals. Mercy's proposed findings of fact are not, however, relevant in determining whether the challenged rules are arbitrary and capricious. The fact that the effect of the grouping methodology on a hospital may now be different does not mean that the use of the grouping methodology, as modified after the 1984 legislative changes to the law, which was developed when the purpose of grouping was different, is not an appropriate methodology. The evidence does not support such a conclusion. Therefore, to the extent that Mercy's proposed findings of fact under Section II, A, of its proposed order have not already been made, they are rejected as unnecessary. Mercy and the HCCB have proposed findings of fact as to whether Mercy has ever questioned the HCCB's grouping methodology since it was first adopted prior to instituting this proceeding. Those proposed findings of fact are not deemed relevant in determining whether the grouping methodology is arbitrary and capricious. If the grouping methodology is in fact arbitrary and capricious, the fact that Mercy did not challenge the methodology when it was first adopted will not make it any less arbitrary and capricious today. Mercy's Challenge. A. Introduction. Mercy is a not-for-profit, general acute care hospital with 550 licensed beds located in Dade County, Florida. Mercy has raised a number of points in this proceeding and its proposed order in challenging the rules in question. All of those points, according to Mercy, prove that the rules are an invalid exercise of delegated legislative authority. In determining whether the facts support such a conclusion, the following standard must be kept in mind: [I]n a 120.54 hearing, the hearing officer must look to the legislative authority for the rule and determine whether or not the proposed rule is encompassed within the grant. The burden is upon one who attacks the proposed rule to show that the agency, if it adopts the rule, would exceed its authority; that the requirements of the rule are not appropriate to the ends specified in the legislative act; that the requirements contained in the rule are not reasonably related to the purpose of the enabling legislation or that the proposed rule or the requirements thereof are arbitrary or capricious. A capricious action is one which is taken without thought or reason or irrationally. An arbitrary decision is one not supported by facts or logic or despotic. Administrative discretion must be reasoned and based upon competent substantial evidence. Competent substantial evidence has been described as such evidence as a reasonable person would accept as adequate to support a conclusion. Agrico Chemical Company v. State, Department of Environmental Regulation, 365 So.2d 759, 763 (Fla. 1st DCA 1978), cert. denied, 376 So.2d 74 (1979). Additionally, the following must be kept in mind: The well recognized general rule is that agencies are to be accorded wide discretion in the exercise of their lawful rulemaking authority, clearly conferred or fairly implied and consistent with the agencies' general statutory duties. . . . An agency's construction of the statute it administers is entitled to great weight and is not to be overturned unless clearly erroneous. . . . Where, as here, the agency's interpretation of a statute has been promulgated in rulemaking proceedings, the validity of such rule must be upheld if it is reasonably related to the purposes of the legislation interpreted and it is not arbitrary and capricious. The burden is upon petitioner in a rule challenge to show by a preponderance of the evidence that the rule or its requirements are arbitrary and capricious. . . . Moreover, the agency's interpretation of a statute need not be the sole possible interpretation or even the most desirable one; it need only be within the range of possible interpretations. Department of Professional Regulation v. Durrani, 455 So. 2d 515, 517 (Fla. 1st DCA 1984). The witnesses who testified in this proceeding who were accepted as experts were qualified in a number of different areas. Those witnesses qualified as experts in statistical analysis or related areas and health care finance rendered opinions as to the appropriateness of the HCCB's grouping methodology. The method of grouping hospitals adopted by the HCCB is a statistical method. Therefore, the determination of whether the HCCB's methodology is arbitrary and capricious depends largely upon whether the methodology is statistically sound. Mercy and the HCCB therefore presented the testimony of witnesses qualified in the area of statistics: Rick Zimmerman, Ph.D., an expert in statistical analysis and social science statistics (for Mercy), and Duane Meeter, Ph.D., an expert in economics and applied statistical analysis and Frank Fox, Jr., Ph.D., an expert in applied statistics (for the HCCB). All three witnesses were knowledgeable and credible. Dr. Zimmerman testified that the HCCB's grouping methodology was "clearly inappropriate." Dr. Zimmerman's opinion was based upon a three step analysis in which he determined: (1) whether the variables selected by the HCCB are appropriate; (2) whether the weights assigned to the variables by the HCCB are appropriate; and, (3) the effect changing the variables and/or weights would have on hospital groups. The results of Dr. Zimmerman's analysis, which formed the basis for his opinion that the HCCB's grouping methodology is not appropriate, are discussed, infra. Mercy has proposed a number of findings of fact in its proposed order concerning the credibility of Dr. Meeter's and Dr. Fox's testimony. Some of those proposed findings of fact have been considered in determining the weight given to their testimony. Both Dr. Meeter and Dr. Fox were, however, knowledgeable and credible. In addition to the opinion of its statistical expert, Mercy presented the testimony of three witnesses who were accepted as experts in health care finance: Messrs. Lawrence R. Murray, Jerry A. Mashburn and Anthony Krayer. All three are certified public accountants. All testified that it was his opinion that the HCCB's grouping methodology was arbitrary. The bases for their opinions are discussed, infra. Selection of "Seed" Hospitals. In order to use a clustering algorithm, a starting point is needed; the first object (hospital) to be placed in each group must be selected. The first objects selected are called "seed" objects. Mercy has attached the HCCB's method of selecting the nine "seed" hospitals in initially performing the McQueen's K-means clustering algorithm. Mercy has proposed the following findings of fact with regard to this point: While none of the parties challenged the use of McQueen's and the CLAN program, no support was offered during the hearing for the method by which the HCCB had selected the nine seed hospitals as initial clustering points. The HCCB's own statistician criticized the HCCB's selection method. The Rankis-Zimmerman report indicates that the final groupings based upon the HCCB's seed hospitals were vastly different than groupings based upon the utilization of seed hospitals selected on a statistical basis. Both the HCCB's and Mercy's statisticians proposed statistically sound methods for selecting seed hospitals, which had not been employed by the HCCB in the Grouping Methodology. [Citations omitted] These proposed findings of fact are not relevant to this proceeding. The burden is on Mercy to show that the selection of "seed" hospitals was arbitrary and capricious; the HCCB is not required to show "support" for its method of selecting the seed hospitals. Additionally, whether there are other methods of selecting seed hospitals is not the test. The HCCB's interpretation of the statute need not be the sole interpretation or even the most desirable one; it only needs to be within the range of possible interpretations. Durrani, supra. Therefore, even if the Rankis-Zimmerman report does indicate that the final groupings of hospitals of the HCCB were vastly different than groupings based upon other methods of selecting seed hospitals, it does not automatically follow that the HCCB's method of selecting seed hospitals was not "within the range of possible interpretations. The weight of the evidence does not prove that the HCCB's method of selecting seed hospitals was arbitrary and capricious. Selection of the Variables. In delegating legislative authority to the HCCB to establish a grouping methodology, the Legislature provided that the following relevant characteristics are to be taken into account: A measure of the nature and range of services provided; Number of medical specialties represented on the hospital staff; Percentage of Medicare inpatient days; Average daily census; Geographic differences; and Case mix, "when available." In response to the Legislature's mandate, the HCCB has adopted seven variables or characteristics. The variables selected by the HCCB include five hospital- specific (endogenous) variables and two geographic (exogenous variables). The variables are as follows: Endogenous Variables: Average occupied beds. Available services. Physician mix. Number of residents. Percent Medicare days. Exogenous Variables: Florida price level index. Personal income. The following findings of fact are made with regard to each of the specific characteristics required to be taken into account by the Legislature and the variables adopted by the HCCB: 1. A measure of the nature and range of services provided. The HCCB has provided in the Manual that "available services" or a service index will be considered. The specific services considered are listed on Table B, Chapter V, of the Manual. Table B also weights or provides a score for each of the various services listed. Each hospital gets the specified score if it has a particular service available. The available services listed are based upon a survey of hospital administrators and chief financial officers in New York, New York, made in the 1970's. Problems with the list of available services have been pointed out to the HCCB and its staff. The primary problem is that the volume of services provided is not taken into account. The problems with the service index, however, relate to the fact that the service index is a proxy for case mix. To date, there is no alternative available which would be a better proxy for case mix. The Legislature contemplated this fact by providing that a measure of the services provided by a hospital will be considered and that case mix will be taken into account "when available." Therefore, while there are "problems" with the service index, consideration of available services is mandated by the Legislature and there are no acceptable alternatives available use for by the HCCB. 2. Number of medical specialties represented on the hospital staff. 52. The HCCB has provided that a physician specialties mix be considered in grouping hospitals. This physician specialties mix is based upon a list of twenty- six specialties for which a hospital gets a single credit for each specialty available regardless of the number of physician specialists available in each specialty or the volume of patients admitted by a physician. 52. Like the service index, the physician specialties mix is a proxy for ease mix and has problems associated with its use. Also like the service index, consideration of this factor is mandated and there are no acceptable alternatives available for use by the HCCB. 3. Percentage of Medicare inpatient days. 53. The HCCB has provided that "percentage Medicare days be considered in grouping hospitals. Consideration of this variable has not been shown to be arbitrary and capricious. 4. Average daily census. 53. The HCCB has provided that "average occupied beds" is to be considered in grouping hospitals. It does not appear that this variable's use was proper, as discussed, infra. 5. Geographic differences. The HCCB has provided that geographic differences be considered in grouping hospitals by providing for the inclusion of the Florida price level index, by county, and median income, by county, as variables to be considered. The only thing that the evidence established with regard to these variables was that they are not "very good" predictors, that "if" they are intended as a measure of input prices they are "poor substitutes," and that there may be "better" measures of the cost of doing business. The evidence does not, however, show that the use of these variables is arbitrary and capricious. Mercy has proposed a number of findings of fact concerning geographic influences in part II, H of its proposed order. The proposed findings of fact begin on page 29 and end on page 33. Most of these proposed findings of fact are not made in this Final Order because they are not deemed relevant or material and are unnecessary to the resolution of this proceeding. The proposed findings of fact contained in part II, H of Mercy's proposed order purportedly show that the HCCB has inadequately accounted for geographic influences. The evidence does establish that the financial characteristics of Florida hospitals and GRAA are affected by the geographic location of a hospital. This is especially true in Florida because of the impact on parts of the State from tourism, language barriers, the number of elderly residents, the available labor markets, and competition. It is also true that the combined weights of the two geographic variables the HCCB has selected for consideration in the grouping methodology--the Florida price level index and median income--is only one-seventh of the combined weights of all the HCCB's variables. It is also true that the grouping methodology results in hospitals from different areas of the State being grouped together, i.e., Mercy's hospital group includes twenty- three hospitals, four of which are located in Dade County and three of which are located in Escambia County. It does not necessarily follow, however, that the HCCB has been arbitrary and capricious in designating only two variables to take into account geographic differences between hospitals. The evidence also does not support a conclusion that it was not proper for the HCCB to limit the weight of the geographic variables to one-seventh of the total weight of the variables. Nor does the evidence demonstrate that the inclusion of hospitals from different areas of the State in the same group is not a proper result just because geographic influences are important. The fact that a large percentage of Dade County and south Florida hospitals do not qualify for automatic approval of their budgets under Section 395.509(2), Florida Statutes (1984 Suppl.), because they are in the upper 20th and the upper 50th to 79th percentiles does not necessarily prove that geographic influences have not been adequately accounted for either, as suggested be Mercy on page 30 of its proposed order. The evidence simply does not support such a conclusion. Nor does it necessarily follow that because Dade County hospitals are "efficient" in the minds of some of Mercy's witnesses and yet are unable to achieve automatic approval of their budgets that the grouping methodology does not adequately account for geographic influences, as suggested by Mercy on pages 30 and 31 of its proposed order. First, the Legislature has provided that factors other than geographic differences are to be considered, which the HCCB has provided for. It may therefore be that some Dade County hospitals do not achieve automatic approval of their budgets because of the other variables. The fact that not all Dade County hospitals fail to achieve automatic approval of their budgets supports such a conclusion. Also, even though a hospital's budget is not automatically approved it does not necessarily mean that it is considered inefficient. If that were the case, its budget would probably be subject automatically to amendment or disapproval. That is not the case. If a hospital's budget is not automatically approved its budget is subject to further review under Section 395.509(5), Florida Statutes (1984 Suppl.). It may still be determined that the hospital is "efficient" based upon this review. The Legislature, in enacting Part II of Chapter 395, Florida Statutes, did indicate that it intended to promote competition and efficiency among hospitals in order to contain hospital costs. Section 395.5025, Florida Statutes (1984 Suppl.). The grouping methodology and, in particular, the comparison of hospitals' GRAA under Section 395.509(2), Florida Statutes (1984 Suppl.), does not alone achieve that intent. Therefore the opinion of several of Mercy's witnesses that Dade County hospitals and in particular, Mercy, are efficient does not support a conclusion that the methodology is arbitrary and capricious or that geographic influences are not adequately considered. On pages 31 and 32 of its proposed order, Mercy suggests that Dade County hospitals only compete with other Dade County hospitals and therefore grouping hospitals from all sections of the State is illogical. In support of this suggestion, Mercy proposes findings of fact to the effect that the HCCB has recognized that consumers are interested in comparing hospital charges on a regional basis and has provided information about hospital cost on a county-by- county basis in the past. Mercy's proposed findings of fact are not accepted for essentially the same reasons that its proposed findings of fact with regard to the efficiency of hospitals were rejected. These proposed findings of fact do not support a finding that the HCCB's grouping methodology is arbitrary and capricious or that geographic differences have not been adequately taken into account. Mercy's has also proposed findings of fact with regard to geographic differences to the effect that after the Legislature specifically required that "geographic differences" be considered in an amendment to Chapter 395, Florida Statutes (1981), in 1982, the HCCB has not added any additional geographic factors to be considered. Although no additional geographic variables have been added, geographic variables have been reviewed and have been changed since 1982. More importantly, these proposed findings of fact do not prove that the existing variables are not adequate. 6. Case Mix. 66. Case mix is to be taken into account "when available." The evidence does not establish that case mix is available at this time. 7. Other variables. The HCCB is not limited to a consideration of the factors which the Legislature specifically provided are to be considered. Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.). The only other variable the HCCB has provided for consideration is "number of residents." No evidence of significance concerning this variable was presented at the hearing. There was testimony at the hearing that there are other variables which would be appropriate for consideration in grouping hospitals. The evidence does not, however, establish that failure to consider other variables means that the grouping methodology adopted by the HCCB is arbitrary and capricious. Dr. Zimmerman opined that he had determined that the variables selected by the HCCB were not appropriate. Dr. Zimmerman based his opinion upon the fact that he had conducted a "multiple regression analysis." According to Dr. Zimmerman, a "multiple regression analysis is a statistical procedure used to evaluate the relationship of a given set of independent, predictor variables (the HCCB's seven variables) to a single dependent variable (GRAA)." Based upon his application of multiple regression analysis, Dr. Zimmerman concluded that three of the variables used in the HCCB's grouping methodology are not statistically significant predictors of GRAA: available services, average occupied beds and median income. Two of these variables (available services and average occupied beds) are required by Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), to be taken into account in the grouping methodology. These Sections also require that geographic factors, which median income is, be taken into account. This does not, however, mean that median income must be included as a variable by the HCCB. Dr. Meeter testified that the statistical significance of the HCCB's variables can be determined by the use of "log transformation." Based upon Dr. Meeter's use of log transformation, median income and available services are statistically significant variables; average occupied beds is not statistically significant. Although the HCCB was required to include "average daily census" as a factor in grouping hospitals, the HCCB was not required to use "average occupied beds." Based upon Dr. Zimmerman's and Dr. Meeter's testimony, the use of average occupied beds as a variable was not proper. Whether the use of available services and median income as variables was proper depends upon whether log transformation is a proper method of determining the statistical significance of variables. Although the evidence on this question was in conflict, it appears that the use of log transformation was proper. The inclusion of available services and median income is therefore not arbitrary and capricious. A second problem with the variables used by the HCCB suggested by Dr. Zimmerman involves the correlation between the seven predictor variables or "multicollinearity." The existence of multicollinearity can invalidate a clustering program. Dr. Zimmerman determined that the correlation between the physician mix, available services and average occupied beds variables and between the Florida price level index and median income variables is large enough that there is a "potential" problem. Dr. Zimmerman's determination that there is a "potential" problem was made through two techniques. He first used "paired correlation." Based upon paired correlation, Dr. Zimmerman used a "rule of thumb" that a paired correlation of 0.7 or higher should be looked at closer. Finding a paired correlation between physician mix, available services and average occupied beds of .74 and between the Florida price level index and median income of .71, Dr. Zimmerman then calculated "R squared" to determine if a potential problem did in fact exist. Dr. Zimmerman indicated that the calculation of R squared is the most highly recommended method of determining if multicollinearity is a problem but agreed there are other methods of making such a determination. Dr. Meeter indicated that Dr. Zimmerman's rule of thumb that based upon paired correlations of 0.7 or higher indicates the problem should be looked at more closely is too strict. Other than Dr. Zimmerman's "experience" (which according to Dr. Zimmerman, consisted of a class he took), Dr. Zimmerman did not cite any authority which supported his rule of thumb. The only other source Dr. Zimmerman referred to--the "SPSS" manual--only indicates that the .82-1.0 range indicates that extreme collinearity exists. Another problem raised by Dr. Meeter with Dr. Zimmerman's conclusions as to multicollinearity, involves the use of "variance inflation factors" (hereinafter referred to as VIF is another technique used by statisticians to determine if multicollinearity is a problem. Dr. Zimmerman did not look at VIF. VIF can be determined by transforming R squared: VIF 1/1- R2. A VIF in excess of 5 or 10 is an indication that multicollinearity exists. One source quoted by Dr. Meeter even indicates that a much higher VIF is necessary to conclude that multicollinerity exists. Transforming Dr. Zimmerman's R squared calculations indicates that VIF is in excess of 5 in only one instance. As discussed more fully, infra, Dr. Zimmerman used a number of alternative methods of grouping hospitals which he designated as "Schemes." Based upon Dr. Zimmerman's "Scheme 3," Dr. Zimmerman found an R squared value of .819. The VIF for an R squared value of .819 is in excess of 5. Scheme 3, however, is not an application of the HCCB's grouping methodology; it is a grouping methodology in which the variables are assigned different weights. As indicated by Dr. Meeter, the weights used in grouping can effect the correlation of the variables. Therefore, the fact that Scheme 3 indicates a possible multicollinearity problem does not prove that multicollinearity is in fact a problem with the HCCB's grouping methodology. Based upon the foregoing it is found that multicollinearity does not exist sufficiently to conclude that the variables used by the HCCB are arbitrary and capricious. Dr. Zimmerman only testified that there was a "potential" problem. Additionally, although multicollinearity may invalidate a clustering program, the evidence does not prove that the HCCB's clustering program is in fact invalid because of any existing "potential" problem. In light of the foregoing findings of fact, it is clear that the HCCB's variables are appropriate with the exception of average occupied beds. The fact that this one variable is not statistically significant, however, does not by itself support a finding that the grouping methodology is inappropriate. The Lack of Testing of the Grouping Methodology. A third point raised by Mercy is entitled "Lack of Testing" in its proposed order and includes several proposed findings of fact on pages 17 and 18 of Mercy's proposed order. Mercy has essentially proposed findings of fact that: (1) it had been recommended to the HCCB when it originally adopted its grouping methodology in 1980 that a statistician be hired to test the grouping methodology; (2) that the failure to do so had been criticized in the past; that it had been recommended that the HCCB obtain assistance of individuals knowledgeable in Florida hospital characteristics to evaluate the grouping process but had failed to do so; (4) that the HCCB had not, until just prior to the hearing of this case, hired a statistician; (5) that the HCCB has not used multiple regression analysis or within-cluster co- variance weighting; and, (6) that the State of Washington's State Hospital Commission has employed a statistician to test its methodology and has effectively been advised by individuals knowledgeable with Washington's hospital characteristics. These proposed findings of fact do not establish that the grouping methodology adopted by the HCCB is arbitrary and capricious even if they were all correct findings of fact. All that these proposed findings of fact show is that the HCCB may not have gone about the adoption of its grouping methodology in the most appropriate manner. Any such shortcomings, based upon 20/20 hindsight, in the manner in which the methodology was adopted do not prove that the grouping methodology itself is not appropriate. Additionally, the evidence does not support all of these proposed findings. In particular, as was discussed, supra, the HCCB did in fact look to individuals knowledgeable in Florida hospital characteristics to evaluate its grouping methodology. The Weight of the Variables. The most significant and troublesome challenge made by Mercy to the HCCB's grouping methodology involves the weights assigned to the variables considered in grouping hospitals. The weights assigned by the HCCB to the seven HCCB variables are: Variable Weight Endogenous: Average occupied beds. 1.0 Available services. 2.0 Physician mix. 0.5 Number of residents. 0.5 Percent Medicare days. 2.0 Exogenous: Florida price level index. 0.5 Personal income. 0.5 The determination of whether the weights selected by the HCCB are arbitrary and capricious depends largely upon the evidence presented at the hearing by those witnesses knowledgeable in the field of statistics. Three witnesses were qualified as experts in statistically related fields. All three were well qualified in their fields and were credible and persuasive. According to Dr. Zimmerman, "the weights used currently by the HCCB are clearly inappropriate." In Mercy exhibit 17, Dr. Zimmerman reaches the following conclusion with regard to the HCCB's variable weights: These weights clearly do not reflect the relationship of the various variables to GRAA and thus appear as arbitrary and inappropriate for use in clustering hospitals on the basis of cost-related variables. Dr. Zimmerman's opinion is based upon the use of "multiple regression analysis," which, according to Mercy exhibit 17, "assesses the relationship of each of the predictor variables to the dependent measure (GRAA)." The evidence, however, does not support a finding of fact that multiple regression analysis is the only statistically valid method of establishing weights to be used in clustering analysis. In fact, there are a number of statistically valid methods of establishing variable weights. One of those acceptable methods is the "subjective" method which was used by the HCCB. Doctors Meeter and Fox substantiated this finding of fact. The use of the subjective method involves the participation of individuals knowledgable in the Florida hospital industry in reviewing and commenting on the weights used. The evidence clearly supports a finding that individuals with such knowledge participated in the process of developing the HCCB's grouping methodology including the selection of variable weights. Even one of Mercy's witnesses provided testimony which supports this conclusion: Mr. Kenneth G. McGee testified that "[i] t was just a trial and error process of changing weights until we ended up with something that people considered more reasonable than what had been produced in the past." Mercy has questioned Dr. Meeter's testimony with regard to the use of the subjective method of weighting variables based upon a number of proposed findings of fact. First, Mercy has proposed findings of fact to the effect that Dr. Meeter indicated that the subjective method is "bad" if not carefully applied. What Dr. Meeter actually said was that any method should be applied carefully. Secondly, Mercy has proposed a finding of fact that in a book relied upon by Dr. Meeter in rendering his opinion about the subjective method--John Hardigan's 1975 book, Clustering Algorithms--the author describes the subjective method as an "unsatisfactory" one. What Dr. Meeter's testimony proves is that Hardigan's comment was a tongue- in-cheek comment that there are several appropriate methods of weighting variables all of which are unsatisfactory, including regression analysis (used by Dr. Zimmerman) and the subjective method (use by the HCCB). Dr. Meeter also relied upon other statistical literature in rendering his opinion as to the use of the subjective method in determining variable weights. Finally, Mercy has suggested that Dr. Meeter did not undertake any independent "statistical" analysis which would support his opinions. Based upon the nature of Dr. Meeter's testimony, it does not appear that such a statistical analysis is a prerequisite to concluding that the use of the subjective method is an acceptable method of determining variable weights. Mercy has proposed a finding that the subjective method of weighting is inappropriate based upon Dr. Zimmerman's testimony. Dr. Zimmerman was asked the following questions and gave the following responses concerning the subjective method: Q Now, in your understanding of how the Board arrived at its weights, is it your opinion that that is totally inappropriate methodology for clustering? Yes or no or maybe? A I am looking to counsel for counsel here. MR. PARKER: Do you understand the questions? THE WITNESS: I do understand the question. And let me give you my full answer as I best understand it. The weights -- and I think what I have commented on at great length -- the weights used by the Hospital Cost Containment Board are clearly on statistical grounds inappropriate. There's no question about that. BY MR. COLLETTE: Now, on these clustering grounds, you testified as to your familiarity with clustering grounds, on clustering grounds, are they totally inappropriate? A If the question is -- I wouldn't say that. Hearing that there is no objection, I will continue. I would rule out the use of a purely subjective weighting scheme as a final solution for cluster analysis. I think it might be one that would be considered at a very early step, but never used, as kind of a preliminary idea. However, I would clearly rule out the use of a purely subjective weighting scheme as something to be proud of and actually put into application. So, if that means yes to your question, I guess yes in that specific way. Dr. Zimmerman's responses are not totally clear with regard to whether the subjective method is, in his opinion, an acceptable method of determining variable weights. Nor would his response, if totally clear, overcome the weight of the evidence in support of a conclusion that the HCCB's method of determining variable weights is not arbitrary and capricious. Alternative Methods of Grouping Hospitals. Mercy has proposed a number of findings of fact under a section of its proposed order entitled "Alternative Variables and Weights Indicated by Statistical Analyses." Pages 22 to 29 of Mercy's proposed order. Some of the proposed findings included therein have been dealt with in other portions of this Final Order, including those findings of fact dealing with the use of multiple regression analysis and multicollinearity. In Dr. Zimmerman's report (Mercy exhibit 17) and during his testimony a number of alternative methods of grouping hospitals were tested and evaluated. Dr. Zimmerman concluded that a number of these alternative methods would be preferable to the methodology adopted by the HCCB. Dr. Zimmerman tested twelve different methods (referred to as "Schemes" by Dr. Zimmerman): the HCCB's, the State of Washington's and ten other methods which used some or all of the seven variables designated by the HCCB. Scheme 3 used all seven variables selected by the HCCB but with different weights. Dr. Zimmerman rejected this scheme because of multicollinearity. In Scheme 4, Dr. Zimmerman used only the four variables which he found to be statistically significant: physician specialties mix, number of residents, percent Medicare days and the Florida price level index. Dr. Zimmerman recognized that this Scheme was not acceptable because of the statutory mandate as to the types of factors which must be taken into account. In order to recognize the requirement of Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), that certain variables be taken into account and to alleviate the purported multicollinearity problem, Dr. Zimmerman combined the variables he considered highly correlated into two "scales." "Scale 1" combined physician specialties mix, available services and average occupied beds and "Scale 2" combined the Florida price level index and median income. The weights assigned to these scale were based upon the weights Dr. Zimmerman felt were more appropriate as discussed, supra. Dr. Zimmerman then used multiple regression analysis and a variety of combinations of variables and Scales in Schemes 6-12. Of these Schemes, Dr. Zimmerman testified that Schemes 6 and 10 were preferable, if Scheme 4 could not be used. Scheme 6 involved the use of all of the variables: percent Medicare days, number of residents and Scales 1 and 2. Scheme 10 involved the use of all of the variables except median income: percent Medicare days, number of residents, the Florida price level index and Scale 1. Dr. Zimmerman compared the results of using the HCCB's grouping methodology to the results from using Schemes 3,4,6 and 10. The results showed that more Dade County hospitals had GRAA's, in comparison to the hospitals in the resulting groups under Schemes 3,4,6 and 10, which would result in automatic approval of their budgets than under the HCCB's methodology. Mercy's position within its group also improved as a result of using Schemes 3,4,6 and 10. These proposed findings of and Mercy's proposed findings of fact concerning alternatives considered by Dr. Meeter do not prove that the HCCB's grouping methodology is arbitrary and capricious. As found, supra, six of the seven variables selected by the HCCB are reasonable. The weights assigned to those variables have also been found to be reasonable and Mercy's suggested findings of fact with regard to multicollinearity have been rejected. Mercy has failed to prove that the HCCB's grouping methodology is arbitrary and capricious. Therefore, any alternative methods or Schemes and the results of using such methods cannot and do not overcome such findings. Conclusions. Based upon the foregoing, it is clear that the bases for the opinions that the HCCB's grouping methodology is inappropriate are not supported by a preponderance of the evidence. Dr. Zimmerman's opinion, which was based upon a number of conclusions, was only supported by the fact that one of the variables selected by the HCCB is not proper. The evidence, however, does not support a finding that this fact alone means that the grouping methodology adopted by the HCCB is inappropriate. The facts do not support a conclusion that the grouping methodology adopted by the HCCB is arbitrary and capricious.
The Issue Whether the application of Petitioner Naples Community Hospital, Inc. for a Certificate of Need to add a total of 35 beds to Naples Community Hospital and North Collier Community Hospital should be approved based on peak seasonal demand for acute care beds in the relevant subdistrict.
Findings Of Fact Naples Community Hospital, Inc., ("NCH") holds the license for and operates Naples Community Hospital ("Naples"), a 331 bed not-for-profit acute care hospital, and North Collier Community Hospital ("North Collier"), a 50 bed acute care hospital. NCH also operates a 22 bed comprehensive rehabilitation facility and a 23 bed psychiatric facility. NCH is owned by Community Health Care, Inc., "(CHC"). Both Naples and North Collier are located within Agency for Health Care Administration ("ACHA") district 8 and are the only hospitals within subdistrict 2 of the district. Naples is located in central Collier County. North Collier is (as the name implies) located in northern Collier County approximately 2-3 miles from the county line. NCH's primary service area is Collier County from which approximately 85-90 percent of its patients come, with a secondary service area extending north into Lee County. Neither Naples nor North Collier are teaching hospitals as defined by Section 407.002(27), Florida Statutes (1991). NCH is not proposing a joint venture in this CON application. NCH has a record of providing health care services to Medicaid patients and the medically indigent. NCH proposes to provide health care services to Medicaid patients and the medically indigent. Neither Naples nor North Collier are currently designated by the Office of Medicaid as disproportionate share providers. NCH has the funds for capital and initial operating expenditures for the project. NCH has sufficient financial resources to construct and equip the proposed project. The costs and methods of the proposed construction are reasonable. The Agency for Health Care Administration ("AHCA") is the state agency charged with responsibility for administering the Certificate of Need program. Southwest Florida Regional Medical Center ("Southwest") is a 400 bed for-profit acute care hospital located in Fort Myers, Lee County. Lee County is adjacent to and north of Collier County. Southwest is owned by Columbia Hospital Corporation ("Columbia"), which also owns Gulf Coast Hospital in Fort Myers, and two additional hospitals in AHCA District 8. Southwest's primary service area is Lee County. Although Southwest asserts that it would be negatively impacted by the addition of acute care beds at NCH, the greater weight of the credible evidence fails to support the assertion. The primary market services areas of NCH and Southwest are essentially distinct. However, the facilities are located in such proximity as to indicate that secondary service areas overlap and that, at least during peak winter season periods, approval of the NCH application could potentially impact Southwest's operations. Southwest has standing to participate in this proceeding. Southwest offered evidence to establish that it would be substantially affected by approval of the NCH application. The NCH length-of-stay identified in the Southwest documents is inaccurate and under-reports actual length-of-stay statistics. The documentation also includes demographic information from a zip code (33912) which contributes an insignificant portion of NCH patients, and relies on only two years of data in support of the assertion that utilization in the NCH service area is declining. Southwest's chief operating officer testified that he considers Gulf Coast Hospital, another Columbia-owned facility, to offer more competition to Southwest that does NCH. Further, a physician must have admitting privileges at a hospital before she can admit patients to the facility. Of the physicians holding admitting privileges at Southwest, only two, both cardiologists, also have admitting privileges at NCH. Contrary to Southwest, NCH does not have an open heart surgery program. Accordingly, at least as to physician-admitted patients, approval of the NCH application would likely have little impact. On August 26, 1991, NCH submitted to AHCA a letter of intent indicating that NCH would file a Certificate of Need ("CON") application in the September 26, 1991 batching cycle for the addition of 35 acute care beds to the Naples and North Collier facilities. The letter of intent did not specify how the additional beds would be divided between the two facilities. The determination of the number of beds for which NCH would apply was solely based on the fact that the applicant had 35 observation beds which could be readily converted to acute care beds. The observation beds NCH proposes to convert are equipped identically to the acute care beds at NCH and are currently staffed. The costs involved in such conversion are minimal and relatively insignificant. Included with the letter of intent was a certified corporate resolution which states that on July 24, 1991, the NCH Board of Trustees authorized the filing of an application for the additional beds, authorized NCH to incur related expenses, stated that NCH would accomplish the proposed project within time and budget allowances set forth in the application, and that NCH would license and operate the facility. By certification executed August 7, 1991, the NCH secretary certified that the resolution was enacted at the July 24, 1991 board meeting and that the resolution did not contravene the NCH articles of incorporation or bylaws. Article X, Sections 10.1 and 10.1.3 of the NCH bylaws provides that no CON application shall be legally effective without the written approval of CHC. On September 26, 1991, NCH filed an application for CON No. 6797 proposing to add 31 acute care beds to Naples and 4 acute care beds to North Collier. The CON application included a copy of the NCH board resolution and certification which had been previously submitted with the letter of intent as well as the appropriate filing fee. NCH published appropriate public notice of the application's filing. As of the date of the CON application's filing, CHC had not issued written approval of the CON application prior to the action of the NCH Board of Directors and the filing of the letter of intent or the application. On October 2, 1992, four days prior to the administrative hearing in this case, the board of CHC ratified the actions of NCH as to the application for CON at issue in this case. The CHC board has previously ratified actions of the NCH in such fashion. There is uncontroverted testimony that the CHC board was aware of the NCH application and that no reservation was expressed by any CHC board member regarding the CON application. Although NCH's filing of the CON application without appropriate authorization from its parent company appears to be in violation of the NCH bylaws, such does not violate the rules of the AHCA. There is no evidence that the AHCA requested written authorization from the CHC board. After review of the application, the AHCA identified certain deficiencies in the application and notified NCH, which apparently rectified the deficiencies. The AHCA deemed the application complete on November 8, 1991. As required by statute, NCH included a list of capital projects as part of the CON application. The list of capital projects attached to the application was incomplete. The capital projects list failed to identify approximate expenditures of $370,000 to construct a patio enclosure, $750,000 to install an interim sprinkler system, $110,000 to construct emergency room triage space, and $125,000 to complete electrical system renovations. At hearing, witnesses for NCH attempted to clarify the omissions from the capital projects list. The witnesses claimed that such omitted projects were actually included within projects which were identified on the list. When identifying the listed projects within which the omitted projects were supposedly included, the witnesses testified inconsistently. For example, one witness testified that the patio project was included in the emergency room expansion project listed in the application. Another witness claimed that the patio enclosure was included in an equipment purchase category. Based on the testimony, it is more likely that the patio enclosure was neither a part of an emergency room expansion nor equipment purchase, but was a separate construction project which was omitted from the CON application. Similarly inconsistent explanations were offered for the other projects which were omitted from the capital projects list. The testimony was not credible. The capital projects omitted from the list do not affect the ability of NCH to implement the CON sought in this proceeding. The parties stipulated to the fact the NCH has sufficient financial resources to construct and equip the proposed project. As part of the CON application, NCH was required to submit a pro forma income statement for the time period during which the bed additions would take place. The application failed to include a pro forma statement for the appropriate time period. Based on the stipulation of the parties that the costs and methods of the proposed construction are reasonable, and that NCH has adequate resources to fund the project, the failure to include the relevant pro forma is immaterial. Pursuant to applicable methodology, the AHCA calculates numeric acute care bed need projections for each subdistrict's specific planning period. Accordingly, the AHCA calculated the need for additional acute care beds in district 8, subdistrict 2 for the July, 1996 planning horizon. The results of the calculation are published by the agency. The unchallenged, published fixed need pool for the planning horizon at issue in this proceeding indicated that there was no numeric need for additional acute care beds in district 8, subdistrict 2, Collier County, Florida, pursuant to the numeric need methodology under Rule 59C-1.038 Florida Administrative Code. The CON application filed by NCH is based on the peak seasonal demand experienced by hospitals in the area during the winter months, due to part-time residents. NCH asserts that the utilization of acute care beds during the winter months (January through April) results in occupancy levels in excess of 75 percent and justifies the addition of acute care beds, notwithstanding the numerical need determination. Approval of the CON application is not justified by the facts in this case. The AHCA's acute care bed need methodology accounts for high seasonal demand in certain subdistricts in a manner which provides that facilities have bed space adequate to accommodate peak demand. The calculation which requires that the average annual occupancy level exceed 75 percent reflects AHCA consideration of occupancy levels which rise and fall with seasonal population shifts. The applicant has not challenged the methodology employed by the AHCA in projecting need. Peak seasonal acute care bed demand may justify approval of a CON application seeking additional beds if the lack of available beds poses a credible threat of potentially negative impact on patient outcomes. The peak seasonal demand experienced by NCH has not adversely affected patient care and there is insufficient evidence to establish that, at this time, such peak demand poses a credible threat of potential negative impact on patient outcomes in the foreseeable future. There is no dispute regarding the existing quality of care at Naples, North Collier, Southwest or any other acute care hospital in district 8. The parties stipulated that NCH has the ability to provide quality of care and a record of providing quality of care. In this case, the applicant is seeking to convert existing beds from a classification of "observation" to "acute care". The observation beds NCH proposes to convert are equipped identically to the acute care beds at NCH. Approval of the CON application would result in no net increase in the number of licensed beds. NCH offered anecdotal evidence suggesting that delays in transferring patients from the Naples emergency room to acute care beds (a "logjam") was caused by peak seasonal occupancy rates. There was no evidence offered as to the situation at the North Collier emergency room. The anecdotal evidence is insufficient to establish that "logjams" (if they occur at all) are related to an inadequate number of beds identified as "acute care" at NCH facilities. There are other factors which can result in delays in moving patients from emergency rooms to acute care beds, including facility discharge patterns, delays in obtaining medical test results and staffing practices. NCH asserted at hearing that physicians who refer patients to NCH facilities will not refer such patients to other facilities. The evidence fails to establish that such physician practice is reasonable or provides justification for approval of CON applications under "not normal" circumstances and further fails to establish that conditions at NCH are such as to result in physicians attempting to locate other facilities in which to admit patients. The rule governing approval of acute care beds provides that, prior to such approval, the annual occupancy rate for acute care beds in the subdistrict or for the specific provider, must exceed 75 percent. This requirement has not been met. Applicable statutes require that, in considering applications for CON's, the AHCA consider accessibility of existing providers. The AHCA- established standard provides that acute care bed accessibility requirements are met when at least 90 percent of the residents in an urban subdistrict are within a 30 minute automobile trip to such facilities. At least 90 percent of Naples residents are presently within a 30 minute travel time to NCH acute care beds. The number of acute care beds in the subdistrict substantially exceed the demand for such beds. Additional beds would result in inefficient utilization of existing beds, would further increase the current oversupply of beds, would delay the time at which need for additional beds may be determined and, as such, would prevent competing facilities from applying for and receiving approval for such beds. The financial feasibility projections set forth in the CON application rely on assumptions as to need and utilization projections which are not supported by the greater weight of the evidence and are not credited. Accordingly, the evidence fails to establish that the addition of 35 acute care beds to NCH facilities is financially feasible in the long term or that the income projections set forth in the CON application are reasonable. As to projections related to staffing requirements and costs, the beds are existing and are currently staffed on a daily, shift-by-shift basis, based on patient census and acuity of illness. There is reason to believe that the staffing patterns will remain fairly constant and accordingly the projections, based on historical data, are reasonable. Generally stated, where there is no numeric or "not normal" need for the proposed addition of 35 acute care beds in the relevant subdistrict, it could be predicted that the addition of acute care beds would exacerbate the oversupply of available beds and could cause a slight reduction in the occupancy levels experienced by other providers. In this case, the market service areas are sufficiently distinct as to suggest that such would not necessarily be the result. However, based on the lack of need justifying approval of the CON application under any existing circumstances, it is unnecessary to address in detail the impact on existing providers. The state and district health plans identify a number of preferences which should be considered in determining whether a CON application should be approved. The plans suggest that such preferences are to be considered when competing CON applications are reviewed. In this case there is no competing application and the applicability of the preferences is unclear. However, in any event, application of the preferences to this proposal fail to support approval of the application.
Recommendation RECOMMENDED that a Final Order be entered DENYING the application of Naples Community Hospital, Inc., for Certificate of Need 6797. DONE and RECOMMENDED this 19th day of March, 1993 in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM 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, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-1510 To comply with the requirements of Section 120.59(2), Florida Statutes, the following constitute rulings on proposed findings of facts submitted by the parties. Petitioner The Petitioner's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 3-4, 6-8, 16-20, 29-36, 38, 41, 44, 47, 49-61, 80, 88, 95-96, 100, 104, 108, 117-119, 122-125, 127, 134-138. Rejected as unnecessary. 15. Rejected as irrelevant. Peak seasonal demand is accounted for by the numeric need determination methodology. There is no credible evidence which supports a calculation of three years of four month winter occupancy to reach a 12 month average occupancy rate. 21-27, 37, 42-43, 62-64, 66, 97, 99, 101-103, 105-107, 109, 120-121, 126. Rejected as not supported by the greater weight of credible and persuasive evidence. 28. Rejected as not supported by the greater weight of credible and persuasive evidence and contrary to the stipulation filed by the parties. Rejected as not supported by greater weight of credible and persuasive evidence which fails to establish that the transfer of patients from emergency room to acute care beds is delayed due to numerical availability of beds. Rejected as not supported by greater weight of credible and persuasive evidence which fails to establish that the alleged lack of acute care beds is based on insufficient number of total beds as opposed to other factors which affect bed availability. Rejected as immaterial and contrary to the greater weight of the evidence Rejected as immaterial and contrary to the greater weight of the evidence which fails to establish reasonableness of considering only a four month period under "not normal" circumstances where the period and the peak seasonal demand are included within the averages utilized to project bed need. 86. Rejected as cumulative. 114. Rejected as unsupported hearsay. Respondent/Intervenor The Respondent and Intervenor filed a joint proposed recommended order. The proposed order's findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 6, 45, 51, 53, 59-67, 69-70, 94-113. Rejected as unnecessary. 16. Rejected as to use of term "false", conclusion of law. 58. Rejected as not clearly supported by credible evidence. 71-93, 114-124. Rejected as cumulative. COPIES FURNISHED: Douglas M. Cook, Director Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 Harold D. Lewis, Esquire Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 W. David Watkins, Esquire Oertel, Hoffman, Fernandez, & Cole Post Office Box 6507 Tallahassee, Florida 32314-6507 Edward G. Labrador, Esquire Thomas Cooper, Esquire Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308 John D.C. Newton, II, Esquire Aurell, Radey, Hinkle, Thomas & Beranek Monroe Park Tower, Suite 1000 101 North Monroe Street Post Office Drawer 11307 Tallahassee, Florida 32302
The Issue Whether the statutory and rule criteria are met by the certificate of need application of Paracelsus Peninsula Medical Center, Inc., which is proposing to convert ten or twenty medical/surgical beds to ten or twenty comprehensive medical rehabilitation beds at its hospital in Ormond Beach, Florida, in Agency For Health Care Administration District 4. Whether Memorial Regional Rehabilitation Center, Inc., which operates a comprehensive medical rehabilitation hospital in Jacksonville, Florida, also in Agency For Health Care Administration District 4, has standing to intervene in this case.
Findings Of Fact Paracelsus Peninsula Medical Center, Inc. ("Peninsula") is a 119-bed hospital located in Ormond Beach, Volusia County, Florida. At Peninsula, 20 beds comprise a comprehensive medical rehabilitation ("CMR") unit, which became operational in March 1991. The fixed need pool published in Volume 18, number 7 of the Florida Administrative Weekly on February 7, 1992, for the January 1997 planning horizon showed no numerical need for additional CMR beds in District 4, in which Ormond Beach is located. On or about March 23, 1992, Peninsula filed its certificate of need ("CON") application to increase its CMR unit to 30 or 40 beds by converting 20, or alternatively, 10 acute care beds to CMR beds, and to construct a 7,000- square-foot addition to its existing CMR unit for expanded therapy space and a dedicated dining area for rehabilitation patients. The Agency For Health Care Administration ("AHCA"), is the state agency to which responsibility for the administration of CON laws was transferred in July 1992, from the Department of Health and Rehabilitative Services ("HRS"). On or about July 3, 1992, AHCA published a State Agency Action Report ("SAAR") preliminarily denying Peninsula's CON application. That action was timely challenged by Peninsula. Based on the pre-hearing stipulation of the parties, Peninsula has met the statutory requirements for the filing and publication of its letter of intent, and timely filed its CON application. Peninsula has the financial resources to fund either the 20-bed or 10-bed expansion proposed, and it is financially feasible in the short term. Anticipated interest rates, square footage, cost per square foot, and space requirements set forth in Tables 16, 17 and 18 of Peninsula's CON application are accurate and reasonable for the alternative proposals. The project completion forecast described in Table 26 of its application, the architectural plans, and the schematic diagrams are reasonable and appropriate. The list of equipment costs and total depreciable costs set forth in Table 3 of the application are reasonable and appropriate, except AHCA and Memorial questioned the adequacy of funds allocated for the purchase of wheelchairs. Peninsula's total project costs are reasonable, with the exception that the CON filing fee and CON review fee are not listed in the estimated construction costs section of Table 25d. The parties also agree that manpower requirements set forth in Table 11 are reasonable and appropriate except for the proposal to provide speech therapy services by contract, and the ability to recruit full-time physical therapists or occupational therapists in the one-year period at the projected annual salary are at issue. Finally, as stipulated by the parties, the present and projected charge rates set forth in Table 8 of Peninsula's CON application are reasonable. Peninsula is located in Ormond Beach, Volusia County, Florida. Other than Peninsula's existing 20 CMR beds, the closest CMR beds in the district are 90 miles north in Jacksonville, and the closest CMR beds not in the district are 65 miles west in Orlando. Ormond Beach is located in AHCA District 4, which is composed of Nassau, Baker, Duval, Clay, St. Johns, Flagler and Volusia Counties. Peninsula's service area includes Flagler and Volusia Counties. In 1990, Peninsula was issued a CON to establish a 20-bed CMR unit to serve the southern portion of District 4. The unit opened in 1991. For the first year, occupancy rates averaged 72.6 percent, and increased to 89.5 percent in the second year, exceeding 100 percent in the months of August and September 1992. None of Peninsula CMR patients came from Duval County and 93 percent came from Volusia and Flagler Counties. Occupancy levels in Peninsula's acute care beds averaged 50 percent for 1992, indicating an excess capacity of acute care beds. Peninsula's inpatient CMR services were accredited by the Commission on Accreditation of Rehabilitation Facilities ("CARF") in 1993. Peninsula's out-patient CMR services began in mid-January 1993 on a separate campus, and have not been in operation a sufficient time to be eligible for CARF accreditation. The only other provider of CMR services in AHCA District 4 is Memorial Regional Rehabilitation Center, Inc., d/b/a Memorial Regional Rehabilitation Center ("Memorial"), in Jacksonville. Memorial is a 110-bed licensed CMR hospital, one of six state vocational rehabilitation designated spinal cord injury rehabilitation centers. Memorial's primary service area is within a 50 mile radius of Jacksonville. Memorial has been unable to operate all 110 licensed beds due to space constraints, which are scheduled to be overcome by the March 1994 opening of a CON-approved replacement building, costing approximately $21.7 million. Memorial's original building and its CMR program pre-date CON regulation. Occupancy levels for District 4 have been as shown below: Average Occupancy Average Beds Available For Use in District- District Wide Percentages Memorial Peninsula 1990 80 54.9 54.99 ----- 1991 100 60.79 59.33 70.38* 1992 110 62.15 57.42 88.16 * Beginning March 1991 Memorial averaged 80 beds available in 1991, and 90 in 1992. Of the 90 available beds, Memorial designated 20 beds to a spinal cord and orthopedic unit, 25 beds to a head injury and pediatric unit (which can use up to 6 of the 25 beds), 25 beds to a stroke unit, and 10 beds to a chronic pain and functional skills unit. Memorial has assigned specific staff to each of these units except for the chronic pain unit, and tries to admit patients to the appropriate unit for the patient's problem. Memorial's spinal cord unit has received State Division of Vocational Rehabilitation designation, which requires CARF accreditation in the sub- specialty of spinal cord rehabilitation and that the unit treat a minimum of 40 new qualified spinal cord injury patients each calendar year. In 1992, Memorial treated 44 patients who qualified it for state designation. In 1990, 5 of 920 patients treated at Memorial were residents of Volusia and Flagler Counties. In 1991, 8 of a total 919 Memorial patients came from Flagler and Volusia Counties. For the first ten months of 1992, 7 of 747 inpatients at Memorial were residents of Flagler or Volusia County. Taking into account lengths of stay, as well as the number of patients, Memorial's patients from Volusia and Flagler Counties constituted .6 percent of total patient days in 1991, and less than 1.5 percent in 1992. In terms of total occupancy levels and percentages of patient days attributable to residents of Volusia and Flagler Counties, no impact on Memorial was documented as a result of the 1991 opening of the 20-bed CMR unit at Peninsula. In its 1991 CON for construction of a replacement facility, Memorial referenced little interaction between northern and southern health delivery systems within the district. Peninsula has never had a patient from Duval County. Memorial's average daily census has increased since the opening of Peninsula, although it has experienced declining average lengths of stay, as have other CMR providers. Peninsula has not recruited or hired staff from Memorial. Based on the testimony of Peninsula's medical director and CMR admissions assessment specialist, Peninsula would like to initiate a 10-bed spinal cord injury unit, and would seek CARF accreditation of the unit. If that happened and the State Vocational Rehabilitation Division designated Peninsula a spinal cord regional center, Memorial would be substantially, adversely affected if it loses State designation because the number of eligible patients declines below the required minimum of 40. Not all spinal cord rehabilitation patients qualify for treatment at the six Vocational Rehabilitation centers. There was no evidence that a qualified patient from Flagler or Volusia Counties was among the 44 treated at Memorial's unit in 1992. Peninsula projects patient days allocated among payer groups at approximately 75 percent Medicare, 19 percent commercial insurance, 3 percent Medicaid, 2 percent charity and 1 percent private pay. Peninsula's proposed 20-bed expansion would cost $998,000, the 10-bed expansion would cost $965,000. Rule 10-5.039, Florida Administrative Code, was used to calculate need for the batching cycle in which Peninsula applied, but has historically been a poor indicator of need. The rule methodology has always resulted in a numeric need of zero, since it was adopted in 1987, while the utilization of CMR beds has increased. The formula was based on the erroneous assumption of a direct correlation between acute care discharges and CMR admissions. In recognition of the inadequacies of the numeric need methodology, AHCA has adopted a new rule, but that rule is not applicable to the review of Peninsula's application. Even if it were, Peninsula concedes that it would not demonstrate numeric need or alter the burden on Peninsula of establishing not normal circumstances for approval of its application. Consideration of factors other than numeric need is authorized under the applicable rule, including historic incidences of disabling conditions and illnesses by age or sex in the district, trends in utilization by third party payers, existing and projected patients needing CMR services, and the availability of specialized staff. In addition, Peninsula is required to establish not normal circumstances because its average annual occupancy was below 85 percent for the most recent 12 months available three weeks prior to the date of the publication of need. In fact, for that base period, Peninsula's occupancy level was 72 to 73 percent. Utilization of CMR services in District 4 is affected by the location of the population 65 years of age and older. In 1990, 72 percent of all rehabilitation discharges from short-stay non-federal hospitals were patients 65 years of age and over. In District 4, the percentage of persons over 65 was 14.8 percent in January 1992, and projected to increase to 15.7 percent in January 1997, as compared to 18.4 percent and 18.8 percent, respectively, statewide. For Volusia and Flagler Counties, average percentages were 24 percent for 1992 and 27 percent projected for 1997, in contrast to 11 percent and 12 percent, respectively, for Duval County. The number of residents within Peninsula's market area who are 65 or over, when multiplied by the statewide use rate of 29.3 CMR patient days per 1,000 population gives a reasonable and conservative projection of utilization for Peninsula. A lower use rate of 25.8 days per 1,000 population is required for Peninsula to achieve the optional occupancy of 85 percent in 40 beds. Other calculations of need and projected utilization, including methodologies accepted by AHCA or its predecessor in support of other CMR applications in the absence of numeric need, produced similar results. The same assumptions and calculations were used to support Peninsula's original CON application and resulted in projected occupancy levels of 65 percent in year one and 85 percent in year two, while actual percentages were 72.6 percent in year one and 89.5 percent in year two. Peninsula established that some areas within Volusia County exceed the two hour average travel time standard to Memorial, which was one basis for the approval of Peninsula's 1991 application. Peninsula is an osteopathic hospital with training programs, but is not a teaching hospital. Need is also determined by reference to the applicable state and local health plans. Peninsula's application meets state health plan preferences for proposing to convert excess acute care beds, for serving as a training site for American Osteopathic Association interns and residents, and for operating an existing comprehensive out-patient rehabilitation program. Peninsula's proposal does not meet state health plan preferences for applicants proposing services which are not currently offered in the district, and for serving a disproportionate share of charity and Medicaid patients. Peninsula has, however, exceeded its CON conditions for the provision of 3 percent total patient days to Medicaid and 2 percent to charity care. In its first full year of operation, actual Medicaid days were 4.01 percent and charity days were 2.56 percent of total patient days. Local health plan allocation factors supporting Peninsula's application relate to meeting identified needs in the least costly manner, alleviating current or potential geographic access problems, proposing to convert unused beds, documenting referral agreements, and being willing to comply with CON conditions. Peninsula also partially meets the factor for serving a wide spectrum of the population, including medically indigent and aged, since its proposal is primarily focused on the needs of persons 65 years or older. Peninsula did not demonstrate that it will provide the most complete range of support services for the least additional cost, nor that it is making a strong commitment to HIV-infected or other hard-to-place patients. Peninsula's proposal is not in compliance with the factor, adopted prior to the approval of its initial application, favoring the establishment of CMR services in Volusia County, if no licensed or approved program exists in the County. The cost of wheelchairs was estimated at $350 each in Peninsula's list of equipment costs, while Memorial's Director of Therapy Services estimated the cost at $600 each. However, the testimony of the person who makes equipment purchases for Peninsula is more persuasive. An existing arrangement with a local company permits Peninsula to acquire standard chairs at $350, a slight percentage over the wholesale price. If necessary, the company provides special wheelchairs through a consignment arrangement and bills patients directly for their costs. For patients needing inpatient CMR services, no adequate outpatient alternatives exist which provide the intensity and benefits of required therapies. There was no evidence that the services provided by Peninsula, including speech therapy were not adequate. The expansion proposed at Peninsula will allow salaries, overhead and additional equipment, acquired at costs comparable to current expenses, to be used by a larger pool of patients. Services will be enhanced by allowing more grouping of patients based on their disabilities and needs. Peninsula's pro forma adequately and resonably projects salaries, expenses, and revenues. Peninsula submitted revenue and expense projections for the construction period, for the first two years of operation of the 20 additional beds, and for the first two years of operation of the entire facility. No adverse impact on the provision of other services at Peninsula is expected. On balance, Peninsula has demonstrated not normal circumstances for approval of an additional 20 CRM beds, including the disproportionate concentration of a population over 65 within its service district, travel and medical referral patterns in the southern portion of District 4, and utilization rates at Peninsula.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered dismissing Memorial as a party for failure to establish standing in this proceeding, and approving Peninsula's CON application for the conversion of 20 acute care beds to 20 CMR beds. DONE AND ENTERED this 21st day of April, 1994, 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 21st day of April, 1994. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-5100 To comply with the requirements of Section 120.59(2), Fla. Stat. (1991), the following rulings are made on the parties' proposed findings of fact: Memorial's Proposed Findings of Fact. 1,2,3,4,7. Accepted in Findings of Fact 1,3,7,8 and 10. 5,6,7,8. Accepted in Findings of Fact 11,12, and 14. 6,9. Accepted in Finding of Fact 15. Accepted in Findings of Fact 2, 22 and 23. Conclusions rejected in Findings of Fact 22 and 23. Accepted in Finding of Fact 13. Accepted in Finding of Fact 23. Subordinate to Finding of Fact 23. Rejected in Findings of Fact 26, 27 and 28. 16,17,18,19,20. Rejected in or subordinate to Findings of Fact 28. Accepted in Findings of Fact 29, 33 and 35. Conclusion subordinate to Finding of Fact 28. Accepted in Finding of Fact 29. Subordinate to Finding of Fact 28. Subordinate to Finding of Fact 9. Subordinate to Finding of Fact 37. Accepted in Findings of Fact 33 and 35. Conclusion rejected in Finding of Fact 36. Accepted in Findings of Fact 20 and 33 except last sentence in Finding of Fact 33. Conclusion rejected in Conclusion of Law. Accepted in Findings of Fact 6, 11 and 12. Accepted in first sentence in Finding of Fact 6 Rejected remainder as inconsistent with Memorial's proposed Findings of Fact 9, 26, and 28. Rejected in Finding of Fact 38. Rejected in Finding of Fact 28. Accepted in part and rejected, in part, in Finding of Fact 11. Accepted in Findings of Fact 11 and 15. Accepted in Finding of Fact 15. Rejected conclusion as not established in Finding of Fact 15. Accepted in Finding of Fact 17. Accepted, except conclusion, in Findings of Fact 15,16, 17 and 18. Rejected in Findings of Fact 15, 16, 17, 18 and Conclusion of Law 2. Rejected conclusion in Findings of Fact 6 and 37. Accepted in Finding of Fact 28 and Conclusion of Law 3. 44,45. Accepted, in part, and rejected in part, in Conclusion of Law 3. AHCA's Proposed Findings of Fact. Accepted in Finding of Fact 4. Accepted in Finding of Fact 5. Subordinate to Finding of Fact 5. Subordinate to Preliminary Statement and Finding of Fact 6. Accepted in Finding of Fact 2 and except last sentence rejected in Conclusion of Law 3. Accepted in Finding of Fact 7. Accepted in Conclusions of Law 4. Accepted in Findings of Fact 2 and 25. Rejected conclusions in Findings of Fact 23, 24, 27 and 28. Accepted, in part, and rejected, in part, in Findings of Fact 31, 34 and 35. Accepted, in part, and rejected, in part, in Findings of Fact 31, 32 and 33. Rejected in Findings of Fact 26, 27 and 28. Rejected in Finding of Fact 11. Accepted in Finding of Fact 32. Accepted in Conclusions of Law 45. Rejected in Finding of Fact 39. Paracelsus' Proposed Findings of Fact. Accepted in Finding of Fact 2. Accepted in Finding of Fact 3. Accepted in Finding of Fact 6. Subordinate to Finding of Fact 6. Subordinate to Finding of Fact 6. Accepted in Finding of Fact 5. Accepted in Findings of Fact 1 and 7. Subordinate to Finding of Fact 1. Subordinate to Finding of Fact 10. Accepted in Findings of Fact 1 and 7. Subordinate to Finding of Fact 1. Accepted in Findings of Fact 8 and 17. Subordinate to Findings of Fact 8 and 10. 14-17. Accepted in or Subordinate to Findings of Fact 8 an 13. 18. Accepted in Finding of Fact 9. 19-20. Accepted in Findings of Fact 7, 11, 16 and 17. Accepted, in part, and rejected, in part, in Findings of Fact 20 and 35. Accepted in Finding of Fact 11. Accepted in Finding of Fact 12 and subordinate to Finding of Fact 14. Subordinate to Finding of Fact 13. Accepted in Findings of Fact 11 and 16. Accepted in Findings of Fact 8 and 28. Subordinate to Finding of Fact 19. Accepted in Finding of Fact 18. 29-31. Accepted in Findings of Fact 22 and 23. Accepted in Finding of Fact 25. Accepted in Finding of Fact 13. Accepted in Finding of Fact 24. 35-36. Accepted in Findings of Fact 26 and 27. 37. Accepted in Finding of Fact 17. 38-41. Subordinate to Conclusion of Law 43. 42. Accepted in Finding of Fact 17. 43-49. Accepted in or Subordinate to Findings of Fact 24-28. Accepted in Findings of Fact 11, and 16-19. Accepted in Finding of Fact 25. Accepted in Finding of Fact 17. Accepted in Finding of Fact 28. 54-55. Accepted in Findings of Fact 10 and 19. 56-58. Accepted in Finding of Fact 37. Accepted in Finding of Fact 39 and Conclusion of Law 48. Accepted in Finding of Fact 32 and Conclusion of Law 49. 61-62. Accepted in Finding of Fact 6. 63-64. Accepted in Findings of Fact 6 and 37. 65. Accepted in Finding of Fact 6, 16-19. 66-79. Accepted in Finding of Fact 6, 26-28, 36-38. 80-81. Accepted in Finding of Fact 28 and Conclusion of Law 51. 82. Accepted in Conclusion of Law 52. 83-86. Accepted in Finding of Fact 6 and Conclusion of Law 53. 87-89. Accepted in Finding of Fact 33 and Conclusion of Law 54. 90. Accepted, in relevant part, in Findings of Fact 31-33. 91-98. Accepted, in relevant part, in Findings of Fact 34- 35. COPIES FURNISHED: Byron B. Mathews, Jr., Attorney 22nd Floor Miami Center 201 South Biscayne Boulevard Miami, Florida 33131 Richard Patterson, Attorney Agency For Health Care Administration 325 John Knox Road, Suite 301 Tallahassee, Florida 32303-4131 Christopher C. Hazelip, Attorney 1301 Gulf Life Drive, Suite 1500 Jacksonville, Florida 32207 R. S. Power, Agency Clerk Agency for Health Care Administration Atrium Building, Suite 301 325 John Knox Road Tallahassee, Florida 32303
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.
Findings Of Fact Background On July 31, 1987, the Department of Health and Rehabilitative Services (HRS) published in the Florida Administrative Weekly an announcement of the fixed need pools for the subject batching cycle, which pertained to the planning horizon of July, 1992. According to the notice, the fixed need pool, which was calculated pursuant to Rules 10-5.008(6) and 10-5.011(m), (n), (o), and (q), Florida Administrative Code, was adjusted according to the occupancy rate thresholds as prescribed by said rules. The net adjusted need for short-term psychiatric beds in District 7 was zero. By letter to HRS dated August 12, 1987, the North Brevard County Hospital District, doing business as Jess Parrish Memorial Hospital (Jess Parrish), provided notice of its intent to apply for a certificate of need to convert 16 beds from medical/surgical to psychiatric. By Application for Certificate of Need dated September 14, 1987, Jess Parrish requested that HRS grant a certificate of need for the conversion of 16 medical/surgical beds to 16 adult short-term psychiatric beds at a cost of $46,100. Jess Parrish is a tax-exempt organization whose board of directors have been authorized by law to levy ad valorem taxes in a special tax district in north Brevard County for the support of the hospital. The main hospital is located at 951 North Washington Avenue in Titusville, which is in north Brevard County. Brevard County is located in HRS District 7. By letter to Jess Parrish dated October 5, 1987, HRS requested additional information. By response dated November 9, 1987, Jess Parrish supplied the requested responses to omissions. By letter dated November 18, 1987, Jess Parrish provided additional information desired by HRS. By letter dated December 22, 1987, Wuesthoff Hospital (Wuesthoff) informed HRS that it objected to the above-described application because of absence of need. The letter states that Wuesthoff maintained an occupancy rate of 74% during the past year in its 25 short-term psychiatric beds. Wuesthoff is located in Rockledge, which is in central Brevard County. By letter and State Agency Action Report dated January 25, 1988, HRS informed Jess Parrish of its intent to issue the requested certificate of need for the conversion of the 16 beds. By Petition for Formal Administrative Hearing filed February 23, 1988, Wuesthoff challenged the intent to award the certificate of need to Jess Parrish and requested a formal hearing. The Application and Approval Process The application for the certificate of need states that Jess Parrish has a total of 210 beds, consisting of 172 medical/surgical beds, 10 obstetric beds, 20 pediatric beds, and 8 intensive care unit beds. The application contains all elements required by law, including a resolution authorizing the application and financial statements. The application and omissions response state that Jess Parrish admitted about 100 psychiatric patients in fiscal year ending 1987. The omissions response adds that Jess Parrish would offer the following programs for its short-term psychiatric patients: continual evaluation, screening, and admissions; individual, family, and group therapy; occupational, recreational, and vocational therapy; psychological and psychiatric testing and evaluation; day hospital and day clinic; family and friends education and support groups; and specialized treatment programs for geriatric psychiatric patients. The omissions response reports that the only facility with adult short-term psychiatric beds within 45 minutes of Jess Parrish is Wuesthoff. The omissions response states that Wuesthoff had experienced the following occupancy rates in its adult short-term psychiatric program: 1984--59%; 1985--66%; 1986-- 7l%; and first three quarters of 1987--71%. The omissions response acknowledges that Jess Parrish and Circles of Care, Inc. (Circles of Care) had jointly prepared the application and that Jess Parrish "plans to employ by contract, Circles of Care, Inc. to operate and manage our unit" if the application is approved. The omissions response includes a letter to HRS dated November 10, 1987, from James B. Whitaker, as president of Circles of Care. The letter describes the 12-year relationship between the two parties, which began when Circles of Care leased its first 12 beds from Jess Parrish between 1974 and 1980. Mr. Whitaker states that the two parties thus "work[ed] out a management agreement; for the new sixteen bed unit that Jess Parrish has requested." In the State Agency Action Report, HRS notes that the project does not conform with Policy 4 of the applicable District 7 Local Health Plan. This policy provides that additional short-term inpatient psychiatric beds may be approved when the average annual occupancy rate for all existing facilities in the planning area equals or exceeds the following rates: adult--75% and adolescents/children--70%. HRS reports a similar discrepancy as to the occupancy standard in the State Health Plan, which incorporates at Objective 1.2 the same 70%/75% standards. HRS states in the State Agency Action Report that the 1986 occupancy rates for short-term psychiatric beds, which averaged 69.98% in Brevard County, were 87% at Circles of Care, 70.6% at Wuesthoff, and 14% at a new facility, C. P. C.--Palm Bay. In addition, for the first six months of 1987, the report states that the occupancy rates, which averaged 63.5% in Brevard County, were 76% at Circles of Care, 71.5% at Wuesthoff, and 43% at C. P. C.--Palm Bay. In calculating numeric need under the rule, HRS concludes that there was a net need for a total of 547 beds in the district, consisting of 312 in specialty hospitals and 235 in general hospitals. Addressing the provision of the District 7 Local Health Plan focusing upon need at the county level, HRS finds that there was a net need for a total of 38 beds. Recognizing the "sub- standard utilization" of existing short-term psychiatric beds, HRS states that the application was justified "mainly because of the enhanced access to services that the project would provide." All of the other criteria were fully satisfied with one irrelevant exception, and the State Agency Action Report concludes: Although the district and county utilization of short-term psychiatric beds falls below the 70% [sic) adult standard, this project merits a Certificate of Need because there exists numeric need in the service area and because the project affords greater access and availability to psychiatric services for underserved groups. Need District and State Health Plans Part 3 of the 1985 District 7 Local Health Plan, published by The Local Health Council of East Central Florida, Inc., sets forth policies and priorities for inpatient psychiatric services. Policy 1 establishes each of the four counties of District 7 as a subdistrict for purposes of planning inpatient psychiatric services. Policy 3 of the 1985 District 7 Local Health Plan provides a specific methodology to allocate beds when the numeric need rule methodology indicates a need for inpatient psychiatric beds. A minimum of .15 beds per 1000 projected population should be allocated to hospitals holding a general license. A total of .20 beds per 1000 projected population may be located in specialty hospitals or hospitals holding a general license. The population projections are for five years into the future. Policy 4 of the 1985 District 7 Local Health Plan provides that additional short-term inpatient psychiatric beds may be approved when the average annual occupancy rates for all existing facilities in the planning area equal or exceed 75% for adult facilities and 70% for adolescents/children facilities. The policy concludes: Additional beds should not be added to the health system' until the existing facilities are operating at acceptable levels of occupancy. Good utilization of existing facilities prior to adding beds aids in cost containment by preventing unnecessary duplication. The 1988 District 7 Local Health Plan, although inapplicable to the subject proceeding, refers to the pending application of Jess Parrish. The plan states: [T]he residents of District 7 appear to be well-served by the existing providers with only a few exceptions. First, residents of north Brevard County (Titusville area) currently have no access to any certified, short-term, inpatient psych services in less than 22 miles. In many driving situations this distance takes longer than 30-45 minutes to traverse. . . . If [the CON that has been tentatively approved] is sustained through litigation and the unit is finally opened availability of these 16 beds should ameliorate, to a large degree, the potential geographic access problems for north Brevard adult/geriatric patients at least. Objective 1.1 of the 1985-1987 State Health Plan states that the ratio of short-term inpatient hospital psychiatric beds to population should not exceed .35 beds to 1000 population. Objective 1.2 states that, through 1987, additional short-term psychiatric beds should not normally be approved unless the service districts has an average annual occupancy of 75% for existing and approved adult beds and 70% for existing and approved adolescents/children beds. Numeric Need Pursuant to HRS Rules Net Need Rule 10-5.011(1)(o)4., Florida Administrative Code, sets forth the HRS numeric need methodology. The rule provides that the projected number of beds shall be determined by applying the ratio of .35 beds to 1000 population to the projected population in five years, as estimated by the Executive Office of the Governor. The relevant projected population for District 7 is 1,564,098 persons. Applying the ratio, the gross number of beds needed in District 7 is 547. The total number of existing and approved short-term psychiatric beds in District 7 in 1987 was 410. There is therefore a net need for 137 short-term psychiatric beds in District 7. The relevant projected population for Brevard County is 441,593 persons. Applying the ratio, the gross number of beds needed in Brevard County is 155. The total number of existing and approved short-term psychiatric beds in Brevard County in 1987 was 117. There is therefore a net need for 38 short- term psychiatric beds in Brevard County. A minimum of .15 beds per 1000 population should be located in hospitals holding a general license, and .20 beds per 1000 population may be located in specialty hospitals or hospitals holding a general license. The calculations disclose that, for District 7, there is a net need of 73 beds in the former category and 65 beds in the latter category. As to Brevard County, the respective numbers are 41 and 4. Rule 10-5.011(1)(o)4.d., Florida Administrative Code, provides that new facilities for adults must be able to project a 70% occupancy rate for the first year and 80% occupancy rate for the third year. Jess Parrish projects that its short-term psychiatric program will experience a utilization rate of 66% at the end of the first complete year of operation and 82% at the end of the third complete year of operation. These projections are reasonable and substantially conform with the requirements of the rule. Rule 10-5.011(1)(o)4.e., Florida Administrative Code, provides that no additional short-term inpatient beds shall normally be approved unless the average annual occupancy rate for the preceding 12 months in a "service district" is at least 75% for all existing adult short-term inpatient psychiatric beds and at least 70% for all adolescents/children short-term inpatient psychiatric beds. HRS considered the 70%/75% occupancy standards in making the July, 1987, announcement of a zero fixed need pool for short-term psychiatric beds in Brevard County. The determination of zero fixed need was a reflection that, although numeric need existed, the occupancy standards had not been satisfied. The incorporation of the occupancy standard into the July, 1987, fixed need calculation represented a deviation from nonrule policy deferring computation of the occupancy levels until the application-review process. The prior announcement of a fixed need pool on February 27, 1987, stated that a number of beds were needed even though the occupancy situation in District 7 was about the same. Subsequent announcements likewise deferred consideration of the occupancy standard. HRS has explicated its nonrule policy of excluding occupancy standards from the calculation of numeric need when publishing fixed need pools. Unlike the relatively simple task of determining the relevant population projection and multiplying it by the proper ratio, application of the occupancy standards, especially at the time in question, required numerous determinations and calculations. By attempting to incorporate the occupancy standards into the calculations upon which the fixed need pool were based, HRS increased the potential for error, which occurred in this case, rather than increased the reliability of the information. Although adequate reason exists for revising the July, 1987, published fixed need pool, Rule 10-5.008(2)(a), Florida Administrative Code, prohibits revisions to a fixed need pool based upon a change in need methodologies, population estimates, bed inventories, or other factors leading to a different projection of need, if retroactively applied. However, the revision of the July, 1987, fixed need pool does not represent a change in need methodologies, population estimates, bed inventories, or other factors leading to a different projection of need, if retroactively applied. The revision to the fixed need pool, which did not represent a change in need methodology or underlying facts, was a result of three legitimate considerations. First, HRS revised the fixed need pool to implement its policy decision to limit the fixed need pool to the numeric need calculation and reserve the calculations of occupancy standards to the application-review process. This consideration does not involve a change in the methodology of determining numeric need or applying occupancy standards. Second, HRS revised the fixed need pool to correct earlier, erroneous calculations. This consideration does not involve a change in the underlying facts, but merely in the computations based upon the same facts. Third, HRS revised the fixed need pool to reflect developing policy in the application of the occupancy standards. HRS decided to apply the more liberal 70% occupancy standard to facilities serving both adults and adolescents/children, exclude from the determination of occupancy levels any facilities serving only age cohorts not served by the applicant, and restrict the 75% occupancy standard to facilities serving adults only. HRS made these changes, which it felt would not harm existing providers, in recognition of the failure of data provided by health-care suppliers to distinguish between adult and adolescents/children admissions and patient days. These considerations approximate a change in methodology, but the revision resulting from such considerations does not violate the rule because HRS already has shown that consideration of the occupancy standards should not take place until after publication of the fixed need pool. In the present case, two facilities in District 7 serve only adolescents/children. These facilities are C. P. C.-- Palm Bay and Laurel Oaks, which is in Orange County. Eliminating their occupancy rates, the district occupancy rate in the year ending June 30, 1987, was 71.9%. Removing the occupancy rate of C. P. C.--Palm Bay from Brevard County, the county occupancy rate during the same period was over 75%. Under the revised policies, Brevard County had a net need of 38 short- term psychiatric beds, applicable occupancy standards in the county and district were satisfied, and the July, 1987, publication of a fixed need pool of zero did not preclude the finding of need under other than "not normal" circumstances. Accessibility Financial Accessibility The primary service area of Jess Parrish is north Brevard County. A higher percentage of the population of this area lives below the poverty level than does the population of any other sub-region of Brevard County. According to the 1980 Census data, the applicable percentages of area residents living below the poverty level were 12.7% in north Brevard County, 10% in central Brevard County, 8.4% in south Brevard County, and 9.6% in Brevard County overall. Partly as a reflection of the different sub-regions and partly as a reflection of the commitment of Jess Parrish to provide access to underserved populations, Jess Parrish provides considerably more services to Medicaid patients than does either of the other major general hospitals in central and south Brevard County. In 1987, 11.5% of the admissions and 8.9% of the patient days at Jess Parrish were Medicaid. The respective numbers are 7% and 6% for Wuesthoff and 5.8% and 3.9% for Holmes Regional Medical Center, which is in Melbourne. A key component of financial accessibility is the effect of the proposed program on Circles of Care. About 55% of the patients of Circles of Care are indigent. Another 17% of its patients earn between the minimum wage and $15,000 annually. Circles of Care has participated in all phases of the application process on behalf of Jess Parrish. The approval of the new program would not have an adverse effect on Circles of Care. To the contrary, the new program at Jess Parrish would provide Circles of Care with more treatment options, especially with respect to indigent patients, whose need for short-term psychiatric services has proven at times difficult to meet. These options are especially valuable at a time when there is no net need in Brevard County for any more short-term psychiatric beds in specialty hospitals, such as Circles of Care. The 52 psychiatric beds licensed to Circles of Care are in two different units contained within a single hospital facility located in Melbourne, which is in south Brevard County. Sheridan Oaks is a 24-bed, private unit, which cannot accept many Baker Act patients without adversely affecting the other patients and the psychiatrists who refer private-pay patients to this unit. The other unit is a public Baker Act receiving facility with 28 beds, for which Circles of Care receives state funds. Unlike Sheridan Oaks, the public receiving facility employs the psychiatrists who work there. About 85-90% of all Baker Act patients in Brevard County come through this public receiving facility, whose occupancy rate was 98% in the year ending June 30, 1987. In addition to these units, Circles of Care operates a mental health outpatient clinic in Titusville, an outpatient/inpatient treatment center in the Rockledge/Cocoa area, numerous social clubs throughout Brevard County for the chronic mentally ill, and numerous public education and awareness programs concerning the treatability of mental illness. Another limitation of being a specialty hospital is that Circles of Care does not qualify for Medicaid reimbursement. Jess Parrish, as a general hospital, qualifies for such reimbursement and projects in its application that 39% of its patient days will be Medicaid and 9% of its patient days will be indigent. Geographic Access Jess Parrish is located at the north end of Brevard County, which runs about 80 miles north-south. Wuesthoff is about 25 miles south of Jess Parrish, and Titusville is about 40 miles north of Melbourne. Intercity north-south traffic uses Interstate 95, which is west of the above-described cities, and U.S. Route 1, which runs through the center of each of these cities. Rule 10-5.011(1)(o)5.g., Florida Administrative Code, provides that short-term inpatient psychiatric services should be located within a maximum travel time of 45 minutes under average travel conditions for at least 90% of the population of the service area. This criterion is presently met without the addition of short-term psychiatric beds at Jess Parrish. This factor is outweighed, however, by another factor in this case. Jess Parrish projects about half of its patients will be indigent or Medicaid, and north Brevard County has a disproportionate share of the county's impoverished residents. Average travel conditions for these persons require public transportation, which, in north Brevard County, is limited to Greyhound/Trailways and local taxi companies. Exclusive of time waiting for the bus and traveling to and from the bus stations, the time for the 25-mile trip between Titusville and Rockledge, of which there are three or four trips daily (excluding off-hour trips), ranges from 25-35 minutes. There is evidence in the record that mentally ill bus passengers do not always make it to their intended destinations by way of intercity buses. The use of available public transportation is therefore problematic, but in any event adds considerable time to the travel time to Wuesthoff for those individuals who do not own a motor vehicle. Effect on Wuesthoff The effect of the conversion of medical/surgical beds to short-term psychiatric beds will have no material effect on Wuesthoff, even though it did reduce the number of short-term psychiatric beds from 30 to 25 in 1986. The occupancy rate for Wuesthoff's short-term psychiatric unit in 1987 was 70.6%. The prime service areas of Wuesthoff and Jess Parrish as to psychiatric admissions do not substantially overlap. Although Jess Parrish may be expected to draw more patients from Wuesthoff's prime service area following commencement of the new operation, many of Jess Parrish's patients will be from the indigent and Medicaid payor classes for which the competition is not intense. The addition of a 16-bed short-term psychiatric unit at Jess Parrish will not materially influence the availability of qualified personnel for Wuesthoff. It appears that Jess Parrish will be able to staff the relatively small 16-bed unit without employing significant numbers of professional employees of Wuesthoff. Some of the relatively few patients whom Wuesthoff can be expected to lose to Jess Parrish involve referrals from Titusville-area physicians, psychiatrists, and psychologists, who will place their patients in the closer facility once it is opened. The negative impact upon Wuesthoff is outweighed in these cases by gains for the patients in continuity of care and community support. Financial Feasibility The short-term financial feasibility is good. Jess Parrish has available to it sufficient funds to undertake the relatively modest capital outlay in constructing the facility, which will consist of about 8000 square feet on an existing floor of the hospital. The long-term financial feasibility is generally good. The financial projections are based on reasonable assumptions, which are largely derived from the actual experience of Circles of Care. The projections accurately estimate revenue sources and expenses. Jess Parrish reasonably projects an adequate supply of patients from a combination of sources, including Circles of Care, existing patients whose diagnoses include psychiatric components, and numerous health-care professionals in north Brevard County. The financial projections contemplate a material contribution by Circles of Care, but project no compensating expenditures. However, this deficiency is largely offset by the likelihood that the financial participation of Circles of Care will be restricted to a share of any excess of revenues over expenses of the new project, possibly excluding reimbursement of fairly minor expenses. If that is the case, the effect of any management agreement would be only to reduce the excess of revenues over expenses enjoyed by Jess Parrish from the operation of the short-term psychiatric unit. The management agreement would not expose Jess Parrish to losses that would not have otherwise existed but for the agreement to make payments to Circles of Care. Under these circumstances, the omission of the information, although material, does not seriously cast into doubt the long-term financial feasibility of the project. Quality of Care The quality of hospital care offered by Jess Parrish is excellent. The quality of the various psychiatric services offered by Circles of Care is also excellent. Both facilities are accredited by the Joint Commission on the Accreditation of Hospitals. The issue in this case involves the quality of care to be expected in the 16-bed short-term psychiatric unit for which Jess Parrish seeks a certificate of need. Circles of Care and Jess Parrish have agreed that Circles of Care will be responsible for recruiting most of the personnel for the new program and will employ the program's medical director, who will be responsible for treatment decisions. In addition, Circles of Care will advise Jess Parrish as to the adoption of policy, which will remain ultimately the responsibility of Jess Parrish. Jess Parrish will employ the head nurse and all other full-time professional staff working in the unit. The tentativeness of the arrangement between Circles of Care and Jess Parrish is partly explained by the desire of both parties to avoid the time and expense of negotiating an agreement in every detail prior to obtaining final approval of the certificate of need. In addition, both organizations were devoting substantial time to the subject litigation, for which Circles of Care was paying a portion of the expenses. In the final analysis, the failure to work out the agreement, although not a positive feature of the application, is not a serious problem for two reasons. First, Circles of Care and Jess Parrish have a long history of mutual cooperation. The relationship began when Jess Parrish leased Circles of Care 16 hospital beds for psychiatric use. Although the arrangement ended several years ago when Circles of Care constructed its Melbourne facility, the two organizations have since cooperated in several less intensive ways. Second, although Circles of Care has superior expertise in the area of mental health, Jess Parrish qualifies by itself to operate the proposed facility. Circles of Care has already provided much of the necessary technical information required for the preparation of budgets and pro formas. Recruiting would probably take somewhat longer without Circles of Care, but the modest construction budget obviously does not involve significant debt service, so that the delay would not be costly. Perhaps the most significant loss from a quality-of-care perspective would be the medical director, whose expertise will be critical. Again, this would be largely a problem of delay only, as Jess Parrish would have to find a replacement, although it appears likely that the director may be Dr. David Greenblum, who is already a member of the active medical staff at Jess Parrish. Given the quality of care provided by Jess Parrish in the past, there is no basis for any concern that, in the unlikely event that the parties fail to negotiate an agreement, Jess Parrish would jeopardize its reputation as a quality 200-bed general hospital in order to commence prematurely a 16-bed short- term psychiatric unit. Other Factors The record does not demonstrate that there are less costly, more efficient, or more appropriate alternatives to the inpatient services proposed in the subject application. There are no crisis stabilization units or short-term residential treatment programs available in Brevard County. The proposed project will have a measurable impact only upon Circles of Care, whose existing inpatient facilities will be enhanced, and Wuesthoff, whose existing inpatient facilities will not be materially affected. In general, these existing services are being used in an appropriate and efficient manner. On the other hand, the beds that Jess Parrish seeks to convert are underutilized in their present designation. The medical/surgical beds at Jess Parrish have been utilized at a rate of less than 60% over the past three years. There are no feasible alternatives to renovation of the existing facilities. The costs and methods of proposed construction are reasonable and appropriate. The approval of the application will foster healthy competition in the area of short-term psychiatric services and promote quality assurance.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Health and Rehabilitative Services enter a Final Order granting the application of Jess Parrish for a certificate of need to convert 16 medical/surgical beds to 16 short-term adult psychiatric beds. DONE and ENTERED this 30th day of June, 1989, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of June, 1989. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-1220 Treatment Accorded Proposed Findings of Jess Parrish 1-6 Adopted or adopted in substance. 7-8 Rejected as irrelevant. 9-10 Adopted or adopted in substance. 11 Rejected as recitation of testimony and subordinate. 12-13 Adopted or adopted in substance. Rejected as irrelevant. Adopted to the extent of the finding in the Recommended Order that there likely will be an agreement between Circles of Care and Jess Parrish. Rejected as unsupported by the evidence that such an agreement exists already. Also rejected as unnecessary insofar as the application can stand on its own without the participation of Circles of Care. 15a Adopted or adopted in substance. 15b-15c Rejected as irrelevant. 15d-15g Adopted in substance, although certain proposed facts rejected as subordinate. However, the first sentence of Paragraph 15f is rejected as against the greater weight of the evidence. 15h Rejected as recitation of testimony. 16-18 Adopted or adopted in substance except that all but the last sentence of Paragraph 18g. is rejected as against the greater weight of the evidence and legal argument. 19 First sentence adopted. 19 (remainder) -22. Rejected as subordinate and recitation of evidence. Generally adopted, although most of the facts are rejected as subordinate in the overall finding and cumulative. Adopted except that sixth sentence is rejected as against the greater weight of the evidence and the seventh sentence is rejected as subordinate. Adopted in substance. First sentence adopted. Remainder rejected as irrelevant. Rejected as irrelevant. Adopted. 28a Rejected as unsupported by the greater weight of the evidence. 28b-28d Adopted or adopted in substance. and 31 Rejected as subordinate. Rejected as unnecessary. 32-50 Adopted or adopted in substance. Treatment Accorded Proposed Findings of HRS 1-11 Adopted or adopted in substance. & 14 Rejected as irrelevant. & 15-16 Adopted. 17 Rejected as unnecessary. 18-74 See rulings on Paragraphs 16-50 in preceding section. Treatment Accorded Proposed Findings of Wuesthoff 1-3 Adopted or adopted in substance. Rejected as irrelevant. Rejected as against the greater weight of the evidence and legal argument. 6-10 & 12 Adopted or adopted in substance. 11 Rejected as against the greater weight of the evidence. Rejected as recitation of testimony and cumulative. Rejected as cumulative except that second sentence is adopted. Rejected as recitation of testimony. Rejected as cumulative, subordinate, and legal argument. Rejected as cumulative except that second sentence is adopted. First clause rejected as against the greater weight of the evidence. Remainder rejected as irrelevant. Rejected as cumulative and subordinate. 20-23 Rejected as irrelevant and unnecessary. Rejected as against the greater weight of the evidence. Rejected as irrelevant and unnecessary. Rejected as cumulative. 27-28 Rejected as irrelevant and unnecessary. 29 Rejected as legal argument. 30-32 Rejected as irrelevant. 33-41 Rejected as against the greater weight of the evidence and subordinate. 42 and 51 Rejected as recitation of evidence. 43-45 Rejected as against the greater weight of the evidence. 46 Rejected as legal argument. 47-50 and 52-54 Rejected as subordinate. 55 Rejected as against the greater weight of the evidence. 56-59 Rejected as irrelevant. 60-66 Rejected as subordinate and recitation of testimony. 67-69 Rejected as against the greater weight of the evidence. 70-73 Rejected as against the greater weight of the evidence and subordinate. 74-78 Adopted. 79 Rejected as against the greater weight of the evidence. 80-82 Adopted. 83-85 Rejected as against the greater weight of the evidence. 86 Rejected as subordinate and against the greater weight of the evidence. 87-91 Adopted or adopted in substance. 92 Rejected as against the greater weight of he evidence. 93-94 Rejected as subordinate. Rejected as against the greater weight of the evidence. Rejected as irrelevant. 97-98 Rejected as against the greater weight of the evidence. Rejected as irrelevant. Rejected as subordinate. 101-102 Rejected as against the greater weight of the evidence. Rejected as partly cumulative and partly legal argument. Rejected as against the greater weight of the 105 evidence Rejected and irrelevant. as against the greater weight of the 106-108 evidence. Rejected as subordinate. 109 110-113 Rejected evidence. Rejected as against the greater weight of as subordinate. the 114-117 118-120 Rejected evidence. Rejected as against the greater weight of as irrelevant and subordinate. the 121-122 Rejected as subordinate. 123 124-125 First sentence adopted in substance. Remainder rejected as subordinate. Rejected as subordinate. 126-129 Rejected as unsupported by the greater weight of evidence. the COPIES FURNISHED: Anthony Cleveland W. David Watkins Oertel, Hoffman, Fernandez & Cole, P.A. Post Office Box 6507 Tallahassee, Florida 32314-6507 John Rodriguez 1323 Winewood Boulevard Building 1, Room 407 Tallahassee, Florida 32399-0700 William B. Wiley Darrell White McFarlain, Sternstein, Wiley & Cassedy, P.A. Post Office Box 2174 Tallahassee, Florida 32316-2174 Stephen M. Presnell MacFarlane, Ferguson, Allison & Kelly Post Office Box 82 Tallahassee, Florida 32302 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: By an application filed in late 1981, Sun Coast Hospital, in partnership with Metropolitan General Hospital, sought approval from the respondent HRS for a Certificate of Need to construct an 86-bed acute care hospital facility in the Countryside area of North Pinellas County. The facility is to be known as the Palm Harbor Hospital and is to be located on State Road 584, some 18 to 20 miles from the existing Sun Coast Hospital. The proposed facility is to be a free-standing hospital with 80 medical/surgical beds and 6 intensive care beds. Twenty-six of the beds are to be transferred from Sun Coast Hospital. The total project cost is $10,066,533 to be financed by a bond issue at 15 percent interest for 30 years. It is anticipated that Sun Coast and Metropolitan General will split the initial costs of the Palm Harbor facility. It is proposed that the new facility will have a radiology department, a laboratory, a surgical department and an emergency room. Metropolitan and Sun Coast will serve as back-up facilities for the more complicated procedures. The medical staff at the new facility will be oriented to osteopathic specialties. It is anticipated that the new Palm Harbor Hospital will be a teaching facility for osteopathic medicine. Petitioners project an 80 percent occupancy rate at the proposed facility for its second year of operation. The respondent HRS conducted a comparative analysis of petitioners' application along with four other applications for Certificates of Need for hospitals in North Pinellas County. HRS denied petitioners' application, but granted a Certificate of Need to Mease Hospital and Clinic to construct a 100- bed satellite acute care hospital in North Pinellas County. The Certificate of Need issued to Mease is not being challenged in this proceeding. The petitioners' proposed facility is to be located approximately 2.5 miles from the new Mease facility. Sun Coast and Metropolitan General Hospitals are nonprofit corporations accredited by the American Osteopathic Association (AOA). Metropolitan is located in Pinellas Park and Sun Coast is located in Largo, just north of Ulmerton Road. Sun Coast is one of the largest teaching facilities for osteopathic physicians in the South, and it is the largest teaching facility in Florida. It trains about 30 osteopaths at any given time, and at the time of the hearing, it had 14 interns, 15 externs and 8 residents. Some 95 percent of the physicians on its staff are Doctors of Osteopathy (D.O.). Sun Coast Hospital has 314 licensed beds, with 248 beds staffed and in operation. It intends to transfer 26 beds to the new Palm Harbor facility. The average monthly occupancy at Sun Coast is 180 beds, or 57 percent of its licensed bed capacity. Out of its 248 operating beds, there are generally 68 open and available beds at all times. Sun Coast presently receives approximately 10 percent of its patient census from the Palm Harbor area. Teaching hospitals attract primary care physicians to an area. As part of their education, DOs are required to serve a one-year rotating internship at an AOA accredited hospital. This includes rotating service and training in the areas of general medicine, surgery, OB/GYN, pediatrics, pathology and radiology. In the United States, there are 15 Colleges of Osteopathic Medicine, 8 of which have been established in the last 10 years. While there were only 400 osteopathic graduates five to seven years ago, there are presently 1100 graduates per year. There are approximately 16,000 medical doctors graduating each year. Nationally, approximately 4 percent of all physicians are Doctors of Osteopathy. In Florida, 13 percent of all physicians are Doctors of Osteopathy. In Pinellas County, there are three AOA accredited hospital facilities with a total of 534 beds, or 12 percent of the total licensed beds. In North Pinellas County (north of Ulmerton Road), there are approximately 439 MDs and 92 DOs, or 17.33 percent of all the physicians. The DOs in North Pinellas have 2.27 AOA accredited beds per D.O., as compared to 3.5 non-AOA available beds per M.D. Based upon total licensed bed capacity, the occupancy levels in Pinellas County for allopathic beds is 69 percent and is 56.2 percent for osteopathic beds. In North Pinellas County, the occupancy levels for total allopathic beds is 73.1 percent and for total osteopathic beds is approximately 55 percent. In North Pinellas County, osteopathic patients account for about 12 percent of all hospital admissions. Osteopathic beds account for approximately 18 percent of the total number of licensed beds in North Pinellas County. Pinellas County has more osteopathic beds than other areas in this State. Approximately 30 percent of all osteopathic beds in Florida are in Pinellas County, which has about 7.5 percent of the State's population. HRS has no promulgated or established definition of an osteopathic facility. Some experts testified that a facility had to be AOA accredited to be designated a true "osteopathic" facility, while others were of the opinion that only the "concept" of the facility must be osteopathic. While osteopathic physicians receive somewhat different training and education than allopathic physicians, there was no dispute that there is no major difference between an osteopathic and an allopathic hospital with regard to necessary equipment or technical staff. The main equipment difference is a table upon which manipulative therapy is performed in the osteopathic facility. Also, a structural examination of osteopathic patients is performed and, therefore, space is needed on the hospital chart to record the structural evaluation. There are currently three AOA accredited osteopathic hospitals in Pinellas County--Sun Coast, Metropolitan and Harborside Hospital. University Hospital, which is largely staffed by DOs, but is not AOA certified, also exists in Pinellas County. Located about 25 minutes north of the Countryside or Palm Harbor area is Riverside Hospital in Pasco County. Riverside is owned by American Health Care Enterprises, which also owns Harborside Hospital in St. Petersburg. Riverside was purchased from Pasco County in 1982 and, in the contract of sale, American Health Care made a commitment of its desire to be accredited by the AOA, become an osteopathic teaching facility and be affiliated with the Southeastern College of Osteopathic Medicine in Miami. Riverside has 102 licensed beds, with 100 beds open. Of its total admissions, 56 percent are osteopathic patients. It is operated by a seven member Board of Directors, three of whom are physicians. Two of the three physicians are osteopaths. One of the osteopathic Board members is a trustee of the Southeastern College of Osteopathic Medicine. Riverside's Chief of Medicine is a D.O., as is its Vice- Chief of Staff. Of the 18 family physicians on the staff at Riverside, 14 are DOs. The opening and operation of a new osteopathic facility within a 25 minute drive from Riverside Hospital would harm Riverside financially and would hinder its plans to become an osteopathic teaching facility. The local health systems plan found a need for 95 additional hospital beds in North Pinellas County. Insufficient evidence was presented by the parties that the need for hospital beds, osteopathic or allopathic, in North Pinellas County was any greater than 95. The applicable standard for accessibility is that hospital beds located within 30 minutes driving time be available for 90 percent of an area's population. In determining the bed needs for an area, it is the policy of HRS to consider community needs in terms of historical utilization and shifts in population. Neither physician opinion, beds per physician nor the needs of a limited proposed primary service area (as opposed to community need) are given controlling consideration. The recently approved 100-bed facility of Mease Hospital and Clinic is located about two miles north and 1.5 miles west of the central point of the petitioners' proposed primary service area. The new Mease facility is to be a satellite of the Mease Hospital in Dunedin, which operates at an occupancy level of 74 percent. Mease is not accredited by the AOA and has no separate manipulative therapy department, but it does have 8 osteopathic physicians on its staff. The new Countryside Mease facility plans to have an emergency room, and offer services in radiology, physical therapy and surgery. It is anticipated that two osteopathic physicians will staff the Mease Countryside emergency room. Local law requires that critically ill, emergency patients be transported to the nearest emergency room. The opening and operation of a new osteopathic hospital within two and one half miles of the new Mease Hospital would harm it financially, would divert emergency room patients and inpatients derived there from, and would make it difficult for Mease to adequately staff its new facility.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the application of Sun Coast/Metropolitan General Hospital for a Certificate of Need to construct an 86-bed acute care osteopathic hospital in North Pinellas County be DENIED. Respectfully submitted and entered this 29th day of June, 1983, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 29th day of June, 1983. COPIES FURNISHED: Cynthia S. Tunnicliff, Esquire Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A. P.O. Drawer 190 Tallahassee, Florida 32302 Robert A. Weiss, Esquire Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Florida 32301 John P. Frazer, Esquire Frazer & Hubbard, P.A. P.O. Box 1178 Dunedin, Florida 33528-1178 Kenneth Hoffman, Esquire Oertel & Hoffman, P.A. 646 Lewis State Bank Bldg. Tallahassee, Florida 32301-1879 David Pingree Secretary Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Florida 32301
