Findings Of Fact Background On September 28, 1988, First Hospital Corporation of Florida d/b/a First Hospital of Palm Beach County (First Hospital) filed a timely application for the July 1993 planning horizon with the Department of Health and Rehabilitative Services (Department) for a certificate of need (CON) to construct a 48- bed short-term psychiatric specialty hospital, dedicated to the care of children and adolescents, in District IX. 1/ District IX is comprised of Palm Beach, Martin, St. Lucie, Indian River, and Okeechobee Counties. On February 3, 1989, the Department published notice in the Florida Administrative Weekly of its intent to grant First Hospital's application. Petitioners, Lake Hospital & Clinic, Inc. d/b/a Lake Hospital of the Palm Beaches (Lake Hospital), and Community Hospital of the Palm Beaches, Inc. d/b/a Humana Hospital Palm Beaches (Humana), existing providers of psychiatric services to adolescents in Palm Beach County, filed timely petitions for a formal administrative hearing to oppose the grant of the subject application. The matter was referred to the Division of Administrative Hearings for the assignment of a hearing officer to conduct a formal hearing pursuant to section 120.57(1), Florida Statutes, and Savannas Hospital Limited Partnership (Savannas), an existing provider of psychiatric services to adolescents in St. Lucie County, was granted leave to intervene. 2/ The proposed facility At issue in this proceeding is the application of First Hospital for a CON to construct a 48-bed short-term psychiatric specialty hospital dedicated to the care of children and adolescents. This project is, however, only a portion of an 80-bed facility that First Hospital proposes to construct on a 30-acre parcel of land adjacent to Wellington Regional Memorial Hospital in western Palm Beach County. As sited, the proposed facility would be located west of the Florida Turnpike; on the west side of State Road 7 and approximately .2 miles north of Forest Hills Boulevard. The 80-bed facility that First Hospital proposes to construct would consist of a central core area and three attached wings or units. Two of the wings, each containing 24 beds, will be dedicated as short-term psychiatric beds, with one wing for young adolescents (10-14 years of age) and one wing for older adolescents (14-18 years of age). The third wing, consisting of 32 beds, will be dedicated as a residential treatment center (RTC) for adolescents. The central core area would include administrative, therapy, kitchen and dining, gymnasium classroom areas and other support functions, and is essential to the operation of the psychiatric units, but will be shared with the residential treatment unit. A therapeutic preschool program, for children 3-5 years of age, as well as a partial hospitalization program for adolescents, are also proposed to be offered, and will be located in the central core area. 3/ The psychiatric program proposed by First Hospital for its 48-bed short-term psychiatric facility will address emotional and behavioral disorders that may affect adolescents, and which require admission to a short-term acute care facility for treatment. In its application, First Hospital estimates an average length of stay of 45 to 60 days. The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing health card services in the service district As a touchstone for assessing need within a service district, the Department has established a short-term psychiatric bed need methodology that must normally be satisfied before a favorable need determination will be found. That methodology, codified in Rule 10-5.011(1)(0)(4), Florida Administrative Code, contains two identifiable parts. The first part deals with the mathematical derivation of a net bed need for the planning horizon by assuming a gross bed need ratio of .35 beds per 1,000 population, and reducing that figure by the number of existing and approved beds. Based on the population projections of the Executive Office of the Governor, July 1988 release, application of this methodology derives a net need for 48 short-term psychiatric beds for the July 1993 planning horizon (gross bed need of 480- existing and approved beds of 432 = 48 net bed need. 4/ The second part of the Department's need methodology addresses occupancy standards for existing facilities that must be satisfied before a favorable need determination will normally be found. For short-term child and adolescent beds, the rule mandates an average annual occupancy rate of not less than 70 percent for all such existing facilities for the preceding 12- month period. Here, the proof demonstrates an average annual occupancy rate in excess of 70 percent for the 12-month period preceding the Department's need calculation, and satisfaction of the second part of the Department's need methodology. On August 12, 1988, the Department, pursuant to Rule 10-5.008(2)(a), Florida Administrative Code, published notice of the hospital fixed need pool for the July 1993 planning horizon in the Florida Administrative Weekly. Pertinent to this case, such notice erroneously established a net need for 33 short-term psychiatric beds in District IX. Following publication of the fixed need pool, the Department received information that its calculation of the net need for short-term psychiatric beds in District IX was erroneous. Upon review, the Department established that its initial calculation was in error, and on August 26, 1988, the Department published a notice of correction in the Florida Administrative Weekly, which correctly established a net need for 48 short-term psychiatric beds in District IX for the July 1993 planning horizon. This adjustment to the fixed need pool did not result from any intervening changes in population estimates, bed inventories, or other factors which would lead to different projections of need, but from an error in the Department's mathematical calculation. Under the circumstances, the Department's correction of the fixed need pool was appropriate and timely, and a need for 48 short-term child and adolescent psychiatric beds for the July 1993 planning horizon has been demonstrated. Of the 432 short-term psychiatric beds approved and existing within the district on August 17, 1988, 119 beds were reported to the local health council as dedicated to short-term child and adolescent psychiatric services, and the balance of 313 beds as dedicated to adult psychiatric services. Allocation of the 119 short-term child and adolescent beds was reported as follows: Lake Hospital 26 beds, Fair Oaks 27 beds, Humana 27 beds, Savannas 15 beds, and Lawnwood (Harbour Shores) 24 beds. Lake Hospital is a 98-bed freestanding psychiatric specialty hospital located in Lake Worth, Palm Beach County, Florida, that treats adolescents and adults for psychiatric disorders and substance abuse. As of August 17, 1988, Lake Hospital was licensed to operate 56 short-term psychiatric beds, 26 long- term psychiatric beds, and 16 short-term substance abuse beds. Of the 56 short- term psychiatric beds, 26 beds were approved for adolescent care and 30 beds were approved for adult care. During calendar year 1987, Lake Hospital enjoyed an occupancy rate of 91.8 percent for its 26 short-term psychiatric beds, which were dedicated to the care of adolescents, ages 12- 17. In January 1988, Lake Hospital opened a replacement facility on its campus consisting of a two-story structure with four 18- bed units, and reported to the local health council that two of those units (36 beds) were dedicated to short-term adolescent care in January and February 1988, and that thereafter only 18 beds were dedicated to short-term adolescent care. Based on such utilization, Lake Hospital enjoyed an occupancy rate of 95 percent for the first four months of 1988 and a 93.9 percent occupancy rate for calendar year 1988 for its adolescent beds. 5/ Fair Oaks is a 102-bed free standing psychiatric specialty hospital located in Delray Beach, Palm Beach County, Florida, that treats children, adolescents, and adults for psychiatric disorders and substance abuse. As of August 17, 1988, Fair Oaks was licensed to operate 70 short-term psychiatric beds, 15 long-term psychiatric beds, and 17 short-term substance abuse beds. Of the 70 short-term psychiatric beds, 27 beds were approved for child and adolescent care and 43 beds for adult care. During the calendar year 1987, Fair Oaks' second year of operation, it achieved an occupancy rate of 73.1 percent for its 27 short-term child and adolescent psychiatric beds. For the first four months of calendar year 1988, Fair Oaks enjoyed an occupancy rate of 99.7 percent, and for all of calendar year 1988 an occupancy rate of 91 percent. 6/ Humana is a 250-bed general hospital located in West Palm Beach, Florida. Of its existing beds, 162 are dedicated as medical/surgical beds, and 88 as short-term psychiatric beds. For calendar year 1987, Humana reported to the local health council that 27 of its 88-bed complement of psychiatric beds were dedicated to short- term adolescent services, but declined or neglected to report its utilization so that an average length of stay could be calculated. In fact, Humana did not operate a short-term adolescent program for 1987, but operated a long-term program without Department approval. Pertinent to this conclusion, the proof demonstrated that Humana applied for the development of an 88-bed psychiatric pavilion in 1983. Certificate of Need No. 2647 was issued to Humana on November 17, 1983, for 80 short-term psychiatric beds consisting of 48 adult psychiatric beds, 24 geriatric beds, and 8 adult special beds; and, on January 8, 1985, Humana received CON No. 3237 for the additional 8 short-term adult psychiatric beds. Humana opened its psychiatric pavilion in November 1986, and by January 1987 was serving adolescents, ages 13 through 18, in a 27-bed unit notwithstanding the absence of Department approval. As to the services provided in that unit, the proof is compelling that it was dedicated to long-term adolescent psychiatric services with an average length of stay of approximately 280 days. At some point thereafter, but not earlier than July 1989, Humana also began providing short-term adolescent psychiatric services at its facility. 7/ Following the Department's investigation into Humana's operation of a long-term adolescent psychiatric program, Humana applied for a modification of its CON Nos. 2647 and 3237 to allow it to operate a district adolescent unit. On July 14, 1989, Humana received Department approval, and such CON's were modified to allow 15 short-term adolescent psychiatric beds. This modification is, however, currently the subject of an appeal to the District Court. In the interim, on December 14, 1988, Humana received CON No. 5294 for the addition of 15 short-term beds for adolescents and adults, and on February 25, 1989, Humana received CON No. 5722 for the redesignation of 15 short-term psychiatric beds to 15 long-term beds. Currently, Humana has available 30 short-term psychiatric beds for adolescent use, and 15 long-term beds, but its short-term program is in a start-up mode. Savannas is a 70-bed freestanding psychiatric hospital located in Port St. Lucie, St. Lucie County, Florida, approximately 40 miles north of Palm Beach County, that treats adolescents and adults for psychiatric disorders and substance abuse. As of August 17, 1988, Savannas was licensed to operate 50 short-term psychiatric beds and 20 short-term substance abuse beds. Of the 50 short-term psychiatric beds, 15 beds were approved for adolescent care and dedicated to patients ages 14- 17, and 35 beds were approved for adult care. Savannas opened its facility in October 1987, and for that calendar year reported 1,215 patient days for its short- term adolescent unit, For calendar year 1988, its first full year of operation, Savanna's adolescent unit achieved 3,589 patient days, or an occupancy rate of 65.5 percent. Lawnwood (Harbour Shores) is a general hospital located in Fort Pierce, St. Lucie County, Florida, that, as of August 17, 1988, was licensed to operate 60 short-term psychiatric beds. Of the 60 short-term psychiatric beds, 24 beds were approved for child and adolescent care, and 36 for adult care. The date Lawnwood commenced operations does not appear of record; however, during calendar year 1987, it achieved a 62 percent occupancy rate for its 24-bed adolescent unit. For calendar year 1988, Lawnwood maintained a similar occupancy rate even though Savannas was drawing patients from the same service area to its new facility. Considering the availability, accessibility, extent of utilization and adequacy of short-term child and adolescent beds in the service district at all times pertinent to this case, there exists a need for the 48 beds requested by First Hospital, and such beds should be located in Palm Beach County consistent with the local health plan, discussed infra. The need for the proposed facility in relation to the district plan and state health plan Applicable to this case is the 1985-87 state health plan, which contains the following goals and objectives pertinent to short-term inpatient psychiatric beds: GOAL 1: ENSURE THE AVAILABILITY OF MENTAL HEALTH AND SUBSTANCE ABUSE SERVICES TO ALL FLORIDA RESIDENTS IN A LEAST RESTRICTIVE SETTING. OBJECTIVE 1.1: The ratio of short term inpatient hospital psychiatric beds to Florida's population should not exceed .35 beds per 1000 population thru 1987. RECOMMENDED ACTIONS: a: Restrain increases in the supply of short term inpatient hospital psychiatric beds to no more than .35 beds per 1000 population. OBJECTIVE 1.2: Through 1987, additional short term inpatient hospital psychiatric beds should not normally be approved unless the average annual occupancy rate for all existing and approved adult short term inpatient psychiatric beds in the service district is at least 75% and average annual occupancy for existing and approved adolescent and children beds is at least 70%. RECOMMENDED ACTIONS: a. Restrict approval of additional short term inpatient psychiatric beds to these service districts which have an average annual occupancy of 75% for existing and approved adult beds and 70% for existing and approved adolescent and children beds. GOAL 2.: PROMOTE THE DEVELOPMENT OF A CONTINUUM OF HIGH QUALITY, COST EFFECTIVE PRIVATE SECTOR MENTAL HEALTH AND SUBSTANCE ABUSE TREATMENT AND PREVENTIVE SERVICES. OBJECTIVE 2.1: Define, develop and implement policy regarding the appropriate treatment settings and the role of each setting in the delivery of mental health and substance abuse services by 1987. GOAL 3: DEVELOP A COMPLETE RANGE OF ESSENTIAL PUBLIC MENTAL HEALTH SERVICES IN EACH HRS DISTRICT. First Hospital's application is consistent with the goals and objectives of the state health plan. Here, First Hospital proposes to provide a 24-hour-a-day therapeutic milieu, with an average length of stay of 60 days or less, for children and adolescents suffering from mental health problems which are so severe and acute that they need intensive, full-time care. As such, First Hospital will offer care for those individuals for whom short-term inpatient psychiatric care is the least restrictive setting appropriate, and which care, consistent with the Department's need methodologies, will complement the range of mental health services needed in the district. Also applicable to this case, is the 1988 District IX local health plan. Pertinent to this case, the local health plan divides District IX into two subdistricts when planning for short-term psychiatric beds. Subdistrict one consists of Indian River, Martin, St. Lucie and Okeechobee Counties, and subdistrict two consists of Palm Beach County. In allocating short-term psychiatric beds between subdistricts, the local plan provides: When bed need is shown in District IX for either short-term psychiatric services or substance abuse services in accordance with Chapter 10-5.11 of the Florida Administrative Code, the method for allocating beds among subdistricts shall be based upon projected subdistrict occupancy figures as determined by use-rates during the most recent calendar year in combination with projected subdistrict population figures. New beds shall be allocated to the subdistrict showing the highest projected percent occupancy, to the extent that the projected percent occupancy equal that of the other subdistrict. When projected occupancy figures show parity, any remaining beds shall be allocated based upon each subdistrict's percentage of projected patient days for District IX. All projections shall be five years into the future to correspond with the planning horizon governing the addition of psychiatric and substance abuse beds as set forth in state rule. Applying the local plan's methodology to the facts of this case demonstrates that the beds identified by the Department's need methodology should be allocated to subdistrict two, Palm Beach County, which is the county within which First Hospital proposes to locate. The local plan also requires an examination of an applicant's commitment or record of service to medicaid/indigent and underserved population groups. The First Hospital facility will be a specialty hospital and therefore not eligible to provide medicaid services; however, First Hospital has committed to dedicate 8 percent of its patient days to indigent care. Under such circumstances, First Hospital's application is, on balance, consistent with the local plan. The ability of the applicant to provide quality of care and the applicant's record of providing quality of care First Hospital is a wholly owned subsidiary of First Hospital Corporation, an established provider of psychiatric services to children and adolescents since 1983. As of this date, First Hospital Corporation owns and operates 15 hospitals nationally, and has demonstrated the commitment and ability to provide quality care to its patients. Here, First Hospital's staffing is reasonable, and while the program proposed by First Hospital is generic in nature, and similar to that offered by other short-term providers of such services, it will assure, in light of demonstrated need, that patients needing acute short-term psychiatric services in the district will continue to receive quality care. To the extent that the needs of the district may subsequently evidence the need for more specialized programs, First Hospital has demonstrated its ability to address such needs, and to provide quality programs and services. The availability and adequacy of other health care facilities and services in the service area which may serve as alternatives for the health care facilities and services proposed by the applicant The Department's short-term psychiatric bed rule addresses the need for psychiatric facilities that will treat emotional and behavioral disorders which require admission to a short-term acute care facility for treatment. Where such short- term psychiatric care is indicated, any other type of placement would not be appropriate under existing rules (not long-term, residential treatment, group home, or out-patient care), and there are no alternatives for the services proposed by First Hospital. The availability of resources, including health manpower, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation First Hospital has demonstrated that it either has or can obtain all resources, including health manpower, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. As heretofore noted, First Hospital Corporation, the parent of the applicant, has provided psychiatric services to children and adolescents since 1983, and currently owns and operates 15 hospitals nationally. It has never experienced any serious difficulty in financing its operations, either start-up or operational, and has in place an existing program for the recruitment and training of medical, administrative, clerical and other personnel that might be needed for the proposed facility. First Hospital Corporation has no other new projects pending at this time, and has committed itself to the project proposed by its subsidiary. Additionally, Dr. Ronald Dozoretz, who is president, chairman of the board, and the principal stockholder of First Hospital Corporation, has the available resources to finance the subject project, and has also committed to do so if necessary. 8/ The extent to which the proposed services will be accessible to all residents of the service district, and the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent As a freestanding psychiatric facility, First Hospital is not eligible to receive Medicaid funds for the treatment of psychiatric disorders; however, it has committed to provide 8 percent of its patient days to the care of patients who qualify as indigent, and has agreed that its CON be so conditioned. In view of this commitment, as well as the demonstrated need within the district for the proposed services, approval of First Hospital's application will increase accessibility to all residents of the district. The probable impact of the proposed project on the costs of providing health services proposed by the applicant. The proof demonstrates that existent facilities in Palm Beach County are operating near capacity, and that to meet expected demand at the planning horizon an additional 48 short- term psychiatric beds are needed. Under such circumstances, approval of First Hospital's application will stimulate competition and promote quality assurance and cost-effectiveness. While the proof establishes the need for 48 additional beds at the horizon year, the protestants to First Hospital's application contend that, due to the finite number of qualified professionals within the area to staff the facility and the finite number of patients requiring such care, they will be adversely impacted if the application is approved. Succinctly, they contend that they may lose staff or be compelled to pay higher salaries, and that they may lose patients and therefore revenue, if the facility is approved. The protestants' proof regarding potential impact to their existing staff or competition for staff was unpersuasive. In light of the number of existing facilities that already offer mental health type services within the district, and therefore currently compete for the same professionals, First Hospital's entry into the market should not significantly impact existing competition. As importantly, the protestants failed to quantify any such impact or otherwise persuasively demonstrate that, assuming they were compelled to pay more to retain or attract competent staff, such increased expense would adversely affect their operation. With regard to the protestants' concerns regarding lost patient days and revenue, the demonstrated need for the additional 48 beds at the horizon year mitigates the potential for any adverse impact to existent providers in the long term. However, this does suggest that First Hospital's application, as proposed, does not demonstrate a potential to significantly adversely affect existent providers in the short term. To the contrary, should First Hospital achieve the level of utilization it projects in its application, its facility would have a significant adverse impact on existing programs. In this regard, First Hospital's application projects that it will achieve 8,956 patient days in 1991, its first year of operation, and 13,193 patient days in 1992, its second year of operation. Through 1991, there will only be a growth of approximately 3,498 patient days over those that were served by existing facilities in 1988, and through 1992, there will only be a growth of approximately 4,664 patient days over those that were served by existing facilities in 1988. Therefore, to achieve it's projected occupancy levels, First Hospital would have to capture 5,458 patient days in 1991 and 8,529 patient days in 1992 from the patient base that had previously been served at existing facilities. Such impact to those facilities, should First Hospital be able to achieve its projected levels of occupancy, would be significant and adverse. 9/ The costs and methods of the proposed construction As heretofore discussed, First Hospital proposes to construct an 80- bed facility on approximately 30 acres of land in Palm Beach County, Florida, which will include the 48 short-term psychiatric beds which are the subject of this proceeding, as well as the 32 residential treatment beds which the Department concluded were not subject to CON review. The 80-bed facility proposed, at 49,142 gross square feet, will consist of a central core area of approximately 25,000 square feet, which includes three wings; an education and activity wing, a food service wing, and an administrative wing. These wings will house the therapy, kitchen and dining, gymnasium, classrooms, administrative offices, and other services necessary to support the psychiatric facility. Attached to the core area, are two psychiatric wings, at 7,592 square feet each, which will each contain 24 beds dedicated to short-term psychiatric care, and one wing, at 8,944 square feet, which will contain 32 beds dedicated as residential treatment beds. On the adjacent grounds, First Hospital also proposed a swimming pool, tennis courts, baseball field, and sports filed. In its application, First Hospital estimated its total project cost for the proposed psychiatric facility at $4,213,522. This project cost was composed of development cost of $61,500, financing/refinancing costs of $259,800, professional services of $162,000, construction costs of $2,503,162, equipment costs of $480,000, and other related costs of $150,000. But for the construction cost category ($2,503,162), First Hospital derived its estimate of total project costs by allocating 60 percent of the cost of each component of the total cost to the psychiatric facility and 40 percent to the residential treatment facility (the 60/40 methodology). In the case of construction costs, First Hospital based its estimate on the square footage of the psychiatric wings and 60 percent of the core area, which derived a gross square footage for this cost item based on 30,184 square feet, to which it added 60 percent of its estimated costs for site preparation and contingency of construction. Based on this premise, First Hospital's proposal is driven by a $76.33 per square foot cost of construction. 10/ Assuming the propriety of First Hospital's 60/40 allocation of costs, its estimate of project costs is still significantly understated. Here, the proof demonstrates that, as opposed to the $76.33 per square foot cost for construction and site preparation costs estimated by First Hospital, the cost for such work will be $105 per square foot, inclusive of construction and site preparation costs. Based on the 30,184 square feet First Hospital allocated to the project, such cost will amount to $3,169,320, which, when added to the 5 percent contingency factor, the $96,000 allocated for the proposed pool, and the addition of 460 square feet to patient rooms needed to meet Department standards, derives a construction cost figure of $3,472,086, as opposed to the $2,503,162 estimated by First Hospital. In addition to straight construction costs, First Hospital also underestimated its equipment costs. In this regard, First Hospital's equipment list omits many necessary items, including: nurse call equipment, a security system, an emergency generator, therapy and recreational equipment, gym equipment, ice machines, defibrillators, crashcarts, educational materials, media equipment, graphic artwork, interior design items, shelving/lockers for staff and patients, housekeeping items, medication carts, and other necessary equipment. Had First Hospital properly calculated its equipment costs, it would have derived a cost of at least $1 million for movable equipment and at least $150,000 for fixed equipment for the 80--bed facility as opposed to the $700,000 for movable equipment and $100,00 for fixed equipment it estimated. Under such circumstances, applying First Hospital's 60/40 methodology would establish an equipment cost for the subject project at $690,000, as opposed to the $480,000 estimated by First Hospital. 11/ Since financing costs and professional services fees would also require an upward adjustment because of the increase in construction and equipment costs, the total cost for the subject project, utilizing First Hospital's 60/40 methodology, would reach at least $5,488,843, as opposed to the $4,213,522 estimated by First Hospital. 12/ The foregoing analysis of construction costs assumed the reasonableness of First Hospital's 60/40) allocation methodology. For reasons discussed infra, First Hospital's allocation methodology is not reasonable, and its construction costs are therefore dramatically understated. In this regard, the proof demonstrated that the core area, consisting of 25,000 square feet, would be necessary to support the 48-bed psychiatric units whether the 32-bed residential treatment unit were built or not, and that it would be more appropriate to combine the core area and the psychiatric area to assess the subject application. When this is done, the construction cost alone for the project calculates to $4,638,501. 13/ In addition to straight construction costs, all of the other estimated project costs appearing on Table 25 of First Hospital's exhibit 1 are also suspect because of its 60/40 methodology; however, for purposes of this analysis item a, project development costs, and item f, other related costs are assumed accurate, as are construction supervision costs and loan fees. Notably, capitalized interest would increase to at least $355,621, architectural/engineering fees would increase to approximately $242,969, and equipment costs would increase to approximately $726,000. With these adjustments alone, the cost of the 48-bed psychiatric project, which includes the core area, comes to approximately $6,821,000, or over $2,607,000 more than First Hospital estimated. 14/ The unreasonableness of First Hospital's 60/40 methodology To assess the financial feasibility of the proposed project, First Hospital's pro formas address only the expected financial performance of the 48 psychiatric beds and ignore the financial feasibility of the 32-bed residential treatment unit, even through First Hospital postulates that such unit will support 40 percent of the cost of the hospital's core area. At hearing, the explanation offered by First Hospital and the Department for not addressing the financial feasibility of the residential treatment unit, as well as the out-patient services, was their contention that such services are not CON reviewable because First Hospital, as regards the residential treatment unit, is not yet a "health care facility" and, as regards the outpatient services, that such services are exempt from review. In this regard, they point to the provisions of Section 381.706(1), Florida Statutes, which provides; . . . all health-care-related projects, as described in paragraphs (a)-(n), shall be subject to review and shall file an application for a certificate of need with the department . . . (c) A capital expenditure of $1 million or more by or on behalf of a health care facility . . . for a purpose directly related to the furnishing of health services at such facility; provided that a Certificate of Need shall not be required for an expenditure to provide an outpatient health service . . . (Emphasis added) They also point to the provision of Section 381.702, Florida Statutes, which contains the following definitions: (7) "Health care facility" means a hospital. . . . (12) "Hospital" means a health care facility licensed under chapter 395. Based on these statutory provisions, First Hospital and the Department conclude that the residential treatment unit and the outpatient services are not CON reviewable because First Hospital is not yet licensed or the outpatient services are exempt. While the logic of First Hospital's and the Department's conclusion seems questionable where, as here, the projects are proposed to be integrated and constructed simultaneously, the Department's reading of the statute comports with its literal reading and is accepted. However, although the residential treatment unit and outpatient services may not be subject to CON review does not suggest that their financial feasibility is not relevant to this proceeding. To the contrary, their financial feasibility is critical if First Hospital's 60/40 methodology is to be considered rational. Here, the 48-bed psychiatric facility proposed by First Hospital is comprised of two 24-bed units and a core unit that provides all necessary support functions, including administrative, therapy, kitchen and dining, gymnasium and classroom areas, for those units. That core area, of 25,000 square feet, is an essential part of the proposed psychiatric hospital; without it there would be no psychiatric hospital, and at a lesser square footage the project would be lacking sufficient space to provide necessary services. When licensed by the Department, the two 24-bed units and the core area will be licensed as a psychiatric hospital. Notwithstanding, the fact that the 25,000 square foot support area is an integral and essential part of the proposed hospital, the Department chose to ignore 40 percent of its costs and expenses in assessing the financial feasibility of the project. The basis for the Department's action was its conclusion that the non-CON reviewable residential treatment unit comprised 40 percent of the overall population of the entire facility (80-beds overall), and that since it would share the core area, 40 percent of the costs of constructing that area, as well as subsequent operating expenses, were not pertinent to an evaluation of the proposed hospital. Here, the Department's reasoning and its conclusion, be they incipient policy, do not have evidentiary support. The psychiatric hospital proposed by First Hospital is, as heretofore noted, the two 24-bed units and the core area. This is the only portion of the project over which the Department has control, and necessarily the only portion that it can assure will be built as proposed; it has no control over whether the residential treatment unit will ever be built or be built as proposed. Therefore, since the core unit is an essential part of the psychiatric hospital, and the residential treatment unit is exempt from CON review, an assessment of the subject application must consider the cost of the entire core area as part of the project under review. While economies of scale permit utilization of the core unit by the residential treatment unit without additional space, this does not detract from the conclusion that the cost of the core is a cost of the hospital. Rather, such excess capacity is fortuitous for First Hospital, and may permit it to spread the expenses of its operation over a larger population base if the residential treatment unit is built. However, to reasonably assess whether those expenses of operation can be spread to or supported by the residential treatment unit to any extent, much less 40 percent, requires an analysis of the financial feasibility of those services. Here, First Hospital offered no proof of the financial feasibility of the residential treatment unit, and there is no rational basis on which any allocation of operating expenses for the core area can be demonstrated to be supportable by it. Accordingly, to assess the financial feasibility of the proposed psychiatric hospital it is necessary to attribute the cost of the core area to the proposed project, as well as the costs of carrying and operating that part of the proposed hospital. 15/ The immediate and long-term financial feasibility of the proposal To assess the financial feasibility of the proposed project, First Hospital's pro forma assumes that it will achieve 8,956 patient days in its first year of operation and 13,193 patient days in its second year of operation, with a per diem patient charge of $500 in year one and $525 in year two, and that it will thereby achieve a gross revenue of $4,478,000 in its first year of operation and a gross revenue of $6,926,325 in its second year of operation. While the proposed patient charges are reasonable, First Hospital's occupancy projections are not supported by persuasive proof and, therefore, it has failed to demonstrate what revenues it could reasonably expect to generate. A facility's projected patient days are typically a product of an informed analysis of projected admissions and projected average length of stay. Here, First Hospital undertook no such analysis, but simply assumed a number of patient days, without any rational predicate in an effort to demonstrate financial feasibility. Notably, there is a clear trend toward shorter lengths of stay in psychiatric hospitals, which was even recognized by First Hospital's Dr. Dozoretz who reasonably expected an average length of stay at the proposed facility of 30 to 40 days. However, First Hospital assumed in its pro forma an average length of stay ranging from 45 to 60 days. Such assumption could not have been the basis for any considered analysis of utilization since it is excessive, as well as too imprecise. Moreover, in testing the reasonableness of a utilization projection, it is also important to consider physician support, the extent of waiting lists, community support, the extent of competition, and the depth of local needs assessment. Here, there is no persuasive proof that First Hospital enjoys any support from local physicians, that there are any waiting lists, that the market is not competitive, that there is any community support for the project, or that it undertook any reasonable assessment of local need. In addition to its failure to demonstrate what utilization level it could reasonably achieve in its first two years of operation, and therefore establish a reasonable estimate of its gross revenue, First Hospital's pro forma also, significantly underestimated building depreciation, equipment depreciation, and interest expense because of its failure to adequately address construction and equipment costs, discussed supra. Had First Hospital properly assessed such costs, by subsuming the psychiatric hospital to include 100 percent of the psychiatric wings and core area, it would have calculated building depreciation at $176,230 per annum, equipment depreciation at $72,600 per annum, and interest at $750,360 per annum. At these rates, assuming the validity of First Hospital's projection of gross revenue, the facility's projected loss in year one would increase from $115,629 to $529,848, and its projected profit in year two of $442,184 would be reduced to $27,965. 16/ As well as underestimating the foregoing expenses, First Hospital's pro forma also significantly underestimates a number of other expenses, including deductions from gross revenue, supplies and other expenses, and the indigent care tax assessment. In this regard, the proof demonstrates that First Hospital underestimated its deductions from revenue by $367,000 in year one and $214,000 in year two; underestimated its supplies and other expenses in year one by at least $645,000, and in year two by at least $561,000; and omitted the indigent care tax assessment of $56,000 in year one and $75,000 in year two. Considering these additional adjustments, First Hospital's project, even assuming its gross revenue projections are reasonable, is not financially feasible in either the short-term or long-term. 17/ The criteria on balance In evaluating the application at issue in this proceeding, none of the criteria established by Section 381.705, Florida Statutes, or Rule 10- 5.011(1)(o), Florida Administrative Code, has been overlooked. First Hospital's failure to demonstrate the financial feasibility of its proposal is, however, dispositive of its application, and such failure is not outweighed by any other, or combination of any other, criteria.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: As to Case NO. 89-1415, that a final order be entered denying First Hospital's application for Certificate of Need. As to Case NO. 89-1438, that a final order be entered dismissing Humana's petition for formal hearing. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 23rd day of May 1990. WILLIAM J. KENDRICK 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 May 1990.
The Issue Whether Certificate of Need (CON) Application No. 9992, filed by Sun City Hospital, Inc., d/b/a South Bay Hospital to establish a 112-bed replacement hospital in Riverview, Hillsborough County, Florida, satisfies, on balance, the applicable statutory and rule review criteria for approval.
Findings Of Fact The Parties A. South Bay South Bay is a 112-bed general acute care hospital located at 4016 Sun City Center Boulevard, Sun City Center, Florida. It has served south Hillsborough County from that location since its original construction in 1982. South Bay is a wholly-owned for-profit subsidiary of Hospital Corporation of America, Inc. (HCA), a for-profit corporation. South Bay's service area includes the immediate vicinity of Sun City Center, the communities of Ruskin and Wimauma (to the west and east of Sun City Center, respectively), and the communities of Riverview, Gibsonton, and Apollo Beach to the north. See FOF 68-72. South Bay is located on the western edge of Sun City Center. The Sun City Center area is comprised of the age- restricted communities of Sun City Center, Kings Point, Freedom Plaza, and numerous nearby senior living complexes, assisted- living facilities, and nursing homes. This area geographically comprises the developed area along the north side of State Road (SR) 674 between I–75 and U.S. Highway 301, north to 19th Avenue and south to the Little Manatee River. South Bay predominantly serves the residents of the Sun City Center area. In 2009, Sun City Center residents comprised approximately 57% of all discharges from SB. South Bay had approximately 72% market share in Sun City Center zip code 33573. (Approximately 32% of all market service area discharges came from zip code 33573.) South Bay provides educational programs at the hospital that are well–attended by community residents. South Bay provides comprehensive acute care services typical of a small to mid-sized community hospital, including emergency services, surgery, diagnostic imaging, non-invasive cardiology services, and endoscopy. It does not provide diagnostic or therapeutic cardiac catheterization or open-heart surgery. Patients requiring interventional cardiology services or open-heart surgery are taken directly by Hillsborough County Fire Rescue or other transport to a hospital providing those services, such as Brandon Regional Hospital (Brandon) or SJH, or are transferred from SB to one of those hospitals. South Bay has received a number of specialty accreditations, which include accreditation by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), specialty accreditation as an advanced primary stroke center, and specialty accreditation by the Society for Chest Pain. South Bay has also received recognition for its quality of care and, in particular, for surgical infection prevention and outstanding services relating to heart attack, heart failure, and pneumonia. South Bay's 112 licensed beds comprise 104 general medical-surgical beds and eight Intensive Care Unit (ICU) beds. Of the general medical-surgical beds, 64 are in semi-private rooms, where two patient beds are situated side-by-side, separated by a curtain. Forty-eight are in private rooms. Semi- private rooms present challenges in terms of infection control and patient privacy, and are no longer the standard of care in hospital design and construction. Over the years, SB has upgraded its hospital physical plant to accommodate new medical technology, including an MRI suite and state-of-the-art telemetry equipment. South Bay is implementing automated dispensing cabinets on patient floors for storage of medications and an electronic medication administration record system that provides an extra safety measure for dispensing medications. Since 2009, SB has implemented numerous programmatic initiatives that have improved the quality of care. South Bay is converting one wing of the hospital to an orthopedic unit. In 2001, South Bay completed a major expansion of its ED and support spaces, but has not added new beds. Patients presenting to the ED have received high quality of care and timely care. Since 2009, SB has improved its systems of care and triage of patients in the ED to improve patient flow and reduce ED wait times. Overall, South Bay has a reputation of providing high- quality care in a timely manner, notwithstanding problems with its physical plant and location. South Bay's utilization has been high historically. From 2006 to 2009, SB's average occupancy has been 79.5%, 80.3%, 77.2%, and 77.7%, respectively. Its number of patient discharges also increased in that time, from 6,190 in 2006 to 6,540 in 2009, at an average annual rate increase of 1.9%. (From late November until May, the seasonal months, utilization is very high, sometimes at 100% or greater.) Despite its relatively high utilization, SB has also had marginal financial results historically. It lost money in 2005 and 2007, with operating losses of $644,259 in 2005 and $1,151,496 in 2007 and bottom-line net losses of $447,957 (2005) and $698,305 (2007). The hospital had a significantly better year in 2009, with an operating gain of $3,365,113 and a bottom- line net profit of $2,144,292. However, this was achieved largely due to a reduction in bad debt from $11,927,320 in 2008 to $7,772,889 in 2009, an event the hospital does not expect to repeat, and a coincidence of high surgical volume. Its 2010 financial results were lagging behind those of 2009 at the time of the hearing. South Bay's 2009 results amount to an aberration, and it is likely that 2010 would be considerably less profitable. South Bay's marginal financial performance is due, in part, to its disproportionate share of Medicare patients and a disproportionate percentage of Medicare reimbursement in its payor mix. Medicare reimburses hospitals at a significantly lower rate than managed care payors. As noted, SB is organizationally a part of HCA's West Florida Division, and is one of two HCA-affiliated hospitals in Hillsborough County; Brandon is the other. (There are approximately 16 hospitals in this division.) Brandon has been able to add beds over the past several years, and its services include interventional cardiology and open-heart surgery. However, SB and Brandon combined still have fewer licensed beds than either St. Joseph's Hospital or Tampa General Hospital, and fewer than the BayCare Health System- affiliated hospitals in Hillsborough in total. South Bay's existing physical plant is undersized and outdated. See discussion below. Whether it has a meaningful opportunity for expansion and renovation at its 17.5-acre site is a question for this proceeding to resolve. South Bay proposes the replacement and relocation of its facility to the community of Riverview. In 2005, SB planned to establish an 80-bed satellite hospital in Riverview, on a parcel owned by HCA and located on the north side of Big Bend Road between I-75 and U.S. Highway 301. SB filed CON Application No. 9834 in the February 2005 batching cycle. The application was preliminarily denied by AHCA, and SB initially contested AHCA's determination. South Bay pursued the satellite hospital CON at that time because of limited availability of intercompany financing from HCA. By the time of the August 2007 batching cycle, intercompany financing had improved, allowing SB to pursue the bigger project of replacing and relocating the hospital. South Bay dismissed its petition for formal administrative hearing, allowing AHCA's preliminary denial of CON Application No. 9834 to become final, and filed CON Application No. 9992 to establish a replacement hospital facility on Big Bend Road in Riverview. St. Joseph's Hospital St. Joseph's Hospital was founded by the Franciscan Sisters of Allegany, New York, as a small hospital in a converted house in downtown Tampa in 1934. In 1967, SJH opened its existing main hospital facility on Martin Luther King Avenue in Tampa, Florida. St. Joseph's Hospital, Inc., a not-for-profit entity, is the licensee of St. Joseph's Hospital, an acute care hospital located at 3001 West Martin Luther King, Jr., Boulevard, Tampa, Florida. As a not-for-profit organization, SJH's mission is to improve the health care of the community by providing high- quality compassionate care. St. Joseph's Hospital, Inc., is a Medicaid disproportionate share provider and provided $145 million in charity and uncompensated care in 2009. St. Joseph's Hospital, Inc., is licensed to operate approximately 883 beds, including acute care beds; Level II and Level III neonatal intensive care unit (NICU) beds; and adult and child-adolescent psychiatric beds. The majority of beds are semi-private. Services include Level II and pediatric trauma services, angioplasty, and open-heart surgery. These beds and services are distributed among SJH's main campus; St. Joseph's Women's Hospital; St. Joseph's Hospital North, a newer satellite hospital in north Tampa; and St. Joseph's Children's Hospital. Except for St. Joseph's Hospital North, these facilities are land-locked. Nevertheless, SJH has continued to invest in its physical plant and to upgrade its medical technology and equipment. In February 2010, SJH opened St. Joseph's Hospital North, a state-of-the-art, 76-bed satellite hospital in Lutz, north Hillsborough County, at a cost of approximately $225 million. This facility is approximately 14 miles away from the main campus. This followed the award of CON No. 9610 to SJH for the establishment of St. Joseph's Hospital North, which was unsuccessfully opposed by University Community Hospital and Tampa General Hospital, two existing hospital providers in Tampa. Univ. Cmty. Hosp., Inc., d/b/a Univ. Cmty. Hosp. v. Agency for Health Care Admin., Case Nos. 03-0337CON and 03-0338CON. St. Joseph's Hospital North operates under the same license and under common management. St. Joseph's Hospital, Inc., is also the holder of CON No. 9833 for the establishment of a 90-bed state-of-the-art satellite hospital on Big Bend Road, Riverview, Hillsborough County. These all private beds include general medical-surgical beds, an ICU, and a 10-bed obstetrical unit. On October 21, 2009, the Agency revised CON No. 9833 with a termination date of October 21, 2012. This project was unsuccessfully opposed by TG, SB, and Brandon. St. Joseph's Hosp., Inc. v. Agency for Health Care Admin., Case No. 05-2754CON, supra. St. Joseph's Hospital anticipates construction beginning in October 2012 and opening the satellite hospital, to be known as St. Joseph's Hospital South, in early 2015. This hospital will be operating under SJH's existing license and Medicare and Medicaid provider numbers and will in all respects be an integral component of SJH. The implementation of St. Joseph's Hospital South is underway. SJH has contracted with consultants, engineers, architects, and contractors and has funded the first phase of the project with $6 million, a portion of which has been spent. The application for CON No. 9833 refers to "evidence- based design" and the construction of a state-of-the-art facility. (The design of St. Joseph's Hospital North also uses "evidence-based design.") St. Joseph's Hospital South will have all private rooms, general surgery operating rooms as well as endoscopy, and a 10-bed obstetrics unit. Although CON No. 9833 is for a project involving 228,810 square feet of new construction, SJH intends to build a much larger facility, approximately 400,000 square feet on approximately 70 acres. St. Joseph's Hospital Main's physical plant is 43 years old. The majority of the patient rooms are semi–private and about 35% of patients admitted at this hospital received private rooms. Notwithstanding the age of its physical plant and its semi–private bed configuration, SJH has a reputation of providing high quality of care and is a strong competitor in its market. St. Joseph's Hospital, Inc., has two facility expansions currently in progress at its main location in Tampa: a new five-story building that will house SJH neonatal intensive care unit, obstetrical, and gynecology services; and a separate, two-story addition with 52 private patient rooms. Of the 52 private patient rooms, 26 will be dedicated to patients recovering from orthopedic surgery, and will be large enough to allow physical therapy to be done in the patient room itself. The other 26 rooms will be new medical-surgical ICU beds at the hospital. At the same time that SJH expands its main location, it is pursuing a strategic plan whereby the main location is the "hub" of its system, with community hospitals and health facilities located in outlying communities. As proposed in CON Application No. 9610, St. Joseph's Hospital North was to be 240,000 square feet in size. Following the award of CON No. 9610, SJH requested that AHCA modify the CON to provide for construction of a larger facility. In its modification request, SJH requested to establish a large, state- of-the-art facility with all private patient rooms, and the desirability of private patient rooms as a matter of infection control and patient preference. AHCA granted the modification. St. Joseph's Hospital, Inc., thereafter planned to construct St. Joseph's Hospital North to be four stories in height. The plan was opposed. St. Joseph's Hospital, Inc., offered to construct a three-story building, large enough horizontally to accommodate the CON square footage modification. The offer was accepted. St. Joseph's Hospital, Inc., markets St. Joseph's Hospital North as "The Hospital of the Future, Today." The hospital was constructed using "evidence-based design" to maximize operational efficiencies and enhance the healing process of its residents –- recognizing, among other things, the role of the patient's family and friends. The facility's patient care units are all state-of-the-art and include, for example, obstetrical suites in which a visiting family member can spend the night. A spacious, sunlit atrium and a "healing garden" are also provided. The hospital's dining facility is frequented by community residents. In addition, SJH owns a physician group practice under HealthPoint Medical Group, a subsidiary of St. Joseph's Health Care Center, Inc. The group practice has approximately 19 different office locations, including several within the service area for the proposed hospital. The group includes approximately 106 physicians. However, most of the office locations are in Tampa, and the group does not have an office in Riverview, although there are plans to expand locations to include the Big Bend Road site. St. Joseph's Hospital, Inc., anticipates having to establish a new medical staff for St. Joseph's Hospital South, and will build a medical office building at the site for the purpose of attracting physicians. It further anticipates that some number of physicians on SB's existing medical staff will apply for privileges at St. Joseph's Hospital South. St. Joseph's Hospital, Inc., is the market leader among Hillsborough County hospitals and is currently doing well financially, as it has historically. For 2010, St. Joseph's Hospital Main's operating income was approximately $78 million. Organizationally, SJH has a parent organization, St. Joseph's Health Care Center, Inc., and is one of eight hospitals in the greater Tampa Bay area affiliated with BayCare. On behalf of its member hospitals, BayCare arranges financing for capital projects, provides support for various administrative functions, and negotiates managed care contracts that cover its members as a group. St. Joseph's Hospital characterizes fees paid for BayCare services as an allocation of expenses rather than a management fee for its services. In 2009, SJH paid BayCare approximately $42 million for services. St. Joseph's Hospital is one of three BayCare affiliates in Hillsborough County. The other two are St. Joseph's Hospital North and South Florida Baptist Hospital, a community hospital in Plant City. St. Joseph's Hospital South would be the fourth BayCare hospital in the county. Tampa General The Hillsborough County Hospital Authority, a public body appointed by the county, operated Tampa General Hospital until 1997. In that year, TG was leased to Florida Health Sciences Center, Inc., a non-profit corporation and the current hospital licensee. Tampa General is a 1,018-bed acute care hospital located at 2 Columbia Drive, Davis Island, Tampa, Florida. In addition to trauma surgery services, TG provides tertiary services, such as angioplasty, open-heart surgery, and organ transplantation. Tampa General operates the only burn center in the area. A rehabilitation hospital is connected to the main hospital, but there are plans to relocate this facility. Tampa General owns a medical office building. Tampa General is JCAHO accredited and has received numerous honors. Tampa General provides high-quality of care. Approximately half of the beds at TG are private rooms. Tampa General's service area for non-tertiary services includes all of Hillsborough County. Tampa General is also the teaching hospital for the University of South Florida's College of Medicine. As a statutory teaching hospital, TG has 550 residents and funds over 300 postgraduate physicians in training. Tampa General is the predominant provider of services to Medicaid recipients and the medically indigent of Hillsborough County. It is considered the only safety-net hospital in Hillsborough County. (A safety net hospital provides a disproportionate amount of care to indigent and underinsured patients in comparison to other hospitals.) A high volume of indigent (Medicaid and charity) patients are discharged from TG. In 2009, the costs TG incurred treating indigent patients exceeded reimbursement by $56.5 million. Approximately 33% of Tampa General's patients are Medicare patients and 25% commercial. Tampa General has grown in the past 10 years. It added 31 licensed acute care beds in 2004 and 82 more since SB's application was filed in 2007. In addition, the Bayshore Pavilion, a $300-million project, was recently completed. The project enlarged TG's ED, and added a new cardiovascular unit, a new neurosciences and trauma center, a new OB-GYN floor, and a new gastrointestinal unit. Facility improvements are generally ongoing. Tampa General's capital budget for 2011 is approximately $100 million. In 2010, TG's operating margin was approximately $43 million and a small operating margin in 2011. AHCA AHCA is the state agency that administers the CON law. Jeff Gregg testified that during his tenure, AHCA has never preliminarily denied a replacement hospital CON application or required consideration of alternatives to a replacement hospital. Mr. Gregg opined that the lack of alternatives or options is a relevant consideration when reviewing a replacement hospital CON application. T 468. The Agency's State Agency Action Report (SAAR) provides reasons for preliminarily approving SB's CON application. During the hearing, Mr. Gregg testified, in part, that the primary reasons for preliminary approval were issues related to quality of care "because the facility represents itself as being unable to expand or adapt significantly to the rapidly changing world of acute care. This is consistent with what [he has] heard about other replacement hospitals." T 413. Mr. Gregg also noted that SB focused on improving access "[a]nd as the years go by, it is reasonable to expect that the population outside of Sun City Center, the immediate Sun City Center area, will steadily increase and improve access for more people, and that's particularly true because this application includes both a freestanding emergency department and a shuttle service for the people in the immediate area. And that was intended to address their concerns based upon the fact that they have had this facility very conveniently located for them in the past at a time when there was little development in the general south Hillsborough area. But the applicant wants to position itself for the expected growth in the future, and we think has made an excellent effort to accommodate the immediate interests of Sun City Center residents with their promises to do the emergency, freestanding emergency department and the shuttle service so that the people will continue to have very comfortable access to the hospital." T 413-14. Mr. Gregg reiterated "that the improvements in quality outweigh any concerns that [the Agency] should have about the replacement and relocation of this facility; that if this facility were to be forced to remain where it is, over time it would be reasonable to expect that quality would diminish." T 435. For AHCA, replacement hospital applications receive the same level of scrutiny as any other acute care hospital applications. T 439-40. South Bay's existing facility and site South Bay is located on the north side of SR 674, an east-west thoroughfare in south Hillsborough County. The area around the hospital is "built out" with predominantly residential development. Sun City Center, an age-restricted (55 and older) retirement community, is located directly across SR 674 from the hospital as well as on the north side of SR 674 to the east of the hospital. Other residential development is immediately to the west of the hospital on the north side of SR 674. See FOF 3-6. Sun City Center is flanked by two north-south arterial roadways, I-75 to the west and U.S. Highway 301 to the east, both of which intersect with SR 674. The community of Ruskin is situated generally around the intersection of SR 674 and U.S. 41, west of I-75. The community of Wimauma is situated along SR 674 just east of U.S. Highway 301. South Bay is located in a three-story building that is well–maintained and in relatively good repair. The facility is well laid out in terms of design as a community hospital. Patients and staff at SB are satisfied with the quality of care and scope of acute care services provided at the hospital. Notwithstanding current space limitations, and problems in the ICU, see FOF 77-82, patients receive a high quality of care. One of the stated reasons for replacement is with respect to SB's request to have all private patient rooms in order to be more competitive with St. Joseph's Hospital South. South Bay's inpatient rooms are located within the original construction. The hospital is approximately 115,800 square feet, or a little over 1,000 square feet per inpatient bed. By comparison, small to mid-sized community hospitals built today are commonly 2,400 square feet per inpatient bed on average. All of SB's patient care units are undersized by today's standards, with the exception of the ED. ICU patients, often not ambulatory, require a higher level of care than other hospital patients. The ICU at SB is not adequate to meet the level of care required by the ICU patient. SB's ICU comprises eight rooms with one bed apiece. Eight beds are not enough. As Dr. Ksaibati put it at hearing: "Right now we have eight and we are always short . . . double . . . the number of beds, that's at least [the] minimum [t]hat I expect we are going to have if we go to a new facility." T 198-99 (emphasis added). The shortage of beds is not the only problem. The size of SB's ICU rooms is too small. (Problems with the ICU have existed at least since 2006.) Inadequate size prohibits separate, adjoining bathrooms. For patients able to leave their beds, therefore, portable bathroom equipment in the ICU room is required. Inadequate size, the presence of furniture, and the presence of equipment in the ICU room creates serious quality of care issues. When an EKG is conducted, the nurse cannot be present in the room. Otherwise, there would be no space for the EKG equipment. It is difficult to intubate a patient and, at times, "extremely dangerous." T 170. A major concern is when a life-threatening problem occurs that requires emergency treatment at the ICU patient's bedside. For example, when a cardiac arrest "code" is called, furniture and the portable bathroom equipment must be removed before emergency cardiac staff and equipment necessary to restore the function of the patient's heart can reach the patient for the commencement of treatment. Comparison to ICU rooms at other facilities underscores the inadequate size of SB's ICU rooms. Many of the ICU rooms at Brandon are much larger -- more than twice the size of SB's ICU rooms. Support spaces are inadequate in most areas, resulting in corridors (at times) being used for inappropriate storage. In addition, the hospital's general storage is inadequate, resulting in movable equipment being stored in mechanical and electrical rooms. Of the medical-surgical beds at SB, 48 are private and 64 are semi-private. The current standard in hospital design is for acute care hospitals to have private rooms exclusively. Private patient rooms are superior to semi-private rooms for infection control and patient well-being in general. The patient is spared the disruption and occasional unpleasantness that accompanies sharing a patient room –- for example, another patient's persistent cough or inability to use the toilet (many of SB's semi-private rooms have bedside commodes). Private rooms are generally recognized as promoting quality of care. South Bay's site is approximately 17.5 acres, bordered on all sides by parcels not owned by either SB or by HCA- affiliated entities. The facility is set back from SR 674 by a visitor parking lot. Proceeding clockwise around the facility from the visitor parking lot, there is a small service road on the western edge of the site; two large, adjacent ponds for stormwater retention; the rear parking lot for ED visitors and patients; and another small service road which connects the east side of the site to SR 674, and which is used by ambulances to access the ED. Dedicated parking for SB's employees is absent. A medical office building (MOB), which is not owned by SB, is located to the north of the ED parking lot. The MOB houses SB's Human Resources Department as well as medical offices. Most of SB's specialty physicians have either full or part-time offices in close proximity to SB. Employee parking is not available in the MOB parking lot. Some of SB's employees park in a hospital-owned parking lot to the north of the MOB, and then walk around the MOB to enter the hospital. South Bay's CEO and management employees park on a strip of a gravel lot, which is rented from the Methodist church to the northeast of the hospital's site. In 2007, as part of the CON application to relocate, SB commissioned a site and facility assessment (SFA) of the hospital. The SFA was prepared for the purpose of supporting SB's replacement hospital application and has not been updated since its preparation in 2007. The architects or engineers who prepared the SFA were not asked to evaluate proposed options for expansion or upgrade of SB on-site. However, the SFA concludes that the SB site has been built out to its maximum capacity. On the other hand, the SFA concluded that the existing building systems at SB met codes and standards in force when constructed and are in adequate condition and have the capacity to meet the current needs of the hospital. The report also stated that if SB wanted to substantially expand its physical plant to accommodate future growth, upgrades to some of the existing building systems likely would be required. Notwithstanding these reports and relative costs, expansion of SB at its existing site is not realistic or cost- effective as compared to a replacement hospital. Vertical expansion is complicated by two factors. First, the hospital's original construction in 1982 was done under the former Southern Standard Building Code, which did not contain the "wind-loading" requirements of the present-day Florida Building Code. Any vertical expansion of SB would not only require the new construction to meet current wind-loading requirements, but would also require the original construction to be retrofitted to meet current wind-loading requirements (assuming this was even possible as a structural matter). Second, if vertical expansion were to meet current standards for hospital square footage, the new floor or floors would "overhang" the smaller existing construction, complicating utility connections from the lower floor as well as the placement of structural columns to support the additional load. The alternative (assuming feasibility due to current wind-loading requirements) would be to vertically stack patient care units identical to SB's existing patient care units, thereby perpetuating its undersized and outdated design. Vertical expansion at SB has not been proposed by the Gould Turner Group (Gould Turner), which did a Master Facility Plan for SB in May 2010, but included a new patient bed tower, or by HBE Corporation (HBE). Horizontal expansion of SB is no less complicated. The hospital would more than double in size to meet the modern-day standard of 2,400 square feet per bed, and its site is too small for such expansion. It is apparent that such expansion would displace the visitor parking lot if located to the south of the existing building, and likely have to extend into SR 674 itself. South Bay's architectural consultant expert witness substantiated that replacing SB is justified as an architectural matter, and that the facility cannot be brought up to present-day standards at its existing location. According to Mr. Siconolfi, the overall building at SB is approximately half of the total size that would normally be in place for a new hospital meeting modern codes and industry standards. The more modest expansions offered by Gould Turner and HBE are still problematic, if feasible at all. Moreover, with either proposal, SB would ultimately remain on its existing 17.5-acre site, with few opportunities to expand further. Gould Turner's study was requested by SB's CEO in May 2010, to determine whether and to what extent SB would be able to expand on-site. (Gould Turner was involved with SB's recent ED expansion project area.) The resulting Master Facility Plan essentially proposes building a new patient tower in SB's existing visitor parking lot, to the left and right of the existing main entrance to SB. This would require construction of a new visitor parking lot in whatever space remained in between the new construction and SR 674. The Master Facility Plan contains no discussion of the new impervious area that would be added to the site and the consequential requirement of additional stormwater capacity, assuming the site can even accommodate additional stormwater capacity. This study also included a new 12-bed ICU and the existing ICU would be renovated into private patient rooms. For example, "[t]he second floor would be all telemetry beds while the third floor would be a combination of medical/surgical, PCU, and telemetry beds." In Gould Turner's drawings, the construction itself would be to the left and to the right of the hospital's existing main entrance. Two scenarios are proposed: in the first, the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 114 licensed beds (including two new beds), all private; in the second, some of the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 146 licensed beds (adding 34 beds), of which 32 would be semi-private. South Bay did not consider Gould Turner's alternative further or request additional, more detailed drawings or analysis, and instead determined to pursue the replacement hospital project, in part, because it was better not to "piecemeal" the hospital together. Mr. Miller, who is responsible for strategic decisions regarding SB, was aware of, but did not review the Master Facility Plan and believes that it is not economically feasible to expand the hospital. St. Joseph's Hospital presented testimony of an architect representing the hospital design/build firm of HBE, to evaluate SB's current condition, to provide options for expansion and upgrading on-site, and to provide a professional cost estimate for the expansion. Mr. Oliver personally inspected SB's site and facility in October 2010 and reviewed numerous reports regarding the facility and other documents. Mr. Oliver performed an analysis of SB's existing physical plant and land surrounding the hospital. HBE's analysis concluded that SB has the option to expand and upgrade on-site, including the construction of a modern surgical suite, a modern 10-bed ICU, additional elevators, and expansion and upgrading of the ancillary support spaces identified by SB as less than ideal. HBE's proposal involves the addition of 50,000 square feet of space to the hospital through the construction of a three-story patient tower at the south side of the hospital. The additional square footage included in the HBE proposal would allow the hospital to convert to an all-private bed configuration with either 126 private beds by building out both second and third floors of a new patient tower, or to 126 private beds if the hospital chose to "shell in" the third floor for future expansion. Under the HBE proposal, SB would have the option to increase its licensed bed capacity 158 beds by completing the second and third floors of the new patient tower (all private rooms) while maintaining the mix of semi-private and private patient rooms in the existing bed tower. The HBE proposal also provides for a phased renovation of the interior of SB to allow for an expanded post-anesthesia care unit, expanded laboratory, pharmacy, endoscopy, women's center, prep/hold/recovery areas, central sterile supply and distribution, expanded dining, and a new covered lobby entrance to the left side of the hospital. Phasing of the expansion would permit the hospital to remain in operation during expansion and renovation with minimal disruption. During construction the north entrance of the hospital would provide access through the waiting rooms that are currently part of the 2001 renovated area of the hospital with direct access to the circulation patterns of the hospital. The HBE proposal also provides for the addition of parking to bring the number of parking spaces on-site to 400. The HBE proposal includes additional stormwater retention/detention areas that could serve as attractive water features and, similar to the earlier civil engineering reports obtained by SB, proposes the construction of a parking garage at the rear of the facility should additional parking be needed in the future. However, HBE essentially proposes the alternative already rejected by SB: construction of a new patient tower in front of the existing hospital. Similar to Gould Turner, HBE proposes new construction to the left and right of the hospital's existing lobby entrance and the other changes described above. HBE's proposal recognizes the need for additional stormwater retention: the stand of trees that sets off the existing visitor parking lot from SR 674 would be uprooted; in their place, a retention pond would be constructed. Approval of the Southwest Florida Water Management District (SWFWMD) would be required for the proposal to be feasible. Assuming the SWFWMD approved the proposal, the retention pond would have to be enclosed by a fence. This would then be the "face" of the hospital to the public on SR 674. HBE's proposal poses significant problems. The first floor of the three-story component would be flush against the exterior wall of the hospital's administrative offices, where the CEO and others currently have windows with a vista of the front parking lot and SR 674. Since the three-story component would be constructed first in the "phased" construction, and since the hospital's administration has no other place to work in the existing facility, the CEO and other management team would have to work off-site until the new administrative offices (to the left of the existing hospital lobby entrance) were constructed. The existing main entrance to the hospital, which faces SR 674, would be relocated to the west side of the hospital once construction was completed in its entirety. In the interim, patients and visitors would have to enter the facility from the rear, as the existing main entrance would be inaccessible. This would be for a period of months, if not longer. For the second and third floors, HBE's proposal poses two scenarios. Under the first, SB would build the 24 general medical-surgical beds on the tower's second floor, but leave the third floor as "shelled" space. This would leave SB with a total of 106 licensed beds, six fewer than it has at present. Further, since HBE's proposal involves a second ICU at SB, 18 of the 106 beds are ICU beds, leaving 88 general medical-surgical beds. By comparison, SB currently has 104 general medical- surgical beds, meaning that it loses 16 general medical-surgical beds under HBE's first scenario. In the second scenario, SB would build 24 general medical-surgical beds on the third floor as well, and would have a total of 126 licensed beds. Since 18 of those beds would be ICU beds, SB would have 108 general medical-surgical beds, or only four more than it has at present. Further, the proposal does not make SB appreciably bigger. The second and third floors in HBE's proposal are designed in "elongated" fashion such that several rooms may be obscured from the nursing station's line of sight by a new elevator, which is undesirable as a matter of patient safety and security. Further, construction of the second and third floors would be against the existing second and third floors above the lobby entrance's east side. This would require 12 existing private patient rooms to be taken out of service due to loss of their vista windows. At the same time, the new second and third floors would be parallel to, but set back from, existing semi- private patient rooms and their vista windows along the southeast side of the hospital. This means that patients and visitors in the existing semi-private patient rooms and patients and visitors in the new private patient rooms on the north side of the new construction may be looking into each other's rooms. HBE's proposal also involves reorganization and renovation of SB's existing facility, and the demolition and disruption that goes with it. To accommodate patient circulation within the existing facility from the ED (at the north side of the hospital) to the new patient tower (at the south side of the hospital), two new corridors are proposed to be routed through and displace the existing departments of Data Processing and Medical Records. Thus, until the new administrative office space would be constructed, Data Processing and Medical Records (along with the management team) would have to be relocated off-site. Once the new first floor of the three-story component is completed, the hospital's four ORs and six PACU beds will be relocated there. In the existing vacated surgical space, HBE proposes to relocate SB's existing cardiology unit, thus requiring the vacated surgical space to be completely reconfigured (building a nursing station and support spaces that do not currently exist in that location). In the space vacated by the existing cardiology unit, HBE proposed expanding the hospital's clinical laboratory, meaning extensive demolition and reconfiguration in that area. The pharmacy is proposed to be relocated to where the existing PACU is located, requiring the building of a new pharmacy with a secure area for controlled substances, cabinets for other medications, and the like. The vacated existing pharmacy is in turn proposed to be dedicated to general storage, which involves still more construction and demolition, tearing out the old pharmacy to make the space suitable for general storage. HBE's proposal is described as a "substantial upgrade" of SB, but it was stated that a substantial upgrade could likewise be achieved by replacing the facility outright. This is SB's preference, which is not unreasonable. There have been documented problems with other hospital expansions, including patient infection due to construction dust. South Bay's proposal South Bay proposes to establish a 112-bed replacement hospital on a 39-acre parcel (acquired in 2005) located in the Riverview community, on the north side of Big Bend Road between I-75 and U.S. Highway 301. The hospital is designed to include 32 observation beds built to acute care occupancy standards, to be available for conversion to licensed acute care beds should the need arise. The original total project cost of $215,641,934, calculated when the application was filed in October 2007 has been revised to $192,967,399. The decrease in total project cost is largely due to the decrease in construction costs since 2007. The parties stipulated that SB's estimated construction costs are reasonable. The remainder of the project budget is likewise reasonable. The budgeted number for land, $9,400,000, is more than SB needs: the 39-acre parcel is held in its behalf by HCA Services of Florida, Inc., and was acquired in March 2005 for $7,823,100. An environmental study has been done, and the site has no environmental development issues. The original site preparation budgeted number of $5 million has been increased to $7 million to allow for possible impact fees, based on HCA's experience with similar projects. Building costs, other than construction cost, flow from the construction cost number as a matter of percentages and are reasonable. The equipment costs are reasonable. Construction period interest as revised from the original project budget is approximately $4 million less, commensurate with the revised project cost. Other smaller numbers in the budget, such as contingencies and start-up costs, were calculated in the usual and accepted manner for estimated project costs and are reasonable. South Bay's proposed service area (PSA) comprises six zip codes (33573 (Sun City Center), 33570 (Ruskin), 33569 (Riverview), 33598 (Wimauma), 33572 (Apollo Beach), and 33534 (Gibsonton)) in South Hillsborough County. These six zip codes accounted for 92.2% of SB's discharges in 2006. The first three zip codes, which include Riverview (33569), accounted for 76.1% of the discharges. Following the filing of the application in 2007, the U.S. Postal Service subdivided the former zip code 33569 into three zip codes: 33569, 33578, and 33579. (The proposed service area consists of eight zip codes.) The same geographic area comprises the three Riverview zip codes taken together as the former zip code 33569. In 2009, the three Riverview zip codes combined accounted for approximately 504 to 511/514 of SB's discharges, with 589 discharges in 2006 from the zip code 33569. Of SB's total discharges in 2009, approximately 8 to 9% originated from these three zip codes. In 2009, approximately 7,398 out of 14,424 market/service-area discharges, or approximately 51% of the total market discharges came from the three southern zip codes, 33573 (Sun City Center), 33570 (Ruskin), and 33598 (Wimauma). Also, approximately 81% of SB's discharges in 2009 originated from the same three zip codes. (The discharge numbers for SB for 2009 presented by St. Joseph's Hospital and SB are similar. See SB Ex. 9 at 11 and SJH Ex. 4 at 8-9. See also TG Ex. 4 at 3-4.) In 2009, SB and Brandon had an approximate 68% market share for the eight zip codes. See FOF 152-54 and 162-65 for additional demographic data. St. Joseph's Hospital had an approximate 5% market share within the service area and using 2009-2010 data, TG had approximately 6% market share in zip code 33573 and an overall market share in the three Riverview zip codes of approximately 19% and a market share of approximately 23% in zip code 33579. South Bay's application projects 37,292 patient days in year 1; 39,581 patient days in year 2; and 41,563 patient days in year 3 for the proposed replacement hospital. The projection was based on the January 2007 population for the service area as reflected in the application, and what was then a projected population growth rate of 20.8% for the five-year period 2007 to 2012. These projections were updated for the purposes of hearing. See FOF 246-7. The application also noted a downturn in the housing market, which began in 2007 and has continued since then. The application projected a five-year (2007-2012) change of 20.8% for the original five zip codes. At hearing, SB introduced updated utilization projections for 2010-2015, which show the service area population growing at 15.3% for that five-year period. South Bay's revised utilization projections for 2015- 2017 (projected years 1-3 of the replacement hospital) are 28,168 patient days in year 1; 28,569 patient days in year 2; and 29,582 patient days in year 3. The lesser utilization as compared with SB's original projections is partly due to slowed population growth, but predominantly due to SB's assumption that St. Joseph's Hospital will build its proposed satellite hospital in Riverview, and that SB will accordingly lose 20% of its market share. The revised utilization projections are conservative, reasonable, and achievable. With the relocation, SB will be more proximate to the entirety of its service area, and will be toward the center of population growth in south Hillsborough County. In addition, it will have a more viable and more sustainable hospital operation even with the reduced market share. Its financial projections reflect a better payor mix and profitability in the proposed location despite the projection of fewer patient days. Conversely, if SB remains in Sun City Center, it is subject to material operating losses even if its lost market share in that location is the same 20%, as compared to the 30 to 40% it estimates that it would lose in competition with St. Joseph's Hospital South. South Bay's medical staff and employees support the replacement facility, notwithstanding that their satisfaction with SB is very high. The proposal is also supported by various business organizations, including the Riverview Chamber of Commerce and Ruskin Chamber of Commerce. However, many of the residents of Sun City Center who testified opposed relocation of SB. See FOF 210-11. South Bay will accept several preconditions on approval of its CON application: (1) the location of SB on Big Bend Road in Riverview; (2) combined Medicaid and charity care equal to 7.0% of gross revenues; and (3) operating a free- standing ED at the Sun City location and providing a shuttle service between the Sun City location and the new hospital campus ("for patients and visitors"). SB Ex. 46, Schedule C. In its SAAR, the Agency preliminarily approved the application including the following: This approval includes, as a component of the proposal: the operation of a freestanding emergency department on a 24-hour, seven-day per week basis at the current Sun City location, the provision of extended hours shuttle service between the existing Sun City Center and the new campuses to transport patients and visitors between the facilities to locations; and the offering of primary care and diagnostic testing at the Sun City Center location. These components are required services to be provided by the replacement hospital as approved by the Agency. Mr. Gregg explained that the requirement for transport of patients and visitors was included based on his understanding of the concerns of the Sun City Center community for emergency as well as routine access to hospital services. Notwithstanding the Agency statement that the foregoing elements are required, the Agency did not condition approval on the described elements. See SB Ex. 12 at 39 and 67. Instead, the Agency only required SB, as a condition of approval, to provide a minimum of 7.0% of the hospital's patient days to Medicaid and charity care patients. (As noted above, SB's proposed condition says 7.0% of gross revenues.) Because conditions on approval of the CON are generally subject to modification, there would be no legal mechanism for monitoring or enforcement of the aspects of the project not made a condition of approval. If the Agency approves SB's CON application, the Agency should condition any approval based on the conditions referenced above, which SB set forth in its CON application. SB Ex. 12 at 39 and 67. See also T 450 ("[The Agency] can take any statement made in the application and turn that into a condition," although conditions may be modified.1 St. Joseph's Hospital and Tampa General are critical of SB's offer of a freestanding ED and proposed shuttle transportation services. Other than agreeing to condition its CON application by offering these services, SB has not evaluated the manner in which these services would be offered. South Bay envisions that the shuttle service (provided without charge) would be more for visitors than it would be for patients and for outpatients or patients that are ambulatory and able to ride by shuttle. Other patients would be expected to be transported by EMS or other medical transport. As of the date of hearing, Hillsborough County does not have a protocol to address the transport of patients to a freestanding ED. South Bay contacted Hillsborough County Fire Rescue prior to filing its CON application and was advised that they would support SB's establishment of a satellite hospital on Big Bend Road, but did not support the closure and relocation of SB, even with a freestanding ED left behind. See FOF 195-207. At hearing, SB representatives stated that SB would not be closed if the project is denied. Compliance with applicable statutory and rule criteria Section 408.035(1): The need for the health care facilities and health services being proposed The need for SB itself and at its current location is not an issue in this case. That need was demonstrated years ago, when SB was initially approved. For the Agency, consideration of a replacement hospital application "diminishes the concept of need in [the Agency's] weighing and balancing of criteria in this case." There is no express language in the CON law, as amended, which indicates that CON review of a replacement hospital application does not require consideration of other statutory review criteria, including "need," unless otherwise stipulated. Replacement hospital applicants, like SB, may advocate the need for replacement rather than expansion or renovation of the existing hospital, but a showing of "need" is still required. Nevertheless, institution-specific factors may be relevant when "need" is considered. The determination of "need" for SB's relocation involves an analysis of whether the relocation of the hospital as proposed will enhance access or quality of care, and whether the relocation may result in changes in the health care delivery system that may adversely impact the community, as well as options SB may have for expansion or upgrading on-site. In this case, the overall "need" for the project is resolved, in part, by considering, in conjunction with weighing and balancing other statutory criteria, including quality of care, whether the institution-specific needs of SB to replace the existing hospital are more reasonable than other alternatives, including renovation and whether, if replacement is recommended, the residents of the service area, including the Sun City Center area, will retain reasonable access to general acute care hospital services. The overall need for the project has not been proven. See COL 360-70 for ultimate conclusions of law regarding the need for this project. Section 408.035(2): The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant The "service district" in this case is acute care subdistrict 6-1, Hillsborough County. See Fla. Admin. Code R. 59C-2.100. The acute care hospital services SB proposes to relocate to Big Bend Road are available to residents of SB's service area. Except as otherwise noted herein with respect to constraints at SB, there are no capacity constraints limiting access to acute care hospital services in the subdistrict. The availability of acute care services for residents of the service area, and specifically the Riverview area, will increase with the opening of St. Joseph's Hospital South. All existing providers serving the service area provide high quality of care. Within the service district as a whole, SB proposes to relocate the existing hospital approximately 5.7 linear miles north of its current location and approximately 7.7 miles using I-75, one exit north. South Bay would remain in south Hillsborough County, as well as the southernmost existing health care facility in Hillsborough County, along with St. Joseph's Hospital South when it is constructed. The eight zip codes of SB's proposed service area occupy a large area of south Hillsborough County south of Tampa (to the northwest) and Brandon (to the northeast). Included are the communities of Gibsonton, Riverview, Apollo Beach, Ruskin, Sun City Center, and Wimauma. The service area is still growing despite the housing downturn, with a forecast of 15.3% growth for the five-year period 2010 to 2015. The service area's population is projected to be 168,344 in 2015, increasing from 145,986 in 2010. The service area is currently served primarily by SB, which is the only existing provider in the service area, and Brandon. For non-tertiary, non-specialty discharges from the service area in 2009, SB had approximately 40% market share, including market share in the three Riverview zip codes of approximately 10% (33569), 6% (33578), and 16% (33579). Brandon had approximately 28% of the market in the service area, and a market share in the three Riverview zip codes of approximately 58% (33569), 46% (33578), and 40% (33579). Thus, SB and Brandon have approximately a 61% market share in the Riverview zip codes and approximately a 68% market share service area-wide. The persuasive evidence indicates that Riverview is the center of present and future population in the service area. It is the fastest-growing part of the service area overall and the fastest-growing part of the service area for patients age 65 and over. Of the projected 168,334 residents in 2015, the three Riverview zip codes account for 80,779 or nearly half the total population. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County. At the same time, it will be between seven and eight minutes farther away from Sun City Center. In conjunction with St. Joseph's Hospital South when constructed, SB's proposed relocation will enhance the availability and accessibility of existing health care facilities and health services in south Hillsborough County, especially for the Riverview-area residents. However, it is likely that access will be reduced for the elderly residents of the Sun City Center area needing general acute care hospital services. St. Joseph's Hospital and Tampa General contend that: (1) it would be problematic to locate two hospitals in close proximity in Riverview (those being St. Joseph's Hospital South and the relocated SB hospital) and (2) SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. St. Joseph's Hospital seems to agree that the utilization projections for SB's replacement hospital are reasonable. Also, St. Joseph's Hospital expects St. Joseph's Hospital South to reach its utilization as projected in CON Application No. 9833, notwithstanding the decline in population growth and the proposed establishment of SB's proposed replacement hospital, although the achievement of projected utilization may be extended. There are examples of Florida hospitals operating successfully in close proximity. The evidence at hearing included examples where existing unaffiliated acute care hospitals in Florida operate within three miles of each another; in two of those, the two hospitals are less than one-half mile apart. These hospitals have been in operation for years. However, some or all of the examples preceded CON review. There are also demographic differences and other unique factors in the service areas in the five examples that could explain the close proximity of the hospitals. Also, in three of the five examples, at least one of the hospitals had an operating loss and most appeared underutilized. One such example, however, is pertinent in this case: Tallahassee Memorial Hospital and Capital Regional Medical Center (CRMC) in Tallahassee, which are approximately six minutes apart by car. CRMC was formerly Tallahassee Community Hospital (TCH), a struggling, older facility with a majority of semi-private patient rooms, similar to South Bay. Sharon Roush, SB's current CEO, became CEO at TCH in 1999. As she explained at hearing, HCA was able to successfully replace the facility outright on the same parcel of land. TCH was renamed CRMC and re-opened as a state-of-the-art hospital facility with all private rooms. The transformation improved the hospital's quality of care and its attractiveness to patients, better enabling it to compete with Tallahassee Memorial Hospital. St. Joseph's Hospital and Tampa General also contend that SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. When the application was filed in 2007, Sun City Center residents in zip code 33573 accounted for approximately 52% of all acute care discharges to SB and SB had a 69% market share. By 2009, Sun City Center residents accounted for approximately 57% of all SB discharges and SB had approximately 72% market share. Approximately half of the age 65-plus residents in the service area reside within the Sun City Center area. This was true in 2010 and will continue to be true in 2015. The projected percentage of the total population in the Sun City Center zip code over 65 for 2009-2010 is approximately 87%. This percentage is expected to grow to approximately 91% by 2015. Sun City Center also has a high percentage of residents who are over the age of 75. Demand for acute care hospital services is largely driven by the age of the population. The age 65-plus population utilizes acute-care hospital services at a rate that is approximately two to three times that of the age 64 and younger population. South Bay plans to relocate its hospital from the Sun City Center zip code 33573 much closer to an area (Riverview covering three zip codes) that has a less elderly population. Elderly patients are known to have more transportation difficulties than other segments of the population, particularly with respect to night driving and congested traffic in busy areas. Appropriate transportation services for individuals who are transportation disadvantaged typically require door-to- door pickup, but may vary from community to community. At the time of preliminary approval of SB's proposed relocation, the Agency was not provided and did not take into consideration data reflecting the percentage of persons in Sun City Center area who are aged 65 or older or aged 75 and older. The Agency was not provided data reflecting the number of residents within the Sun City Center area who reside in nursing homes or assisted living facilities. In general, the 2010 median household incomes and median home values for the residents of Sun City Center, Ruskin, and Gibsonton are materially less than the income and home values for the residents from the other service areas. Freedom Village is located near Sun City Center and within walking distance to SB. Freedom Village is comprises a nursing home, assisted living, and senior independent living facilities, and includes approximately 120 skilled nursing facility beds, 90 assisted living beds, and 30 Alzheimer's beds. Freedom Village is home to approximately 1,500 people. There are additional skilled nursing and assisted living facilities within one to two miles of SB comprising approximately an additional 400 to 500 skilled nursing facility beds and approximately 1,500 to 2,000 residents in assistant or independent living facilities. Residents in skilled nursing facilities and assisted living facilities generally require a substantial level of acute- care services on an ongoing basis. Many patients 65 and older requiring admission to an acute-care facility have complex medical conditions and co-morbidities such that immediate access to inpatient acute care services is of prime importance. Area patients and caregivers travel to SB via a golf cart to access outpatient health care services and to obtain post-discharge follow-up care. Although there are some crossing points along SR 674, golf carts are not allowed on SR 674 itself, and the majority of Sun City Center residents who utilize SB in its existing location do not arrive by golf cart -– rather, they travel by automobile. The Sun City Center area has a long–established culture of volunteerism. Residents of Sun City Center provide a substantial number of man-hours of volunteer services to community organizations, including SB. Among the many services provided by community volunteers is the Sun City Center Emergency Squad, an emergency medical transport service that operates three ambulances and provides EMT and basic life support transport services in Sun City Center 24-hours a day, seven days a week. The Emergency Squad provides emergency services free of charge, but charges patients for transport which is deemed a non-emergency. Most patients transported by the Emergency Squad are taken to the SB ED. It is customary for specialists to locate their offices adjacent to an acute-care hospital. Most of the specialty physicians on the medical staff of SB have full-time or part-time offices adjacent to SB. The location of physician offices adjacent to the hospital facilitates access to care by patients in the provision of care on a timely basis by physicians. The relocation of SB may result in the relocation of physician offices currently operating adjacent to SB in Sun City Center, which may cause additional access problems for local residents. In 2009, the SB ED had approximately 22,000 patient visits. Approximately 25% of the patients that visit the South Bay ED are admitted for inpatient care. South Bay recently expanded its ED to accommodate approximately 34,000 patient visits annually. The average age of patients who visit the South Bay ED is approximately 70. Patients who travel by ambulance may or may not experience undue transportation difficulties as a result of the proposed relocation of SB; however, patients also arrive at the South Bay ED by private transportation. But, most patients are transported to the ED by automobile or emergency transport. In October 2010, the Board of Directors of the Sun City Center Association adopted a resolution on behalf of its 11,000 members opposing the closure of SB. The Board of Directors and membership of Federation of Kings Point passed a similar resolution on behalf of its members. Residents of the Sun City Center area currently enjoy easy access to SB in part because the roadways are low-volume, low-speed, accessible residential streets. SR 674 is the only east-west roadway connecting residents of the Sun City Center area to I-75 and U.S. Highway 301. The section of SR 674 between I-75 and U.S. Highway 301 is a four-lane divided roadway with a speed limit of 40-45 mph. To access Big Bend Road from the Sun City Center area, residents travel east on SR 674 then north on U.S. Highway 301 or west on SR 674 then north on I-75. U.S. Highway 301 is a two-lane undivided roadway from SR 674 north to Balm Road, with a speed limit of 55 mph and a number of driveways and intersections accessing the roadway. (Two lanes from Balm Road South, then widened to six lanes from Balm Road North.) U.S. Highway 301 is a busy and congested roadway, and there is a significant backup of traffic turning left from U.S. Highway 301 onto Big Bend Road. A portion of U.S. Highway 301 is being widened to six lanes, from Balm Road to Big Bend Road. The widening of this portion of U.S. Highway 301 is not likely to alleviate the backup of traffic at Big Bend Road. I-75 is the only other north-south alternative for residents of the Sun City Center area seeking access to Big Bend Road. I-75 is a busy four-lane interstate with a 70 mph speed limit. The exchange on I-75 and Big Bend Road is problematic not only because of traffic volume, but also because of the unusual design of the interchange, which offloads all traffic on the south side of Big Bend Road, rather than divide traffic to the north and south as is typically done in freeway design. The design of the interchange at I-75 in Big Bend Road creates additional backup and delays for traffic seeking to exit onto Big Bend Road. St. Joseph's Hospital commissioned a travel (drive) time study that compared travel times to SB's existing location and to its proposed location from three intersections within Sun City Center. This showed an increase of between seven and eight minutes' average travel time to get to the proposed location as compared to the existing location of SB. The study corroborated SB's travel time analysis, included in its CON application, which shows four minutes to get to SB from the "centroid" of zip code 33573 (Sun City Center) and 11 minutes to get to SB's proposed location from that centroid, or a difference of seven minutes. The St. Joseph's Hospital travel time study also sets forth the average travel times from the three Sun City Center intersections to Big Bend Road and Simmons Loop, as follows: Intersection Using I-75 Using U.S. 301 South Pebble Beach Blvd. and Weatherford Drive 12 min. 17 secs. 14 min. 19 secs. Kings Blvd. and Manchester Woods Drive 15 min. 44 secs. 20 min. 39 secs. North Pebble Beach Blvd. and Ft. Dusquesna Drive 13 min. 15 secs. 15 min. 41 secs. The average travel time from Wimauma (Center Street and Delia Street) to Big Bend Road and Simmons Loop was 15 minutes and 16 seconds using I-75 and 13 minutes and 52 seconds using U.S. Highway 301, an increase of more than six minutes to the proposed site. The average travel time from Ruskin (7th Street and 4th Avenue SW) to Big Bend Road and Simmons Loop was 15 minutes and 22 seconds using U.S. 41 and 14 minutes and 15 seconds using I-75, an increase of more than five minutes to the proposed site. Currently, the average travel time from Sun City Center to Big Bend Road using U.S. Highway 301 is approximately to 16 minutes. The average travel time to Big Bend Road via I-75 assuming travel with the flow of traffic is approximately 13 minutes. The incremental increase in travel time to the proposed site for SB for residents of the Sun City Center area, assuming travel with the flow of traffic, ranges from nine to 11 minutes. For residents who currently access SB in approximately five to 10 minutes, travel time to Big Bend Road is approximately 15 to 20 minutes. As the area develops, traffic is likely to continue to increase. There are no funded roadway improvements beyond the current widening of U.S. Highway 301 north of Balm Road. Most of the roadways serving Sun City Center, Ruskin, and Wimauma have a county-adopted Level of Service (LOS) of "D." LOS designations range from "A" to "F", with "F" considered gridlock. Currently, Big Bend Road from Simmons Loop Road (the approximate location of SB's propose replacement hospital) to I-75 is at LOS "F" with an average travel speed of less than mph. Based on a conservative analysis of the projected growth in traffic volume, SR 674 east of U.S. Highway 301 is projected to degrade from LOS "C" to "F" by 2015. By 2020, several additional links on SR 674 will have degraded to LOS "F." The LOS of I-75 is expected to drop to "D" in the entirety of Big Bend Road between U.S. Highway 301 and I-75 is projected to degrade to LOS "F" by 2020. The Hillsborough County Fire Rescue Department (Rescue Department) opposes the relocation of SB to Big Bend Road. The Rescue Department supports SB's establishment of a satellite hospital on Big Bend Road, but does not support the closure of SB in Sun City Center. The Rescue Department anticipates that the relocation of SB will result in a reduction in access to emergency services for patients and increased incident response times for the Rescue Department. The Rescue Department would support a freestanding ED should SB relocate. David Travis, formerly (until February 2010) the rescue division chief of the Rescue Department, testified against SB's proposal. The basis of his opposition is his concern that relocating the hospital from Sun City Center to Riverview would tend to increase response times for rescue units operating out of the Sun City Center Fire Station. The term response time refers to the time from dispatch of the rescue unit to its arrival on the scene for a given call. Mr. Travis noted that rescue units responding from the Sun City Center Fire Station would make a longer drive (perhaps seven to eight minutes) to the new location in Riverview to the extent that hospital services are needed, and during the time of transportation would necessarily be unavailable to respond to another call. However, Mr. Travis had not specifically quantified increases in response times for Sun City Center's rescue units in the event that SB relocates. Further, SB is not the sole destination for the Rescue Department's Sun City Center rescue units. While a majority of the patients were transported to SB, out of the total patient transports from the greater Sun City Center area in 2009, approximately one-third went to other hospitals other than SB, including St. Joseph's Hospital, Tampa General, and Brandon. The Rescue Department is the only advanced life support (ALS) ground transport service in the unincorporated areas of Hillsborough County responding to 911 calls. The ALS vehicles provide at least one certified paramedic on the vehicle, cardiac monitors, IV medications, advanced air way equipment, and other services. The Rescue Department has two rescue units in south Hillsborough County - Station 17 in Ruskin and Station 28 in Sun City Center. (Station 22 is in Wimauma, but does not have a rescue unit.) Stations 17 and 28 run the majority of their calls in and around the Sun City Center area, with the majority of transports to the South Bay ED. The Rescue Department had 3,643 transports from the Sun City Center area in 2009, with 54.5% transports to SB. If SB is relocated to Big Bend Road, the rescue units for Stations 17 and 28 are likely to experience longer out-of- service intervals and may not be as readily available for responding to calls in their primary service area. The Rescue Department seeks to place an individual on the scene within approximately seven minutes, 90% of the time (an ALS personnel goal) in the Sun City Center area. Relocation of SB out of Sun City Center may make it difficult for the Rescue Department to meet this response time, notwithstanding the proximity of I-75. A rapid response time is critical to providing quality care. The establishment of a freestanding ED in Sun City Center would not completely alleviate the Rescue Department's concerns, including a subset of patients who may need to be transported to a general acute care facility. There are other licensed emergency medical service providers in Hillsborough County, with at least one basic life support EMS provider in Sun City Center. The shuttle service proposed by SB may not alleviate the transportation difficulties experienced by the patients and caregivers of Sun City Center. Also, SB has not provided a plan for the scope or method of the provisional shuttle services. Six residents of Sun City Center testified against SB's proposed relocation to Riverview, including Ed Barnes, president of the Sun City Center Community Association. Mr. Barnes and two other Sun City Center residents (including Donald Schings, president of the Handicapped Club, Sun City Center) spoke in favor of St. Joseph's Hospital's proposed hospital in Riverview at a public land-use meeting in July 2010, thus demonstrating their willingness to travel to Riverview for hospital services. Mr. Barnes supported St. Joseph's Hospital's proposal for a hospital in Riverview since its inception in 2005, when St. Joseph's Hospital filed CON Application No. 9833 and thought that St. Joseph's Hospital South would serve the Sun City Center area. There are no public transportation services per se available within the Sun City Center area. Volunteer transportation services are provided. In part, the door-to-door services are provided under the auspices of the Samaritan Services, a non-profit organization supported by donations and staffed by Sun City Center volunteers. It is in doubt whether these services would continue if SB is relocated. There is a volunteer emergency squad using a few vehicles that responds to emergency calls within the Sun City Center area, with SB as the most frequent destination. Approval of SB's project will not necessarily enhance financial access to acute care services. The relocation of SB is more likely than not to create some access barriers for low- income residents of the service area. The relocation would also be farther away from communities such as Ruskin and Wimauma as there are no buses or other forms of public transportation available in Ruskin, Sun City Center, or Wimauma. However, it appears that the Sun City Center residents would travel not only to Riverview, but north of Riverview for hospital services following SB's relocation, notwithstanding the fact that Sun City Center residents are transportation- disadvantaged. The Hillsborough County Board of County Commissioners recently amended the Comprehensive Land-Use Plan and adopted the Greater Sun City Center Community Plan, which, in part, lists the retention of an acute care hospital in the Sun City Center area as the highest health care planning priority. For Sun City Center residents who may not want to drive to SB's new location, SB will provide a shuttle bus, which can convey both non-emergency patients and visitors. South Bay has made the provision of the shuttle bus a condition of its CON. As noted herein, the CON's other conditions are the establishment of the replacement hospital at the site in Riverview; combined Medicaid and charity care in the amount of 7.0% of gross revenues; and maintaining a freestanding ED at SB. SB Ex. 46, Schedule C. Section 408.035(3): The ability of the applicant to provide quality of care and the applicant's record of providing quality of care South Bay has a record of providing high quality of care at its existing hospital. It is accredited by JCAHO, and also accredited as a primary stroke center and chest pain center. In the first quarter of 2010, SB scored well on "core measures" used by the Centers for Medicare and Medicaid Services (CMS) as an indicator of the quality of patient safety. South Bay received recognition for its infection control programs and successfully implemented numerous other quality initiatives. Patient satisfaction is high at SB. AHCA's view of the need for a replacement hospital is not limited according to whether or not the existing hospital meets broad quality indicators, such as JCAHO accreditation. Rather, AHCA recognizes the degree to which quality would be improved by the proposed replacement hospital -– and largely on that basis has consistently approved CON applications for replacement hospitals since at least 1991. See FOF 64-66. South Bay would have a greater ability to provide quality of care in its proposed replacement hospital. Private patient rooms are superior in terms of infection control and the patient's general well-being. The conceptual design for the hospital, included in the CON application, is the same evidence- based design that HCA used for Methodist Stone Oak Hospital, an award-winning, state-of-the-art hospital in San Antonio, Texas. Some rooms at SB are small, but SB staff and physicians are able, for the most part, to function appropriately and provide high quality of care notwithstanding. (The ICU is the exception, although it was said that patients receive quality of care in the ICU. See FOF 77-82.) Most of the rooms in the ED "are good size." Some residents are willing to give up a private room in order to have better access of care and the convenience of care to family members at SB's existing facility. By comparison, the alternative suggested by St. Joseph's Hospital does not use evidence-based design and involves gutting and rearranging roughly one-third of SB's existing interior; depends upon erecting a new patient tower that would require parking and stormwater capacity that SB currently does not have; requires SB's administration to relocate off-site during an indeterminate construction period; and involves estimated project costs that its witnesses did not disclose the basis of, claiming that the information was proprietary. South Bay's physicians are likely to apply for privileges at St. Joseph's Hospital South. Moreover, if SB remains at its current site, it is reasonable to expect that some number of those physicians would do less business at SB or leave the medical staff. Many of SB's physicians have their primary medical offices in Brandon, or otherwise north of Sun City Center. Further, many of the specialists at SB are also on staff at Brandon. St. Joseph's Hospital South would be more convenient for those physicians, in addition to having the allure of a new, state-of-the-art hospital. South Bay is struggling with its nursing vacancy rate, which was 12.3% for 2010 at the time of the hearing and had increased from 9.9% in 2009. The jump in nursing vacancies in 2010 substantially returned the hospital to its 2008 rate, which was 12.4%. As with its physicians, SB's nurses generally do not reside in the Sun City Center area giving its age restrictions as a retirement community; instead, they live further north in south Hillsborough County. In October 2007 when the application was filed, SB had approximately 105 employees who lived in Riverview. It is reasonable to expect that SB's nurses will be attracted to St. Joseph's Hospital South, a new, state-of-the-art hospital closer to where they live. Thus, if it is denied the opportunity to replace and relocate its hospital, SB could also expect to lose nursing staff to St. Joseph's Hospital South, increasing its nursing vacancy rate. Section 408.035(4): The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation The parties stipulated that Schedule 2 of SB's CON application was complete and required no proof at hearing. South Bay will not have to recruit nursing or physician staff for its proposed replacement hospital. Its existing medical and nursing staff would not change, and would effectively "travel" with the hospital to its new location. Conversely, the replacement hospital should enhance SB's ability to recruit specialty physicians, which is currently a challenge for SB in its existing facility. The parties stipulated to the reasonableness of SB's proposed staffing for the replacement hospital as set out in Schedule 6A, but SJH and TG contend that the staffing schedule should also include full-time equivalent positions (FTEs) for the freestanding ED that SB proposes to maintain at its existing hospital. This contention is addressed in the Conclusions of Law, concerning application completeness under section 408.037, at COL 356-57. South Bay has sufficient funds for capital and operating expenditures for project accomplishment and operation. The project cost will be underwritten by HCA, which has adequate cash flow and credit opportunities. It is reasonable that SB's project will be adequately funded if the CON is approved. Section 408.035(5): The extent to which the proposed services will enhance access to health care for residents of the service district The specific area that SB primarily serves, and would continue to serve, is the service area in south Hillsborough County as identified in its application and exhibits. The discussion in section IV.B., supra, is applicable to this criterion and incorporated herein. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County; will be available to serve Sun City Center, Ruskin, and Wimauma; and will be between seven and eight minutes farther away from Sun City Center than it is at present. However, while the relocated facility will be available to the elderly residents of the Sun City Center area, access for these future patients will be reduced from current levels given the increase in transportation time, whether it be by emergency vehicle or otherwise. Section 408.035(6): The immediate and long-term financial feasibility of the proposal Immediate or "short-term" financial feasibility is the ability of the applicant to secure the funds necessary to capitalize and operate the proposed project. The project cost for SB's proposed replacement hospital is approximately $200 million. The costs associated with the establishment and operation of the freestanding ED and other services were not included in the application, but for the reasons stated herein, were not required to be projected in SB's CON application. South Bay demonstrated the short-term financial feasibility of the proposal. The estimated project cost has declined since the filing of the application in 2007, meaning that SB will require less capital than originally forecast. While Mr. Miller stated that he does not have authority to bind HCA to a $200 million capital project, HCA has indicated that it will provide full financing for the project, and that it will go forward with the project if awarded the CON. Long-term financial feasibility refers to the ability of a proposed project to generate a profit in a reasonable period of time. AHCA has previously approved hospital proposals that showed a net profit in the third year of pro forma operation or later. See generally Cent. Fla. Reg. Hosp., Inc. v. Agency for Health Care Admin. & Oviedo HMA, Inc., Case No. 05-0296CON (Fla. DOAH Aug. 23, 2006; Fla. AHCA Jan. 1, 2007), aff'd, 973 So. 2d 1127 (Fla. 1st DCA 2008). To be conservative, SB's projections, updated for purposes of hearing, take into account the slower population growth in south Hillsborough County since the application was originally filed. South Bay also assumed that St. Joseph's Hospital South will be built and operational by 2015. The net effect, as accounted for in the updated projections, is that SB's replacement hospital will have 28,168 patient days in year 1 (2015); 28,569 patient days in year 2 (2016); and 29,582 patient days in year 3 (2017). That patient volume is reasonable and achievable. With the updated utilization forecast, SB projects a net profit for the replacement hospital of $711,610 in 2015; $960,693 in 2016; and $1,658,757 in 2017. The financial forecast was done, using revenue and expense projections appropriately based upon SB's own most recent (2009) financial data. Adjustments made were to the payor mix and the degree of outpatient services, each of which would change due to the relocation to Riverview. The revenue projections for the replacement hospital were tested for reasonableness against existing hospitals in SB's peer group, using actual financial data as reported to AHCA. St. Joseph's Hospital opposed SB's financial projections. St. Joseph's Hospital's expert did not take issue with SB's forecasted market growth. Rather, it was suggested that there was insufficient market growth to support the future patient utilization projections for St. Joseph's Hospital South and SB at its new location and, as a result, they would have a difficult time achieving their volume forecasts and/or they would need to draw patients from other hospitals, such as Brandon, in order to meet utilization projections. St. Joseph's Hospital's expert criticized the increase in SB's projected revenues in its proposed new location as compared to its revenues in its existing location. However, it appears that SB's payor mix is projected to change in the new location, with a greater percentage of commercial managed care, thus generating the greater revenue. South Bay's projected revenue in the commercial indemnity insurance classification was also criticized because SB's projected commercial indemnity revenues were materially overstated. That criticism was based upon the commercial indemnity insurance revenues of St. Joseph's Hospital and Tampa General, which were used as a basis to "adjust" SB's projected revenue downward. St. Joseph's Hospital and Tampa General's fiscal-year 2009 commercial indemnity net revenue was divided by their inpatient days, added an inflation factor, and then multiplied the result by SB's year 1 (2015) inpatient days to recast SB's projected commercial indemnity net revenue. The contention is effectively that SB's commercial indemnity net revenue would be the same as that of St. Joseph's Hospital and Tampa General. There is no similarity between the three hospitals in the commercial indemnity classification. The majority of SJH's and TG's commercial indemnity net revenue comes from inpatients rather than outpatient cases; whereas the majority of SB's commercial indemnity net revenue comes from outpatient cases rather than inpatients. This may explain why SB's total commercial indemnity net revenue is higher than SJH or TG, when divided by inpatient days. The application of the lower St. Joseph's Hospital-Tampa General per-patient-day number to project SB's experience does not appear justified. It is likely that SB's project will be financially feasible in the short and long-term. Section 408.035(7): The extent to which the proposal will foster competition that promotes quality and cost-effectiveness South Bay and Brandon are the dominant providers of health care services in SB's service area. This dominance is likely to be eroded once St. Joseph's Hospital South is operational in and around 2015 (on Big Bend Road) if SB's relocation project is not approved. The proposed relocation of SB's facility will not change the geography of SB's service area. However, it will change SB's draw of patients from within the zip codes in the service area. The relocation of SB is expected to increase SB's market share in the three northern Riverview zip codes. This increase can be expected to come at the expense of other providers in the market, including TG and SJH, and St. Joseph's Hospital South when operational. The potential impact to St. Joseph's Hospital may be approximately $1.6 million based on the projected redirection of patients from St. Joseph's Hospital Main to St. Joseph's Hospital South, population growth in the area, and the relocation of SB. Economic impacts to TG are of record. Tampa General estimates a material impact of $6.4 million if relocation is approved. Notwithstanding, addressing "provider-based competition," AHCA in its SAAR noted: Considering the current location is effectively built out at 112 beds (according to the applicant), this project will allow the applicant to increase its bed size as needed along with the growth in population (the applicant's schedules begin with 144 beds in year one of the project). This will shield the applicant from a loss in market share caused by capacity issues and allow the applicant and its affiliates the opportunity to maintain and/or increase its dominant market share. SB Ex. 12 at 55. AHCA's observation that replacement and relocation of SB "will shield the applicant from a loss in market share caused by capacity issues" has taken on a new dimension since the issuance of the SAAR. At that time, St. Joseph's Hospital did not have final approval of CON No. 9833 for the establishment of St. Joseph's Hospital South. It is likely that St. Joseph's Hospital South will be operational on Big Bend Road, and as a result, SB, at its existing location, will experience a diminished market share, especially from the Riverview zip codes. In 2015 (when St. Joseph's Hospital proposes to open St. Joseph's Hospital South), SB projects losing $2,669,335 if SB remains in Sun City Center with a 20% loss in market share. The losses are projected to increase to $3,434,113 in 2016 and $4,255,573 in 2017. It follows that the losses would be commensurately more severe at the 30% to 40% loss of market share that SB expects if it remains in Sun City Center. St. Joseph's Hospital criticized SB's projections for its existing hospital if it remains in Sun City Center with a 20% loss in market share; however, the criticism was not persuasively proven. It was assumed that SB's expenses would decrease commensurately with its projected fewer patient days, thus enabling it to turn a profit in calendar year 2015 despite substantially reduced patient service revenue. However, it was also stated that expenses such as hospital administration, pharmacy administration, and nursing administration, which the analysis assumed to be variable, in fact have a substantial "fixed" component that does not vary regardless of patient census. South Bay would not, therefore, pay roughly $5 million less in "Administration and Overhead" expenses in 2015 as calculated. To the contrary, its expenses for "Administration and Overhead" would most likely remain substantially the same, as calculated by Mr. Weiner, and would have to be paid, notwithstanding SB's reduced revenue. The only expenses that were recognized as fixed by SJH's expert, and held constant, were SB's calendar year 2009 depreciation ($3,410,001) and short-term interest ($762,738), shown in the exhibit as $4,172,739 both in 2009 and 2015. Other expenses in SJH's analysis are fixed, but were inappropriately assumed to be variable: for example, "Rent, Insurance, Other," which is shown as $1,865,839 in 2009, appears to decrease to $1,462,059 in 2015. The justification offered at hearing, that such expenses can be re-negotiated by a hospital in the middle of a binding contract, is not reasonable. St. Joseph's Hospital's expert opined that SB's estimate of a 30 to 40% loss of market share (if SB remained in Sun City Center concurrent with the operation of St. Joseph's Hospital South) was "much higher than it should be," asserting that the loss would not be that great even if all of SB's Riverview discharges went to St. Joseph's Hospital South. (Mr. Richardson believes the "10 to 20 percent level is likely reasonable," although he opines that a 5 to 10% impact will likely occur.) However, this criticism assumes that a majority of the patients that currently choose SB would remain at SB at its existing location. The record reflects that Sun City Center area residents actively supported the establishment of St. Joseph's Hospital South, thus suggesting that they might use the new facility. Further, SB's physicians are likely to join the medical staff of St. Joseph's Hospital South to facilitate that utilization or to potentially lose their patients to physicians with admitting privileges at St. Joseph's Hospital South. Tampa General's expert also asserted that SB would remain profitable if it remained in its current location, notwithstanding the establishment of St. Joseph's Hospital South. It was contended that SB's net operating revenues per adjusted patient day increased at an annual rate of 5.3% from 2005 to 2009, whereas the average annual increase from 2009 to 2017 in SB's existing hospital projections amounts to 1.8%. On that basis, he opined that SB should be profitable in 2017 at its existing location, notwithstanding a loss in market share to St. Joseph's Hospital South. However, the 5.3% average annual increase from 2005 to 2009 is not necessarily predictive of SB's future performance, and the evidence indicated the opposite. Tampa General's expert did not examine SB's performance year-by-year from 2005 to 2009, but rather compared 2005 and 2009 data to calculate the 5.3% average annual increase over the five-year period. This analysis overlooks the hospital's uneven performance during that time, which included operating losses (and overall net losses) in 2005 and 2007. Further, the evidence showed that the biggest increase in SB's net revenue during that five-year period took place from 2008 to 2009, and was largely due to a significant decrease in bad debt in 2009. SB Ex. 16 at 64. (Bad debt is accounted for as a deduction from gross revenue: thus, the greater the amount of bad debt, the less net revenue all else being equal; the lesser the amount of bad debt, the greater the amount of net revenue all else being equal.) The evidence further showed that the 2009 reduction in bad debt and the hospital's profitability that year, is unlikely to be repeated. Overall, approval of the project is more likely to increase competition in the service area between the three health care providers/systems. Denial of the project is more likely to have a negative effect on competition in the service area, although it will continue to make general acute care services available and accessible to the Sun City Center area elderly (and family and volunteer support). Approval of the project is likely to improve the quality of care and cost-effectiveness of the services provided by SB, but will reduce access for the elderly residents of the Sun City Center area needing general acute care hospital services who will be required to be transported by emergency vehicle or otherwise to one of the two Big Bend Road hospitals, unless needed services, such as open heart surgery, are only available elsewhere. For example, if a patient presents to SB needing balloon angioplasty or open heart surgery, the patient is transferred to an appropriate facility such as Brandon. The presence of an ED on the current SB site may alleviate the reduction in access somewhat for some acute care services, although the precise nature and extent of the proposed services were not explained with precision. If its application is denied, SB expects to remain operational so long as it remains financially viable. Section 408.035(8): The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the costs and methods of the proposed construction, including the costs and methods of energy provision, were reasonable. St. Joseph's Hospital and Tampa General did not stipulate concerning the availability of alternative, less costly, or more effective methods of construction, and take the position that SB should renovate and expand its existing facility rather than replace and relocate the facility. Whether section 408.035(8) requires consideration (weighing and balancing with other statutory criteria) of potential renovation costs as alternatives to relocation was hotly debated in this case. For the reasons stated herein, it is determined that this subsection, in conjunction with other statutory criteria, requires consideration of potential renovation versus replacement of an existing facility. St. Joseph's Hospital offered expert opinion that SB could expand and upgrade its existing facility for approximately $25 million. These projected costs include site work; site utilities; all construction, architectural, and engineering services; chiller; air handlers; interior design; retention basins; and required movable equipment. This cost is substantially less than the approximate $200 million cost of the proposed relocation. It was proven that there are alternatives to replacing SB. There is testimony that if SB were to undertake renovation and expansion as proposed by SJH, such upgrades would improve SB's competitive and financial position. But, the alternatives proposed by SJH and TG are disfavored by SB and are determined, on this record, not to be reasonable based on the institutional- specific needs of SB. Section 408.035(9): The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Approval of SB's application will not significantly enhance access to Medicaid, charity, or underserved population groups. South Bay currently provides approximately 4% of its patient days to Medicaid beneficiaries and about 1% to charity care. South Bay's historic provision of services to Medicaid patients and the medically indigent is reasonable in view of its location in Sun City Center, which results in a disproportionate share of Medicare in its current payor mix. South Bay also does not offer obstetrics, a service which accounts for a significant degree of Medicaid patient days. South Bay proposes to provide 7% of its "gross patient revenue" to Medicaid and charity patients as part of its relocation. South Bay's proposed service percentage is reasonable. Section 408.035(10): The applicant's designation as a Gold Seal Program nursing facility pursuant to s. 400.235, when the applicant is requesting additional nursing home beds at that facility The parties stipulated that this criterion is not applicable.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered denying CON Application No. 9992. DONE AND ENTERED this 8th day of August, 2011, in Tallahassee, Leon County, Florida. S CHARLES A. STAMPELOS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of August, 2011.
The Issue The parties have stipulated that these cases are properly before the Division of Administrative Hearings for de novo review of the Petitioners' applications for a certificate of need and that this action is controlled by the provisions of Chapters 120 and 381, Florida Statutes, and Chapters 10-5 and 28- 5, F.A.C. The parties have further stipulated that portions of Section 481.494(6)(c), Florida Statutes (1984 Suppl.), and its counterparts under Section 10-5.11, F.A.C., have either been met or are not applicable. The portions of Section 381.494(6)(c), Florida Statutes (1984 Suppl.), which the parties have stipulated have been met or do not apply and the parties' summary of the content of those subsections are as follows: (3) both applicants have the ability to manage and operate facilities such as those applied for; (6) need in the services district for special equipment and services not reasonably and economically accessible in adjoining areas; (7) need for research and training programs; (8) health and management manpower and personnel only. The remaining parts of (8) remain in issue; (10) special needs and circumstances of health maintenance organizations; (11) needs and circumstances of those entities which provide a special portion of their services or resources, or both, to individuals not residing in the service district. The parties stipulated that the remaining portions of Section 381.494(6)(c) and (d), Florida Statutes (1984 Suppl.), remain in issue. Based upon the stipulations of the parties, the following issues require resolution: Is there a need for a 100-bed acute care hospital in Orange County, Florida? Do the Petitioners' proposals meet the criteria of Sections 381.494(6)(c) and (d), Florida Statutes (1984 Suppl.), which have not been stipulated to as having been met or as not being applicable? If a need exists for only one proposal and both Petitioners meet the appropriate criteria, which of the Petitioners should be granted a certificate of need? Should a certificate of need for a computerized axial tomography scanner (hereinafter referred to as a "CAT Scanner") be issued to AMI? Does Florida Hospital and/or OGH have the requisite standing to take part as parties in these proceedings?
Findings Of Fact AMI is a publicly traded for-profit Delaware corporation which owned, managed or operated 103 hospitals in the United States and 29 hospitals outside the United States as of January, 1985. AMI also owns, manages or operates a number of other health care facilities, i.e., psychiatric care facilities and freestanding outpatient surgery centers. AMI also owns a number of subsidiary corporations which provide a variety of technologies and services in support of its hospitals. In Florida, AMI owns 100 percent or a majority interest of 9 hospitals. In its proposed findings of fact AMI has indicated that it "operates" these 9 hospitals. The record supports this finding, although the record also supports a finding that the 9 hospitals are separate legal entities. AMI initially filed a letter of intent to file a certificate of need application with the Department for a 175-bed hospital in Orange County, Florida, for review in the August 15, 1983, batching cycle. The letter of intent was rejected because it had not been timely submitted to the local health council. On October 12, 1983, AMI filed a second letter of intent with the Department in which it informed the Department that AMI "or a to-be-formed wholly-owned subsidiary of AMI intends to file a Certificate of Need application for a 175-bed hospital to be located along Highway 50 in the vicinity of the University of Central Florida in Orange County, Florida." On October 19, 1983, seven days after the letter of intent was filed, Articles of Incorporation were filed for University Community Hospital of Orlando, Inc. (hereinafter referred to as "UCH, Inc."). UCH, Inc., is a for-profit Florida corporation. It currently owns no assets. AMI's application, which was reviewed in the November 15, 1983, batching cycle, was denied by the Department. AMI subsequently reduced the number of beds it had requested in its application from 175 to 100 beds. No change in the application with regard to the services to be provided has been made by AMI. Based upon its amended application AMI has proposed to construct and operate a 100-bed "full-service" acute care hospital to be located in Orange County, Florida. The proposed 100 beds will consist of 84 medical/surgical beds, 8 obstetric beds and 8 ICU/CCU beds. The proposed hospital will include a separate outpatient unit, an on-site stationary CAT Scanner, a 24-hour a day emergency room and birthing rooms and will provide therapeutic and diagnostic inpatient services, and community outreach and wellness programs. Tertiary care services will not be provided at the proposed hospital but AMI intends to contract with existing providers of tertiary care services to provide those services to its patients. AMI has projected that the total cost of its proposal will be $19,698,831.00. This figure includes $566,700.00 for architectural and engineering fees, $6,268,747.00 for equipment, $1,025,000.00 for the acquisition of land, $10,095,000.00 for construction, $250,000.00 for start-up costs and $1,285,385.00 for capitalized interest. The proposed AMI facility will include separate entrances for outpatient surgery and the emergency room. The facility has been designed to take into account the trend in health care to provide outpatient and ambulatory services. Two of the four proposed operating rooms in the facility will be used primarily for outpatient surgery. The 8 birthing rooms to be included in the facility are designed in recognition of the trend in health care to provide a room in which the family can participate in the birthing process. A delivery room will also be provided. Finally, classroom space will be provided in the facility for allied health services training and continuing education. Winter Park. Winter Park Memorial Hospital Association, Inc., is a not for-profit Florida corporation. It operates Winter Park, a 301 bed hospital in Winter Park, Orange County, Florida. The hospital provides a full range of medical services including a full-body CAT Scanner. Winter Park Memorial Hospital Association, Inc., qualifies for exemption from federal income tax under Section 501(a) of the Internal Revenue Code of 1954, as amended (hereinafter referred to as the "Code"), because it is an organization designated in Section 501(c)(3) of the Code. On October 31, 1983, Winter Park filed its letter of intent to file an application for a certificate of need with the Department in the same batching cycle as AMI. In its application Winter Park proposed to build a 100-bed acute care hospital in Orange County, Florida. The proposed 100 beds will consist of 84 medical/surgical beds, 8 obstetric beds and 8 ICU/CCU beds. The proposal does not include a CAT Scanner. Winter Park has projected that the total cost of its proposed facility will be $16,015,000.00. This amount includes $75,000.00 for project development, $50,000.00 for financing, $685,000.00 for professional services, $10,395,900.00 for construction, $4,457,700.00 for equipment and $351,400.00 for other related cost. Florida Hospital Florida Hospital is a not-for-project hospital owned by Adventist Health Systems Sunbelt, a division of the Adventist Church. Florida Hospital presently consists of 3 campuses: the main campus in Orlando and satellite campuses in Altamonte Springs, Seminole County, Florida and Apopka, Orange County, Florida. In the 75 years since the hospital was begun it has grown from a 20 bed hospital to its present size of 959 beds. Florida Hospital is a tertiary acute care hospital providing a full range of services including ambulatory surgery, a stationary full-body CAT Scanner, general inpatient medical and surgical services, obstetrics, pediatrics, psychiatric services, substance abuse treatment, open heart surgery, oncology and other services. Florida Hospital is involved in a number of teaching programs and internship programs. It is a teaching hospital with a number of positions dedicated to teaching, including a director of education. Florida Hospital would be substantially affected if a certificate of need is granted to either Petitioner. Florida Hospital has standing to intervene. OGH OGH is a not-for-profit 171-bed hospital located in Orlando, Orange County, Florida. It was founded in 1941 and has operated as a not-for-profit facility since 1945. OGH is licensed by the State of Florida as an acute care general hospital. The services provided by OGH include obstetrics, outpatient services, general inpatient medical and surgical services, pediatrics, a mobile CAT Scanner and other services. OGH would be substantially affected if a certificate of need is issued to either Petitioner. OGH has standing to intervene. THE NEED FOR ACUTE CARE HOSPITAL BEDS. Section 10-5.11(23), F.A.C. Pursuant to Section 381.494(6)(c), Florida Statutes (1984 Suppl.), the Department is responsible for determining whether health care facilities and services are needed in the State of Florida. To fulfill its responsibility with regard to acute care hospital beds, the Department has promulgated Section 10 5.11(23), F.A.C. Section 10-5.11(23)(b), F.A.C., provides the following Department goal: The Department will consider applications for acute care hospital beds in context with all applicable statutory and rule criteria. The Department will not normally approve applications for new or additional acute care hospital beds in any departmental service district if approval of an application would cause the number of beds in that district to exceed the number of beds calculated to be needed according to the methodology included in paragraphs (f),(g) and (h) below. A favorable Certificate of Need determination may be made when the criteria, other than bed need, as provided for in Section 381.494(6)(c), Florida Statutes, demonstrate need. An unfavorable Certificate of Need determination may be made when a calculated bed need exists but other criteria specified in Section 381.494(6)(c), Florida Statutes, are not met. Based upon this Department goal, the need for acute care hospital beds is first determined by service district based upon the methodology included in Section 10-5.11(23)(f)-(h), F.A.C. (Hereinafter referred to as the "Formula"). For purposes of the Formula, acute care beds include general medical and surgical, intensive care, pediatric and obstetrical beds. Section 10 5.11(23)(c), F.A.C. The Petitioners are proposing to build a hospital with general medical and surgical, intensive care and obstetrical beds. Therefore, the Formula must be applied to determine if there is a need for their proposed hospitals. Under the Formula, acute care bed need is to be determined five years in the future: 1990 in these cases. Generally, acute care bed need is determined under the Formula based upon two age cohort population projections, statewide service-specific discharge rates, statewide service-specific lengths of stay, statewide service-specific occupancy standards and patient flow adjustments. See Section 10-5.11(23)(f), F.A.C. The bed need for the service district determined in accordance with Section 10-5.11(23)(f), F.A.C., is adjusted based upon the service district's historical use rate and projected occupancy rate. Section 10-5.11(23)(g), F.A.C. The historical use rate to be used under the Formula is for the three most recent years and is based upon utilization of hospitals located in the service district. After applying the adjustment of Section 10-5.11(23)(g), F.A.C., one final adjustment is required to complete the determination of acute care bed need under the Formula. Section 10-5.11(23)(h), F.A.C. provides for an adjustment to reflect peak demand in the service district. Based upon the evidence presented at the final hearing of these cases, application of the Formula results in a net acute care bed need of 89 beds or 146 beds, or an excess of 464 beds. These projections are all for the Department's District 7, which consists of Orange, Seminole, Osceola and Brevard Counties, The Petitioners are proposing to build new hospitals in Orange County. The Formula projection of a net acute care bed need in District 7 of 89 beds is an outdated Department application of the Formula. The 146 net acute care bed need projection for District 7 is the Department's most current application of the Formula, dated March 12, 1985. The Department's most recent application of the Formula is not based upon a proper application of the adjustment for the District 7 projected occupancy rate and historical use rate under Section 10-5.11(23)(g), F.A.C. In making this adjustment, the Department relied upon utilization data in determining the District 7 historical use rate from 1981, 1982 and 1983. Section 10-5.11(23)(g), F.A.C., requires that the historical use rate be based upon the most recent three years available. In these cases 1982, 1983 and 1984 utilization data was available to the Department. The fact that incorrect utilization data was used in determining the District 7 historical use rate was confirmed by Mr. Eugene Nelson, the Director of the Office of Community Medical Facilities of the Department, Mr. Steve Windham, the Executive Director of the Local Health Council of East Central Florida, Inc., and Mr. Lawrence W. Margolis, an expert health planner. Mr. Nelson also indicated that if 1982, 1983 and 1984 utilization data had been used by the Department in applying the Formula a more "contemporary picture of what's actually happening" would have be given. Mr. Margolis did apply the Formula using the most current utilization data to calculate the historical use rate of District 7. Based upon the data used by the Department in its most recent projection of acute care bed need for District 7, but substituting the current utilization data of 1982, 1983 and 1984, an application of the Formula results in a projected total acute care bed need in 1989 for District 7 of 4,416 beds. There are currently 4,880 licensed and approved beds in District 7. Therefore, a proper application of the Formula based upon the most current data indicates that District 7 will have an excess of 464 acute care beds in 1989. A finding that District 7 will have an excess of acute care beds in 1989 is supported by the trend toward reduced utilization of hospitals in District 7. This reduction in hospital utilization, which began in 1982, has been evidenced by reductions in occupancy rates, average lengths of stay and admissions. This trend is likely to continue for an additional two to four years. The trend is sufficient to cause an excess in acute care beds despite increases in population. To add another 100 acute care hospital beds to Orange County would further reduce utilization. The reduced utilization of hospitals could become worse when new hospital beds are opened by Florida Hospital (210 beds) and Holmes Regional Medical Center in Brevard County (81 beds). The opening of these beds could create a further excess of beds in District 7. There are a number of factors which have contributed to the decline in the use of hospitals: (1) there has been an increase in the use of health maintenance organizations and preferred provider organizations; (2) the introduction of Diagnostic Related Groups, a method of reimbursement now being used by Medicare; and (3) there has been an increase in the use of outpatient medical services. Health maintenance organizations in Orange County alone could decrease patient days in hospitals from 800 days per 1,000 population to 350 days per 1,000 population. Because of the introduction of Diagnostic Related Groups by Medicare, hospitals are trying to discharge patients as quickly as possible. Finally, there are 8 to 10 freestanding ambulatory surgery centers approved for Orange County which are, or will be, providing outpatient medical services. All of these factors have reduced hospital utilization in District 7. The current trend of reduced utilization of hospitals was recognized by Mr. Mark Richardson, AMI's expert in health planning. Mr. Richardson therefore recommended that AMI reduce its application for a certificate of need to construct and operate a hospital in Orange County from 175 acute care beds to 100 beds, which AMI did. Based upon the foregoing, it is concluded that District 7 will have an excess of at least 464 acute care beds in 1989 according to a proper application of the Formula of Section 10 5.11(23), F.A.C. Although insufficient evidence was presented at the final hearing to forecast the exact acute care bed need for District 7 under the Formula for 1990, it does not appear that there will be any need for acute care beds in District 7 in 1990 in light of the fact that the trend toward decreased utilization of hospitals will probably continue for 2 to 4 more years. In fact, the evidence supports the conclusion that District 7 will continue to have an excess of beds in 1990. AMI has proposed findings of fact to the effect that there has been too much concern with "over-bedding" based upon computations such as those provided in the Formula. AMI further proposed findings of fact to the effect that a more rational approach to health planning "should be assuming adequate supply as opposed to considering a negative approach." These proposed findings of fact are rejected. The Department's rules and in particular, the Formula, are the law and will be followed in these cases. Whether "over-bedding" is over emphasized, the Formula clearly indicates that District 7 will be greatly overbedding in 1990. In addition to requiring an application of the Formula to determine acute care bed need for each Department service district, Section 10-5.11(23), F.A.C., requires that local health councils adopt acute care service subdistricts as an element of their local health plans. Section 10-5.11(23)(d), F.A.C. District 7 has been divided along county lines into four subdistricts: Orange, Seminole, Osceola and Brevard Counties. Section 10-17.008, F.A.C. Prior to this proceeding AMI challenged the validity of Section 10- 17.008, F.A.C., the rule establishing subdistricts along county lines in District 7. The rule was upheld as valid in American Medical International, Inc. v. Department of Health and Rehabilitative Services, DOAH Case No. 83- 3092R, September 28, 1984. Therefore, Orange, Seminole, Brevard and Osceola Counties constitute the only recognized subdistricts in District 7 for purposes of allocating acute care bed need in District 7. Section 10-5.11(23)(e), F.A.C., further provides that the district acute care bed need as determined by application of the Formula is to be allocated to each subdistrict established pursuant to Section 10-5.11(23)(d), F.A.C. This allocation of acute care bed need to the subdistricts is to be made consistent with Section 381.494(7)(b), Florida Statutes (1984 Suppl.), which provides that the local health council is to develop a district health plan and submit it to the Department. Elements of the district health plan necessary in the Department's review of certificate of need applications are required to be adopted by the Department as a part of its rules. Section 381.494(7)(b), Florida Statutes (1984 Suppl.). The Local Health Council of East Central Florida, Incorporated (hereinafter referred to as the "Council"), has developed a district health plan which includes the methodology it employs to allocate the District 7 acute care bed need to the subdistricts of District 7. That plan has also been submitted to the Department. The Department, however, has not adopted the district health plan for District 7 in its rules. This does not mean, however, that evidence pertaining to the Council's method of allocation is not relevant to, or should be ignored for purposes of, this proceeding. Based upon the evidence presented at the final hearing, Orange County has an excess of acute care beds. This is true even if it is assumed that the Department's determination under the Formula that there is a need for 89 or 146 acute care beds in District 7 is correct. According to Mr. Windham, application of the Council's subdistrict allocation methodology to the Department's determination under the Formula that there is a need in District 7 for 89 acute care beds indicates that Orange County ",4 will have an excess of 81 acute care beds and that Seminole County will have an excess of 36 acute care beds. Mr. Windham's application of the Council's methodology for allocating bed need to the subdistricts of District 7 was based upon the Department's application of the Formula without the benefit of the more current utilization data. Therefore, if the most current data had been used, the projected excess beds for Orange County would be even greater. In light of the foregoing, it is clear that the Petitioners have failed to prove that there is any need under Section 10-5.11(23), F.A.C., for additional acute care beds in District 7 or in Orange or Seminole Counties. In fact, under Section 10- 5.11(23), F.A.C., there is a significant excess of acute care beds projected for Orange and Seminole Counties and District 7 as a whole. Winter Park has conceded this conclusion. AMI has in essence argued that any evidence as to the application of the Formula based upon the most current utilization data should be ignored because the Department has not yet officially applied the Formula based upon such data. Mr. Margolis, an expert in health planning, was clearly capable of applying the Formula based upon the most current information. His conclusions were also supported by Mr. Nelson's and Mr. Windham's testimony. AMI has in essence also argued that any evidence as to how acute care bed need in District 7 under the Formula should be allocated to the properly designated subdistricts should be ignored because the Council's methods of allocation have not been adopted as part of the Department's rules. Mr. Windham's unrebutted testimony, however, supports a finding that the Council's method of allocating the District 7 acute care bed need to the subdistricts is a reasonable method for health planning purposes. The determination that there is no need for additional acute care beds in Orange County does not necessarily preclude the issuance of a certificate of need for a new hospital to either or both of the Petitioners. Section 10- 5.11(23)(b), F.A.C., provides that the Department will "not normally" approve an application if such an approval would result in acute care beds in excess of those needed as determined under the Formula. The rule goes on to provide that an application may be approved "when the criteria, other than bed need, as provided in Section 381.494(6)(c), Florida Statutes, demonstrate need." Bed Need Based upon the Petitioner's Alternative to the Formula. AMI has suggested in its proposed recommended order that there is a need for 146 acute care beds in District 7 based upon an application of the Formula. That finding of fact has been rejected, supra, because it was based upon the use of outdated utilization data. The Petitioner also failed to prove that there is a need for beds in Orange County based upon an application of the Formula. Winter Park's position throughout this proceeding and AMI's alternative position has been essentially that the population of east Orange County where the Petitioners propose to locate their facilities and parts of Seminole County do not have adequate accessibility to acute care hospital beds. In determining whether an application for a certificate of need should be issued for acute care hospital beds, Section 381.484(6)(c)2, Florida Statutes (1984 Suppl.), provides that the accessibility . . of like and existing health care services and hospitals in the service district of the applicant" should be considered. The Petitioners have attempted to prove that like and existing health care services are not accessible in portions of Orange and Seminole Counties and therefore there is a need for their proposed hospitals. The Petitioners' Medical Service Areas. AMI has identified and proposed to serve portions of Orange and Seminole Counties which purportedly have an access problem which it has designated as a "medical service area." AMI projects that the majority of its patients will be attracted from its medical service area (hereinafter referred to as an MSA) AMI's MSA consists of most of east Orange County and southeastern Seminole County. Generally, the MSA boundary runs south along most of the western shore of Lake Jessup in Seminole County, to and along Tuscawilla Road (Seminole and Orange County), to and along Highway 436 in Orange County, south to the Bee Line Expressway, east along the Bee Line Expressway to Highway 15, south along Highway 15 to the Orange-Osceola County line, east and then north along the Orange County line to the Seminole County line and along the Seminole County line north and then west to Lake Jessup. Winter Park has also identified and proposed to serve a MSA very similar to, although a little smaller than, AMI's MSA. The difference in size amounts to only a difference of 1000 less population in Winter Park's MSA. The portion of east Orange County included in the MSAs represents a distinct geopolitical and economic base. Each of the Petitioners and Florida Hospital presented testimony by experts in the field of demographics. Frederick A. Raffa, Ph.D., for AMI, William J. Serow, Ph.D, for Winter Park and Stanley Smith, Ph.D., for Florida Hospital. Based upon their testimony, it is clear that the MSAs have experienced a great deal of population and economic growth since 1970 and that this growth will probably continue through 1990. During the period 1980 to 1985, the rate of population growth for Orange and Seminole Counties was 16 percent (23 percent for Seminole County alone). The rate of growth in Winter Park's MSA during this same period was 32 percent. For the period 1985 through 1990 the projected rate of growth for Orange County is 12 percent. The projected rate of growth from 1985 through 1990 for Winter Park's MSA is 23.3 percent. These figures indicate that the rate of growth for Orange County and the MSAs is slowing down. The figures also show that the MSA rate of growth is twice that of Orange and Seminole Counties. Looking at only the rate of growth of an area can be misleading. For example, a 50 percent rate of growth may not be as significant when applied to a population base of 10 as when applied to a larger population base. In terms of actual growth, the evidence proves that Orange County's population growth in terms of additional people is greater than the population growth of the MSAs. The evidence also establishes that population growth in the MSAs is projected to be greater for young adults and women of child bearing age (15 to 44 years of age), that there will be larger families and a greater number of children under 18 years of age in the MSAs than in Orange County as a whole and that the projected population of the MSAs will be newer to the area and generally more mobile than Orange County as a whole. Florida Hospital has suggested that "logic" leads to the conclusion that some of these projected trends will cause a decrease in utilization. No evidence was presented at the hearing to support such a finding of fact. The evidence clearly establishes that population growth in the MSAs will be concentrated between the western boundary of the MSAs at Highway 436 and Alafaya Trail (Highway 419), which is located in the western portion of the MSAs, during the next five years. In fact, more than half of the projected growth of east Orange County will occur in a one and a half mile corridor between Highway 436 and Goldenrod. It will be 5 to 10 years before population growth will begin to expand into any area east of Highway 419. Accessibility under Section 10-5.11(23)(i), F.A.C. The Department has promulgated Section 10-5.11(23)(i)1 and 2, F.A.C., for purposes of determining accessibility: Acute care hospital beds should be available and accessible within an automobile travel time of 30 minutes under average travel conditions to at least 90 percent of the population in an urban area subdistrict. Acute care hospital beds should be available and accessible within a maximum automobile travel time of 45 minutes under average travel conditions to at least 90 percent of the population residing in a rural area subdistrict. The terms "urban area" and "rural area" are defined in Section 10- 5.11(23)(a)4 and 5, F.A.C., as follows: Urban Area. Urban area means a county designated as all or part of a Standard Metropolitan Statistical Area, as determined by the United States Bureau of the Census, and having 50,000 or more persons residing in one or more incorporated areas. Rural Area. Rural area means a county not designated as all or part of a Standard Metropolitan Statistical Area, as determined by the United States Bureau of the Census, or a county so designated but having fewer than 50,000 persons residing in one or more incorporated areas. Orange County meets the definition of an "urban area." It has been designated as part of a Standard Metropolitan Statistical Area and has 50,000 or more persons residing in one or more incorporated areas. Orange County is not also a "rural area" as defined above as suggested by OGH although it does have some incorporated areas with less than 50,000 persons. AMI has suggested in its proposed recommended order that Section 10- 5.11(23)(i), F.A.C., is to be used only by local health councils in determining subdistrict allocations of acute care bed need and where a subdistrict allocation reveals a surplus of beds in a subdistrict. Although Section 10 5.11(23)(i), F.A.C., is to be used in the manner suggested by AMI, Section 10- 5.11(23)(i), F.A.C., is not clearly limited to such use. This section of the rule is titled "Geographic Accessibility Considerations." Its provisions are applicable in determining whether a geographic accessibility problem exists in District 7 or in the subdistricts of District 7. AMI, Winter Park and Florida Hospital presented testimony of expert traffic engineers: Mr. William A. Tipton for AMI, Mr. R. Sans Lassiter, P.E., for Winter Park and Mr. Sven Kansman for Florida Hospital. All three of these gentlemen based their travel studies on travel times to and from certain control points. The travel times were then averaged. Florida Hospital has suggested in its proposed recommended order that this method of determining travel times to and from control points and Mr. Tipton's testimony that "you probably wouldn't get as far in a given time going outbound [east" is significant because travel times from the MSAs west into Orlando, where the majority of the existing hospitals are presently located, would be shorter. This conclusion is reasonable. Therefore, travel times for the population of the MSAs to existing Orange County hospitals would be less than indicated by the traffic engineers. Also, the 30 minute contour lines on the traffic engineers' exhibits would extend farther into the MSAs. The studies performed by all three traffic engineers were performed in the same general manner as to the speed of the test vehicles. Test vehicle drivers were instructed to drive at average speed employing the "average car method," the "floating car technique" or the "moving car method." All three methods are essentially the same. The test runs were conducted in November and February by AMI'S expert, in the fall by Winter Park's expert and during the last two weeks of January by Florida Hospital's expert. January to March is the most congested time of the year in Orange County. Only two of the traffic engineers testified that their tests were conducted under "average travel conditions" as required by Section 10- 5.11(23)(i), F.A.C.: Winter Park's and Florida Hospital's traffic engineers. These traffic engineers properly conducted their tests during off-peak and peak hours. Mr. Tipton, AMI's traffic engineer, conducted his tests only during the peak hours of 4:00 p.m. to 6:00 p.m. and only on week days (Monday to Thursday). According to Mr. Tipton, average travel conditions "doesn't mean anything" to a traffic engineer. Average travel conditions does mean something under the rule and to the other two traffic engineers. Mr. Tipton also indicated that the peak hours he conducted his tests during would not show "average travel conditions." Mr. Tipton also admitted that he averaged what amounted to the "worst case scenario" because it represented "real world conditions." Mr. Tipton's "real world conditions," however, is not the test of Section 10-5.11(23)(i)1, F.A.C. Mr. Tipton's tests have been given little weight because of his failure to take into account average travel conditions. None of the exhibits prepared by the three traffic engineers and accepted in evidence (AMI'S composite exhibit 8, Winter Park's exhibit 11 and Florida Hospital's exhibit 10) are totally consistent with the requirements of Section 10-5.11(23)(i), F.A.C. AMI's composite exhibit 8 includes 30 minute contour lines representing Mr. Tipton's 30 minute drive times from only three hospitals in Orange County and one hospital in Seminole County and only shows the travel times to the east of those hospitals. Winter Park's exhibit 11 shows the 30 minute contour lines for seven hospitals in Orange County and two hospitals in Seminole County and generally only showns the travel times to the east. Florida Hospital's exhibit 10 shows the location of eight hospitals in Orange County, three in Seminole County and three in Brevard County but only shows the total 30 minute contour line for Florida Hospital's Orlando campus. The test under Section 10-5.11(23)(i)1, F.A.C., is whether existing acute care hospital beds are available and accessible within 30 minutes by automobile by 90 percent of the subdistrict's population. In order for AMI and Winter Park to prove that acute care hospital beds are not available and accessible within 30 minutes in Orange County, they needed to prove that more than 10 percent of the population of Orange County cannot access on existing acute care hospital bed within 30 minutes by automobile. In order to prove this crucial fact it is necessary to show the travel time based upon average travel conditions of the entire population of Orange County to all existing acute care hospitals. AMI and Winter Park have failed to do so. The evidence fails to show that more than 10 percent of Orange County's population is more than 30 minutes by automobile from existing Orange County hospitals. The evidence does not support a conclusion that there is an accessibility problem under Section 10-5.11(23)(i), F.A.C. Only 1 percent of the population of Orange County residing in the MSAs is located more than 30 minutes by automobile from existing hospitals in Orange and Seminole Counties. This is based upon the 1985 population and the projected 1990 population. In 1985 there are 4,232 people residing in the MSAs more than 30 minutes from existing Orange and Seminole County hospitals. By 1990, there will only be 5,276 people projected to live more than 30 minutes from existing hospitals. These figures are maximum numbers. As indicated, supra, the evidence with regard to population growth in the MSAs proves that the projected population growth will be concentrated in the western portion of the MSAs--the portion of the MSAs closest to where existing hospitals are located. Most of the projected population growth through 1990 in the MSAs will clearly be within 30 minutes of existing hospitals. The projected 1990 population of 5,276 people who will reside more than 30 minutes from an existing Orange County or Seminole County hospital is well below 10 percent of Orange County's total projected population of 596,713. Additionally, the people in the MSAs who reside more than 30 minutes from existing Orange and Seminole County hospitals are probably within 30 minutes of Jess Parrish Hospital in Titusville, Brevard County, Florida. There are no natural obstacles in Orange County which impede or prevent access to existing health care facilities. Well over 90 percent of Orange County's population can access a hospital within 30 minutes driving time. OGH has proposed findings of fact pertaining to the availability of motor vehicle and air ambulance services in Orange County. The accessibility test of Section 10-5.11 (23)(i), F.A.C., requires a consideration of automobile travel times under "average travel conditions," not emergency services. Therefore, these proposed findings of fact and OGH's proposed findings of fact as to the requirements of obtaining a trauma level designation are unnecessary. The evidence also clearly establishes that there are acute care hospital beds available in Orange County. The average occupancy rates in District 7, Orange County and Seminole County for 1982, 1983 and 1984 were as follows: 1982 1983 1984 District 7 71.8% 70.34% 61.71% Orange County 69.5% 68.68% 60.80% Seminole County 76.0% 74.20% 59.39% Florida Hospital and OGH have experienced similar declines in utilization similar to those evidenced by these figures. Florida Hospital's utilization rate dropped from 86.3 percent in 1982 to 78.6 percent in 1984 and OGH's rate dropped from 88.5 percent in 1982 to 44.4 percent in 1984. There are currently 4,880 licensed and approved acute care hospital beds in District 7. Based upon the 1984 utilization rate for District 7, over 1,800 acute care beds were empty on an average day in District 7 during 1984; In Orange County, approximately 1,000 acute care beds were empty on average during 1984. As indicated, supra, the decreasing acute care bed utilization rate is expected to continue for 2 to 4 years. Therefore, there are acute care hospital beds available in Orange County at existing hospitals and there will be in 1990. Additionally, new acute care hospital beds have been approved for Orange County and Seminole County which are not yet open: 134 acute care beds to be opened by Florida Hospital at its Orlando campus and 76 acute care beds to be opened by Florida Hospital at its Altamonte Springs campus. Also 81 new beds will be opened in Brevard County. These additional beds will further increase the number of available acute care hospital beds in Orange and Seminole Counties and in District 7. Based upon the foregoing and the fact that there is a large number of unoccupied acute care beds available on average in Orange County, there is no geographic accessibility problem in Orange County or Seminole County under Section 10-5.11(23)(i), F.A.C. Other Accessibility Considerations. Despite the evidence with regard to geographic accessibility under Section 10-5.11(23)(i), F.A.C., the Petitioners have argued that accessibility to acute care beds is a problem in the MSAs. Mr. Willard Wisler, Winter Park's administrator, although agreeing that "planning studies" indicated no need for additional acute care beds in Orange County, stated: But our posture has been that they have been misallocated, and that the east Orange County [sic) is a greatly underserved area on the basis of the number of hospital beds that are available to the people that live there. The evidence does establish that the majority of the hospitals in Orange County are located in the center of the County, in the City of Orlando, where the majority of the population is located and that there is only one hospital currently located in the MSAs. Currently, 6 percent of Orange County's acute care hospital beds are located in the MSAs at OGH while 19 percent of Orange County's population is located in the MSAs. The Petitioners have characterized this geographic distribution of acute care beds and population as a "maldistribution" of acute care beds. The disparity between the precentage of population and acute care beds in the MSAs will increase in the future because the projected rate of growth in the MSAs is greater than that of Orange County. It is projected that by 1990 22 percent of the Orange County population will be located in the MSAs. The centralization of acute care beds in Orange County, according to Mr. Van Talbert, Winter Park's expert health planner, constitutes irresponsible health planning: "It tends to perpetuate the old patterns of centralization, and I think that is inconsistent with contemporary thought in American society." Mr. Talbert also testified that the MSAs and particularly east Orange County, are greatly underserved based upon the number of hospital beds conveniently available to the people who live there. Even if Mr. Talbert's conclusions are correct and even if there is a "maldistribution" of acute care beds as defined by the Petitioners, this does not mean there is an accessibility problem in the MSAs sufficient to conclude that additional acute care beds are needed in District 7, Orange County or the MSAs. The fact that 22 percent of the population of Orange County may reside in the MSAs by 1990 with only 6 percent of the County's acute care beds is not the test. Even if it is true that "contemporary planning may indicate that centralization of acute care beds is poor planning," the pertinent statutes and rules only require a determination of whether acute care beds are available and accessible. The evidence in these cases clearly indicates that the population of the MSAs can access available acute care hospital beds in District 7. All the Petitioners have shown is that some residents of the MSAs "will be forced to make inconvenient drives to downtown hospitals," as stated in Winter Park's proposed recommended order. Likewise, AMI's proposed finding of fact that ",the realities of the situation reveal that the residents of the MSA and their physicians perceive serious access problems due to excessive travel distance, traffic congestion, the lack of convenience for patients who have to go to hospitals for tests, and the lack of convenience for families and friends having to make several trips a day to see a person in a hospital" does not prove there is an access problem. The perception of patients and physicians as to the inconvenience in accessing acute care beds does not prove there is an access problem sufficient to warrant a new hospital. In conjunction with the Petitioners' position with regard to "maldistribution" of acute care beds, the Petitioners have proposed findings of fact to the effect that previous Department responses to shifts in population growth away from where hospitals are located have been to authorize new hospitals. New hospitals in Altamonte Springs and Longwood in Seminole County, and in southwest Orange County (Sand Lake) have been cited as examples. Although Mr. Talbert's testimony supports these proposed findings of fact to some extent, there is insufficient evidence to conclude why those hospitals were authorized by the Department. If the evidence showed that additional acute care beds were needed in Seminole and Orange Counties when those hospitals were approved it would be consistent with the Department's rules to locate the additional acute care beds where population growth had occurred. In these cases, if there was an established need for an additional acute care hospital in Orange County, the evidence would probably justify placing it in east Orange County. The facts, however, do not indicate any need for additional acute care beds in Orange County. Other MSA Considerations. It is not essential to identify a MSA for purposes of considering an application for a new acute care hospital as suggested by AMI. As discussed, infra, the designation of a MSA by an applicant may be helpful for some purposes, but not to determine whether there is a need for a new hospital. AMI has proposed a finding of fact that Orlando Regional Medical Center and Florida Hospital's Orlando campus, both of which are located in Orlando, are tertiary care facilities providing services of higher complexity for patients; they therefore attract a substantial number of referral patients in need of more extensive, complex services which are not available from primary care hospitals. The existence of these tertiary facilities has justified the allocation of more acute care beds to Orange and Seminole Counties in the past. Although these facts were proved at the hearing, the overriding fact remains clear that there is no need for additional acute care beds in Orange County. AMI attempted to prove through Mr. Mark Richardson an expert in health planning, that there is a need for acute care beds in AMI's MSA based upon the characteristics of the MSA. Mr. Richardson testified that his projections were not based or contingent on the Formula of Section 10-5.11(23), F.A.C., and acknowledged the decline in utilization of acute care hospital beds in Orange County. Mr. Richardson did state that the Department's projection of a net acute care bed need of 89 beds under the Formula supported his projections. The projection of a need for 89 beds was clearly based upon outdated data. Use of current utilization data indicates an excess of 464 acute care beds. Therefore, if application of the Formula resulting in a bed need of 89 beds supports Mr. Richardson's projections, an application of the Formula which results in an excess of 464 acute care beds must indicate that Mr. Richardson's projections are suspect. Mr. Richardson's projections were clearly based primarily on the characteristics of AMI's MSA. Because of the narrow scope of Mr. Richardson's analysis, the trend in Orange County and District 7 as to reduced occupancy rates did not affect his projections. In particular, Mr. Richardson used an 80 percent occupancy rate for all beds except obstetric beds, for which he used a 75 percent rate. These occupancy rates are excessive when compared to the occupancy rates for District 7, and Orange and Seminole Counties. Additionally, Mr. Richardson failed to consider the effect of unopened acute care beds in Orange County on occupancy rates. On average, there are over 1,800 unoccupied acute care beds in District 7 and 1,000 unoccupied beds in Orange County. This does not include 134 acute care beds to be opened at Florida Hospital's Orlando campus, 76 acute care beds to be opened at Florida Hospital's Altamonte Springs campus or 81 acute care beds to be opened at Holmes Regional Medical Center in Brevard County. When opened, these additional acute care beds will further decrease occupancy rates in Orange County and District 7. Even if Mr. Richardson's projections were totally accurate, such a finding would not be relevant to the question of whether there is a need for additional acute care beds in Orange County. That is the crucial question in these cases. Mr. Richardson and AMI have attempted to justify Mr. Richardson's projections by suggesting that the Department does not consider itself precluded from assessing the need for acute case beds on an area within a subdistrict based upon Mr. Nelson's testimony. Mr. Nelson's testimony clearly does not support the use of a MSA to determine if there is a need for additional acute care beds in Orange County. Mr. Nelson, when asked whether an applicant could determine bed need based upon the character of a part of Orange County replied: There's nothing to preclude an Applicant from doing that, from carving out what I would call an Applicant's service area, running their own calculations of bed need, and doing whatever they feel they want to do in that regard. And we're not ,precluded from looking at it, either. But our position is that that has no official basis in determinations of bed need. We do look at those subdistricts but not to determine bed need. We look at them to get a better understanding of an application, because we get a sense, from looking at the unique service areas, what they' re trying to accomplish. That would be number one. Number two, and from having worked on the private side, I know one of the reasons why this is done, this is an attempt to define a market share or market area and a percent of all the considerations of what the existing hospitals that are already in the area have in the way of markets and market shares, and so on. So on the second hand, looking at the subdistricts is very important, from the standpoint of helping us to assess the financial feasibility of these proposals, which is another criterion, of course, altogether, specifically in the longer term. Because, you know, you have to know who is getting patients from where in order to be able to fully understand that. And I think the third way in which these subdistricts, these Applicants -- pardon the expression, subdistricts, that's not what these things are -- the Applicant's medical services areas are useful is in those cases where we may have a need helping us to decide where, within, let's say a subdistrict that need should be met. For example, let's suppose in this case, we were showning a need of sufficient magnitude to approve a hospital. But instead of having two applications within a few miles of each other, we had one for east Orange County, and one in west Orange County, and portions of other counties, each of which had carved out their own service area, then it would be very important for us, in that case, to look at these things very carefully, to consider them to help us determine which location was preferable. But in terms of calculating bed need from the Department's perspective, we don't put any stock in those whatsoever from that perspective. ,Emphasis added. Based upon the above testimony, it is clear that MSAs may be looked at if an applicant uses one in order to provide a better understanding of the applicant's proposal, to assess financial feasibility and, where there is an established need for acute care beds, to decide where in the subdistrict the need is the greatest. MSAs are clearly not relied upon to determine the initial question of whether there is a need for acute care beds. To determine acute care bed need based upon a MSA without considering `the' entire subdistrict of Orange County is not appropriate. The Department, as the statute and rules require, determines need at the district level and allocates the district bed need to the subdistricts. In fact, the Department has ruled that it is improper to divide a district into subdistricts smaller than those designated by a local health council for purposes of determining need as pointed out by Winter Park in its proposed recommended order. Southeastern Palm Beach County Hospital District v. Department of Health and Rehabilitative Services, 5 F.A.L.R. 1091A (1983). For purposes of determining whether there is a need for additional acute care hospital beds in Orange County, Mr. Richardson's testimony is of very little value. STATUTORY CRITERIA. Section 10-5.11(23)(b), F.A.C., provides that a certificate of need may be issued when the criteria, other than bed need, as provided in Section 38l.494(6)(c), Florida Statutes (1984 Suppl.), demonstrate need. The Petitioners have attempted to prove that there is an accessibility problem in Orange County which demonstrates acute care bed need under Section 381.494(6)(c)2, Florida Statutes (1984 Suppl.). The facts do not support such a conclusion as discussed, supra. This section of the Recommended Order contains findings of fact with regard to the other criteria contained in Section 381.494(6)(c) and (d) Florida Statutes (1984 Suppl.). Consistency with the State and Local Health Plan: Section 381.494(6(c)1, Florida Statutes. The applications of the Petitioners are only partly consistent with the State Health Plan and the Council's Local Health Plan. The Council's Local Health Plan establishes the following occupancy levels for acute care beds which should be met before new acute care beds are approved: TYPE OF BEDS OCCUPANCY LEVEL Medical - Surgical 80% Obstetrical 75% As already discussed, occupancy levels for acute care beds in District 7, and in Orange and Seminole Counties were below 70 percent in 1984. The declining utilization of acute care beds will continue for the next 2 to 4 years and therefore it does not appear that the occupancy level goals in the Local Health Plan will be met by either applicant. These occupancy level goals are intended to be used as checks on the bed need methodologies. The importance of existing occupancy levels in determining whether to add additional acute care beds to a district is recognized in Section 10-5.11(23)(g), F.A.C. The Petitioners have projected that they will achieve an occupancy rate of 45-50 percent after one year of operation. South Seminole Community Hospital, which was opened in May of 1984 in Longwood, Seminole County, Florida, achieved only a 27 percent occupancy rate after 8 months of operation. In light of the fact that South Seminole Community Hospital is located in Longwood, it is doubtful the Petitioners will achieve their projected occupancy rate. The Petitioners have projected that their proposed hospitals will achieve an 80 percent occupancy rate, which is an optimal occupancy rate. Their projections, based upon the findings of fact as to acute care bed need in Orange County and current occupancy levels, are highly unlikely to be reached. Especially in light of the fact that the average occupancy rate in Orange County was only 60.80 percent in 1984. The proposals are also inconsistent with the Local Health Plan goal that a proposal be consistent with the state's acute care bed need methodology. Based upon an application of the Formula, using current data, District 7 and Orange County will have an excess of acute care beds in 1990. Winter Park's proposal is consistent with several other portions of the Local Health Plan. Winter Park's facility will have an active outpatient program, its beds can be available within 24 hours and it will meet several priorities under the Local Health Plan such as being accredited and licensed, and being willing to serve indigents and other patients without regard to payment source. AMI's proposal also meets some of these goals. The Local Health Plan also contains a provision to the effect that "needed" beds should be approved at existing hospitals unless the addition of a new hospital would substantially improve access by at least 15 minutes for 25,000 or more residents. Winter Park has suggested a finding of fact that this provision has been met. If there was a need for additional acute care beds in Orange County such a finding would be appropriate. There is, however, clearly no need for additional acute care beds in Orange County. This portion of the Local Health Plan therefore does not apply. Finally, the Local Health Plan provides that applicants should be able to document community and provider support for their proposals. Community support for the proposals has been demonstrated. Provider support, however, has not been demonstrated. In fact, there is opposition from some providers to the proposed new hospitals, i.e., Florida Hospital and OGH. The proposals are also partially consistent with the State's health plan. The evidence does not clearly establish, however, that the proposals are totally consistent with the goals of the State health plan. Mr. Talbert did testify that Winter Park's proposal is consistent with the goals of the State health plan. It was not clear, however, whether all of the goals were met. Also, Mr. Talbert's testimony was inconsistent with other evidence in this proceeding in some respects. For example, Mr. Talbert testified that one goal of the State health plan is to provide adequate access to acute care resources. The evidence clearly shows that adequate access is already available in Orange County. To the extent it can be inferred that Mr. Talbert's testimony also applies to AMI's proposal, the same problems exist. The evidence does not support a finding that AMI's proposal is totally consistent with the State health plan. Based upon the foregoing, it does not appear that either proposal is totally consistent with the Local Health Plan or the State health plan. The Availability, Quality of Care, Efficiency, Appropriateness, Accessibility, Extent of Utilization and Adequacy of Like and Existing Health Care Services in the Service District; Section 381.494(6)(c)2, Florida Statutes (1984 Suppl.). Section 381.494(6)(c)2, Florida Statutes (1984 Suppl.), requires that the availability, quality of care, efficiency, appropriateness, extent of utilization and adequacy of like and existing health care services in the service district be considered. The service district for this purpose is District 7. The designation of subdistricts in District 7 is specifically for purposes of allocating district bed need to the subdistricts. The parties, to the extent they addressed this criterion, presented evidence primarily for Orange County only, however. The availability, accessibility and extent of utilization of like and existing acute care hospitals in Orange County has been discussed and findings of fact with regard thereto have been made, supra. To summarize, like and existing services in Orange County are available and accessible and are underutilized. The Petitioners have not shown that like an existing services in District 7 do not provide quality of care or that they are not efficient, appropriate or adequate. Winter Park has argued that like and existing services are not accessible. The evidence does not support such a finding of fact. AMI has argued that there are no like and existing services accessible in the MSAs. That is not the test. The determination to made under Section 381.494(6)(c)2, Florida Statutes (1984 Suppl.), is whether there are like and existing services in the service district. The service district in these cases is all of District 7, not the MSAs. There are currently seven acute care hospitals in Orange County: Florida Hospital, OGH, Orlando Regional Medical Center, Brookwood Hospital, Humana Lucerne, Winter Park Hospital and West Orange Memorial Hospital. Additionally, Orlando Regional Medical Center - Sand Lake is expected to be opened before 1990. These district. The evidence does not support a finding that some or all of these facilities or others in District 7 are not available, providing quality of care, efficient, appropriate, accessible, over utilized or adequate. AMI and OGH spent an inordinate amount of time and effort presenting evidence on the issue of whether OGH is a like and existing service. The evidence supports a finding that OGH is a like and existing service. Even if OGH was not a like and existing service, such a conclusion would only be relevant if it were concluded that like and existing services must exist within the boundaries of the MSAs or that OGH was the only accessible acute care hospital to the residents of the MSAs. As stated, supra, the pertinent area is not the MSA but District 7 and there are clearly other acute care hospitals in District 7 and some of those hospitals are accessible. If Orange County alone is the appropriate service area for purposes of applying this criterion, the evidence clearly proves that the Petitioners do not meet the criterion. The evidence proves that there are available, quality, appropriate, efficient and adequate like and existing health care services in Orange County and District 7. The Ability of the Applicants to Provide Quality of Care; Section 381.494(6)(c)3. Florida Statutes (1984 Suppl.). The parties have stipulated that this criterion has been meet. 113.. The Availability and Adequacy of Other Health Care Facilities and Services in the Service District which may Serve as Alternatives: Section 381.494(6)(c)4, Florida Statutes (1984 Suppl.). There are clearly other health care facilities in Orange County providing like and existing services. The evidence does not, however, establish that there are other health care facilities and services in Orange County which are alternatives to a 100 bed acute care hospital. Transferring beds from existing facilities has been suggested as an alternative to the proposed new hospitals. This suggested "alternative" could be achieved as easily by approving a new hospital and closing some existing beds. The cost would be essentially the some. Transferring beds is not an alternative. Use of existing beds which are not being occupied is not a viable alternative either, as suggested by OGH in its proposed findings of fact. Probable Economies and Improvements in Service that may be Derived from Operation of Joint, Cooperative or Shared Health Care Resources; Section 381.494(6)(c)5, Florida Statutes (1984 Suppl.). AMI's proposed facility may eventually share some services with Brookwood Community Hospital in the area of administrative management. Brookwood Community Hospital (hereinafter referred to as "Brookwood") is a 157 bed general acute care hospital owned and operated by a limited partnership. The general partner and owner of 82.5 percent of the partnership is Brookwood Medical Center of Orlando, Inc., which in turn is owned by AMI. AMI presented its proposal assuming that there would not be any shared services with Brookwood. Through AMI, UCH, Inc., can receive price discounts for its purchases, typically 15 percent to 20 percent lower than the lowest price available in the market generally. UCH, Inc., will also be able to participate in Brookwood's preferred provider organization agreement. This could result in enhanced utilization of UCH, Inc., which could result in decreased health care costs. Winter Park will share some resources with its new hospital. The resources to be shared include Winter Park's incinerator, CAT Scanner, cardiac catheterization ion laboratory, and certain personnel. Centralized accounting, centralized purchasing and some centralized management would also be employed. Both proposals will have joint, cooperative or shared health care resources which would result in probable economics and improvements in service. The Need in the Service District of the Applicant for Special Equipment and Services not Reasonably and Economically Accessible in Adjoining Areas; Section 381.494(6)(c)6, Florida Statutes (1984 Suppl.). The parties have stipulated that this criterion does not apply. The Need for Research and Educational Facilities: Section 81.494(6)(c) 7, Florida Statutes (1984 Suppl.). The parties have stipulated that this criterion does not apply. The Availability of Resources; the Effects on Clinical Needs of Health Professional Training Programs in the Service District: Accessibility to Schools for Health Professionals: the Availability of Alternative Uses of Resources: Extent Accessible to All Residents; Section 381.494(6)(c)8, Florida Statutes (1984 Suppl.). The parties have stipulated that Section 81.494(6)(c)8, Florida Statutes (1984 Suppl.), has been met to the extent it deals with "health and management manpower and personnel only." The other factors to be considered under this criterion were not stipulated to. The first factor to be considered is the availability of resources, including physicians and funds for capital and operating expenditures. The availability of funds will be discussed, infra. As to the availability of physicians, the weight of the evidence supports a finding that physicians are available to staff either of the proposed facilities. AMI proposed a finding of fact that ", unlike WPMH, AMI demonstrated that the major medical specialty areas will be represented by various physicians who will joint the UCH medical staff." AMI did demonstrate that various medical specialty physicians would be willing to work at UCH, Inc. It is also true that Winter Park did not demonstrate that all of the medical specialty physicians would be willing to work at its proposed facility. Despite these facts, several physicians testified that they would use Winter Park's proposed facility if it were approved instead of UCH, Inc., and Mr. Willard Wisler's unrebutted testimony establishes that Winter Park would have no difficulty staffing its proposed hospital. Both Petitioners have established that physician resources are available for project accomplishment and operation. The second and third factors to be considered are the effect the projects will have on clinical needs of health professional training programs in Orange County and, if available in a limited number of facilities, the extent to which services will be available to schools for health professionals in Orange County. The weight of the evidence does not establish that professional training programs are available in a limited number of facilities. In fact the evidence establishes that the University of Central Florida (hereinafter referred to as "UCF"), which is located in east Orange County, has fifty-two affiliation agreements with hospitals and other medical facilities. These affiliation agreements include agreements involving clinical training of radiology technicians at Florida Hospital and, in Brevard County, at Halifax Hospital. Approximately 32 radiology students are currently involved in hospital training programs. AMI presented evidence proving the existence of a proposed "affiliation agreement" between its proposed hospital and UCF. AMI and UCF have in fact entered into an Agreement of Intent. The Agreement of intent essentially provides, in relevant part, that AMI's proposed hospital, if approved, would provide clinical training to UCF radiology technician students. Approximately three to six UCF students per semester would receive training at the new hospital. The program with UCF will clearly have a positive effect on "clinical needs of health professional training programs" in Orange County. The agreement also provides for certain other benefits to UCF in the form of certain gifts. Those benefits, however, are not relevant in considering whether a certificate of need should be issued to AMI. The portion of Section 381.494(6)(c)8, Florida Statutes (1984 Suppl.), at issue in this proceeding requires only that the effect on "clinical needs of health professional training programs" be considered. AMI's gifts will not meet the "clinical needs" of health professional training programs. AMI's proposed findings of fact with regard to its gifts to UCF are unnecessary. Florida Hospital and Winter Park have proposed several findings of fact concerning AMI's motive in entering into the agreement with UCF. Those proposed findings are not supported by the evidence and are not relevant. Florida Hospital also has proposed findings of fact concerning whether a tertiary hospital would be a better facility for training, the effect of patient mix on training, the lack of any study by UCF to assess the benefits of the agreement and the fact that AMI's proposed facility will not be a teaching hospital or have full-time teachers. Those proposed findings are unnecessary. The fact is, the clinical training to be provided by AMI's facility will be a benefit to the clinical needs of health professional training programs in District 7. Because of the substantial amount of gifts to be made to UCF, which will be paid for by patients of AMI's facility, the costs of AMI's clinical program will be substantial. Winter Park is currently involved in meeting clinical needs of health professional training programs at a number of educational institutions, including UCF. Winter Park's involvement includes radiology and several other programs. Although no agreements have been entered into, programs to meet such clinical needs will be provided at Winter Park's new facility. Because Winter Park has not committed to make any gifts to educational institutions, the costs of its programs will probably be less than AMI's program. The fourth factor to be considered is the availability of alternative uses of resources for the' provision of other health services. The evidence presented at the hearing does not establish that there are not alternative uses of resources. The petitioners failed to present evidence sufficient to conclude that there are not alternative uses for available resources. Finally, the extent to which the proposed services will be accessible to all residents of the service district is to be considered. Both Petitioners are willing to accept all patients regardless of age, sex, race, color or national origin, and medically underserved groups. The Petitioners have met most, but not all, of the requirements of this criterion. Immediate and Long-Term Financial Feasibility; Section 1.494(6)(c)9. Florida Statutes (1984 Suppl.). Immediate Financial Feasibility. AMI's proposed facility will be financed by a 50 percent equity contribution from AMI to UCF, Inc., and 50 percent debt financing from AMI at a maximum interest rate of 12 percent amortized over 30 years. AMI has sufficient lines of credit to cover the amount needed for debt financing. AMI also has sufficient cash and unrestricted liquid assets (almost $300,000,000.00 by the end of its 1984 fiscal year) and generates enough capital ($300,000,000.00 to $400,000,000.00 a year) to fund its equity contribution and the debt. AMI also has sufficient funds to provide working capital needs of UCF, Inc. Exactly how Winter Park's proposed facility will be financed is less clear. Both of the Petitioners have suggested that the other has not proved that it has "committed" itself to funding their respective proposals. Although the evidence does raise questions as to whether AMI or Winter Park has finally committed the total funds necessary to complete their proposals, the weight of the evidence supports a finding that both Petitioners are committed to funding their proposals. More importantly, the test is whether the Petitioners have available financing sources. University Community Hospital, et ala v. Department of Health and Rehabilitative Services, 5 F.A.L.R. 1346-A, 1360-A (1983). AMI clearly proved that its Executive Committee had approved its proposal. One of its witnesses, however, testified that the approval of capital expenditures of over $1,000,000.00 took approval of the full AMI Board of Directors. Winter Park clearly proved that its Board of Trustees had approved only $4,000,000.00 of the costs of its facility. Despite these facts, the evidence establishes that, although final approval of all the funds necessary to fund the proposals may not have been given, the funds necessary to insure the immediate, financial feasibility of both proposals are available. Where the funds will come from in Winter Park's case and the total amount of funds needed by Winter Park is far from being crystal clear. Winter Park failed to take into account several expenses it will incur, including sewer capacity reserve fees (approximately $160,500.00), telephone lease costs ($20,000.00) and possibly some interest expenses. There may also be an underestimate of the cost of debt financing, depending upon whether tax-exempt loans are available to Winter Park. The costs of sewer capacity reserve and the telephone lease can probably be covered by the contingency funds projected by Winter Park. AMI's proposed findings of fact with regard to equipment costs underestimates are rejected as unsupported by the weight of all of the evidence. Even with the understatement of project costs, the evidence supports a conclusion that Winter Park's proposal is immediately financial feasible. Winter Park currently has set aside "over $7,000,000.00" which can be applied to fund its proposal. (Although Winter Park has certain planned or ongoing capital improvements, the evidence does not prove that these improvements will be funded out of the funds set aside for the proposed new hospital, as suggested by AMI)'. Winter Park also has lines of credit with Barnett Bank and Sun Bank of $5,000,000.00 each. Neither line of credit has been used in the past. The Sun Bank line of credit was recently renewed and is available for one year. The Barnett Bank line of credit is also good for only one year. Both lines of credit have been renewed in the past. These lines of credit will have to be renewed before construction of Winter Park's facility begins. Winter Park presented no evidence as to whether the lines of credit would be renewed by either bank, however. Therefore, the record does not contain evidence as to whether the lines of credit will be available. Winter Park is also the sole beneficiary of the Winter Park Memorial Hospital Association Foundation, a not-for-profit foundation set upon to receive donations for the support of Winter Park. The Foundation "would make funds available to it [Winter Parka when needed." (Although testimony concerning Winter Park's alleged ability to "request" funds from the Foundation was struck, the quoted testimony was not objected to). The Foundation currently has $2,000,000.00 which could be provided to Winter Park. Finally, Winter Park has a commitment from Barnett Bank for a loan of $9,181,648.00. The loan has been committed whether interest on the loan is tax- free or taxable to Barnett Banks. Whether the loan is tax-free will affect the immediate and long- term financial feasibility of the proposal. If the loan is not tax-free, additional interest expense will be incurred; instead of being financed at a 7.696 interest rate, Winter Park will be charged approximately 11.5 percent interest if the loan is not tax- free. If the loan is tax-free, Winter Park may have failed to take into account costs associated with obtaining tax-free financing, i.e., underwriter's fees. AMI has proposed a number of findings of fact concerning additional costs associated with whether the Barnett Bank loan is tax-free. Those findings of fact are not relevant, however, in determining immediate financial `feasibility of Winter Park's proposal. The evidence establishes that the funds available to Winter Park are sufficient to cover Winter Park's projected costs and the costs it failed to include in its proposal (including the $1,20 0,000.00 of working capital which will be needed by the and of 1988). Both proposals are financially feasible in the short-term. Long Term Financial Feasibility. The Petitioners have failed to prove that their proposals are financially feasible in the long run. The projections of the Petitioners with regard to expected gross revenue depends upon whether their utilization projections are correct. Based upon the conclusion that there is no need for the proprosed facilities it is unrealistic to expect the facilities to be financially feasible. AMI's projections as to gross revenue depend on Mr. Richardson's need analysis for AMI's MSA. As discussed, supra, Mr. Richardson's projections were based upon unrealistic occupancy rates. Winter Park's projected utilization is based upon Winter Park's historical experience with its MSA for 1983. Mr. Talbert's and Mr. John Winfrey's reliance on this data in light of the trend toward reduced utilization of hospitals in Orange County is misplaced. Determining utilization of Winter Park's proposed hospital in future years based on utilization of an existing hospital in light of the trend toward reduced utilization of hospitals is very suspect. The fact that east Orange County is expected to grow in terms of population does not eliminate the concern with regard to utilization. Orange County has been growing since 1980 and before. Despite that growth, hospital utilization has declined. As to the projected expenses of the proposed hospitals which effect the financial feasibility of the proposals, it appears that AMI's projections are reasonable. A number of questions concerning Winter Park's expenses were raised, however, by the evidence. The evidence supports a finding that Winter Park has failed to take into account some expenses which will affect the long term financial feasibility of its proposal. Expenses not taken into account include phone lease expenses ($15,000.00 to $20,000.00), indigent care assessments ($58,000.00 in the second year of operation) and start-up costs ($22,680.00 a year). The evidence, however, also supports a finding that Winter Park's estimate of medicare contractual allowances was $318,900.00 too high and that depreciation expense was $130,000.00 too high. These overstatements of expenses are more than sufficient to cover the understatements of expenses discussed in this paragraph. The primary problem with Winter Park's estimate of expenses is that Winter Park has projected interest expense at a tax- exempt rate of 7.6 percent. The evidence does not prove that Winter Park can, however, obtain tax-exempt financing. Winter Park only presented evidence that Barnett Bank is willing to loan funds on a tax-exempt or taxable basis. Winter Park must, however, obtain approval of its proposed tax-exempt financing from the Orange County Health Facilities Authority. See Chapter 154, Florida Statutes (1983). No evidence that such approval could be obtained was presented at the hearing. Winter has therefore failed to prove that its estimated interest expenses can be achieved. The evidence also shows that if Winter Park cannot obtain tax-exempt financing, it will have to borrow funds at an 11.5 percent interest rate. This rate of interest can be obtained, but the additional interest expense would result in a net loss for the second year of operation. Based upon the foregoing, Winter Park has failed to prove that its proposal is financially feasible in the long-term. Winter Park has proposed findings of fact to the effect that it could charge a higher rate for its services to cover understated expenses. No evidence was presented, however, that proves that Winter Park would be willing or committed to a higher charge for its services. AMI's proposed findings of fact with regard to expenses for utilities, food and drugs, other operating expenses, incinerator costs and equipment costs are rejected. AMI's proposed findings of fact with regard to the goal of Winter Park to achieve an optimum profit margin of 5 percent to 7 percent are rejected because that goal does not apply to the proposed facility. The projected profit margin of the proposed facility is only seven-tenths of one percent. AMI's proposed findings of fact as to the years projections were made for (two years instead of five), the manner of making those projections (no balance sheet, no cash flow statements and no quarterly breakdowns) and the lack of a feasibility study are not necessary. AMI's remaining proposed findings of facts concerning "soft spots" in Winter Park's projections are also rejected. Special Needs and Circumstances of Health Maintenance Organizations; Section 381.494(6)(c)10, Florida Statutes (1984 Suppl.). The parties have stipulated that this criterion does not apply. Needs and Circumstances of Entities which Provide Services or Resources to Individuals not Residing in the Service District or Adjacent Service Districts; Section 381.494(6)(c)11, Florida Statutes (1984 Suppl.). The parties have stipulated that this criterion does not apply. Probable Impact of the Proposal on the Costs of Providing Health Services; Section 381.494(6)(c)12, Florida Statutes (1984 Suppl.). The weight of the evidence clearly supports a conclusion that if either of the proposed hospitals is approved, the probable impact on the costs of providing health services would be negative. The only real question raised by the evidence is the degree of the negative impact. It has already been found that there will be an excess of beds in Orange County in 1990 and that utilization rates are decreasing and will continue to do so. To add 100 acute care beds to an already over-bedded subdistrict can only further add to the number of excessive beds. Patients who would occupy 100 new acute care beds would have access to other hospitals in Orange County if a new hospital is not approved. If it is assumed that patients could be attracted to a new hospital in the MSA's it necessarily follows that those patients will not use an existing, already underutilized, hospital in Orange County, Seminole County or the rest of District 7. Additionally, the evidence clearly shows that some patients who currently use existing Orange and Seminole County hospitals would be attracted to a new hospital in the MSAs. AMI has suggested that such a loss of patients would be "minimal." Minimal or not, the loss of any number of patients would result in a loss of patient days and revenue to existing hospitals which are on average already underutilized. If patients are lost by existing hospitals, the ability to serve indigents could be adversely affected. The projected population growth for the MSA's does not solve the problem either. Orange County has been experiencing population growth during the 1980's, as well as prior to 1980. Despite this population growth, utilization rates have been decreasing. Even Mr. Richardson, AMI's expert health planner, admitted there would be an impact on existing hospitals. Mr. Richardson indicated that there would a "1.5 percent occupancy impact on the system" by 1990 based upon Mr. Margolis' analysis. Mr. Richardson indicated that such an impact would be "minimal." Whether a 1.5 percent impact is minimal is not the issue. The issue is what effect such an impact would have. The weight of the evidence clearly supports the finding that the impact would be negative and the citizens of Orange County would suffer the consequences of that "minimal" impact. Florida Hospital's expert health planner, Mr. Margolis, was the most credible witness with regard to this criterion. His testimony proves that Florida Hospital and OGH could lose 5,400 to 6,000 patient days if a new 100 acute care hospital is approved. How much the dollar loss would be as a result of such a decrease in patient days is not clear. There was testimony that OGH could lose $1,000,000.00 to $3,500,000.00 in gross revenue. AMI has again suggested that the loss in patient days and revenue to OGH would be minimal and that OGH's testimony as to the amount of loss was misleading. Mr. Patrick Deegan, who testified as an expert in finance for OGH, did fail to take into account any reduction in expenses which might be associated with a loss in revenue and also failed to take into account increases in revenue as a result of growth. Although these factors could influence the amount of projected losses in revenue, the fact remains that a new acute care hospital could and probably would have a negative impact on OGH. AMI has also suggested that OGH could and should reduce its staff. This suggestion is based upon a comparison of OGH's staffing patterns and UCH Inc's proposed staffing. The record does not support AMI's proposed findings of fact. The record does not prove that UCH, Inc's, proposed staff will be at a more appropriate staffing level. Nor does the record establish that a reduction in staff at OGH would be detrimental, as suggested by OGH. As to Florida Hospital, AMI also suggests that any impact to its campuses would be minimal, if any. It is true that there probably would be no impact on Florida Hospital's Apopka campus. Florida Hospital's Orlando campus, however, gets 20 percent of its admission from the MSAs and its Altamonte Springs campus gets 3 percent of its admissions from the MSAs, as AMI points out in its proposed findings of fact. If any of those patients utilize a new hospital in the MSAs, Florida Hospital will lose patients and will be adversely affected. AMI suggested several findings of fact with regard to the financial well-being of Florida Hospital, the addition of beds at its Altamonte Springs and Orlando campuses and its motives in intervening in these cases. These proposed facts do not support a finding that Florida Hospital would not be negatively affected by the opening of a new 100 acute care bed hospital in Orange County. Finally, Winter Park has proposed findings of fact to the effect that a new Winter Park hospital in the MSAs will foster competition and thereby lower costs in Orange County for hospital services. The record does not support these proposed findings of fact in light of the excess of beds in District 7 and the underutilization of existing beds. Based upon the foregoing, Section 381.494(6)(c)12, Florida Statutes (1984 Suppl.), has not been met by the Petitioners' proposals. Costs and Methods of Construction; Section 381.494(6)(c)13, Florida Statutes (1984 Suppl.). The Petitioners only partially proved that Section 381.494(6)(c)13, Florida Statutes (1984 Suppl.), will be met. This section requires proof as to the costs and methods of construction, including methods of energy provision and the availability of alternative, less costly or more effective methods of construction. The Petitioners only proved that the costs of construction would be reasonable. AMI's proposed facility will have 99,000 square feet. The total cost of construction will be $10,095,000.00 including $650,000.00 for site preparation, $8,161,000.00 for labor, materials, overhead and profit, $406,000.00 for contingencies and $878,000.00 for inflation. Architectural and engineering fees will cost an additional $566,700.00. AMI's costs of construction do not include the $236,800.00 cost of reserving sewage capacity or the costs of obtaining appropriate rezoning of its property. These costs will add to the total cost of construction and the total cost of the proposal. AMI's contingency funds are sufficient to cover these amounts. AMI's additional findings of fact concerning construction costs are cumulative or unnecessary for purposes of determining if this criterion has been met. Winter Parks's proposed facility will have 98,763 square feet. Total cost of construction projected by Winter Park is $10,415,000.00, consisting of $375,000.00 for site preparation, $9,000,000.00 for labor, materials, overhead and profit, $468,700.00 for contingencies and $552,200.00 for inflation. Winter Park's projections do not include the costs of reserving sewage capacity which will add approximately $150,000.00 in costs. This additional amount can be covered by the contingency amount. Although the evidence was contradictory, Winter Park did not inadvertently leave out the cost of an incinerator--there will be no incinerator at the new hospital. Although the Petitioners presented testimony to the effect that their projected costs of construction are reasonable, no consideration was given to whether the proposed facilities would be developments of regional impact (hereinafter referred to as "DRI") under Chapter 380, Florida Statutes (1983), and the costs associated with such a determination. The evidence supports conclusion that there will be some costs associated with the determination of whether the proposals are DRIs. The additional cost, however, does not appear to be significant. The Petitioners have failed to prove that the methods of construction are reasonable. They have also failed to prove that the provision of energy will be reasonable or that there are not alternative, less costly, or more efficient methods of construction available. Section 381.494(6)(d). Florida Statutes (1984 Suppl.). In addition to considering the criteria of Section 381.494(6)(c), Florida Statutes (1984 Suppl.), Section 381.494(6)(d), Florida Statutes (1984 Suppl.), requires findings of fact in cases of capital expenditure proposals for new health services to inpatients as follows: That less costly, more efficient, or more appropriate alternatives to such inpatient services are not available and the development of such alternatives has been studied and found not practicable. The existing inpatient facilities providing inpatient services similar to those proposed are being used in an appropriate and efficient manner. In the case of new construction, that alternatives to new construction, for example, modernization or sharing arrangements, have been considered and have been implemented to the maximum extent practicable. That patients will experience serious problems in obtaining inpatient care of the type proposed, in the absence of the proposed new service. In the case of a proposal for the addition of beds for the provision of skilled nursing or intermediate care services, that the addition will be consistent with the plans of other agencies of the state responsible for the provision and financing of long-term care, including home health services. The facts concerning the first three items quoted are favorable to the Petitioners. The last one does not apply. The fourth item has not been proved to be true in this case. Summary. In summary, the evidence proves that an application of the criteria of Section 381.494(6)(c) and (d), Florida Statutes (1984 Suppl.), does not demonstrate the need for either of the proposed facilities. The Petitioners have only proved that they can provide quality of care, that there are not alternatives to their proposals, that they will have shared resources, that personnel are available, that they have the capital to create the facilities, that they will improve the clinical needs of health professional training programs, and that their proposals are `financially feasible in the short-run. The Petitioners, however, have failed to prove any need for the facilities. Their proposals are not consistent with the local health plan or the State health plan. There are sufficient, underutilized existing hospitals to meet any need for hospital care and they will be adversely affected by the proposed facilities. The proposed facilities are not financially feasible in the long run. THE NEED FOR A CAT SCANNER AMI is also seeking a certificate of need for a CAT Scanner in this proceeding. The determination of whether such a certificate of need should be issued is governed by Section 10-5.11(13), F.A.C. In order to qualify for CAT Scanner, AMI must first obtain approval of its proposed hospital. Because it has been concluded that a certificate of need for a new hospital should not be granted, AMI should not be granted a certificate of need for a CAT Scanner; it will not qualify under Section 10- 5.11(13), F.A.C. In an abundance of caution, the following findings of fact are made as to whether a certificate of need for a CAT Scanner should be issued if AMI's application for a certificate of need for an acute care hospital is approved by the Department. Section 10-5.11(13)(b), F.A.C., provides that a favorable determination will not be given to applicants failing to meet the standards and criteria of Section 10-5.11(13)(b)1-10, F.A.C. The evidence clearly establishes that AMI's CAT Scanner application meets the standards of Sections 10- 5.11(13)(b) 1-3 and 7-9, F.A.C. Section 10-5.11(13)(b)4, F.A.C., does not apply. Section 10-5.11(13)(b)5, F.A.C., requires that an applicant document that there is a need for at least 1,800 scans to be accomplished in the first year of operation and at least 2,400 scans per year thereafter. Mr. Richardson testified that this standard is intended to apply to existing providers and that for a new hospital the need should apply to a five year horizon (1990 in this case). Mr. Richardson indicated that in 1990, this standard can be met. The language of Section 10-5.11(13(b)5, is clear; there must be a need documented for the first year of operation and each year thereafter. In this case, the first year of operation will be 1987. AMI has not documented that there is a need for 1800 scans in 1987 or 2,400 scans per year thereafter. Section 10-5.11(13)(b)6, F.A.C., requires that the applicant document that the number of scans per existing scanner exceeded 2,400 during the "preceding 12 months." The evidence establishes that during the 12 months preceding the hearing all of the fixed CAT Scanners located at hospitals except two were being used for more than 2,400 scans. Again, Mr. Richardson indicated that this standard should be applied to the 12 months preceding 1990. That is not what the rule specifies. The standard applies to the 12 months preceding the hearing. The two units that have not been used for 2,400 scans just started operation, however. Because the rule requires that in the first year of operation only 1,800 scans need to be performed, those units should not be considered in determining if AMI meets this standard. Therefore, AMI meets the requirements of Section 10-5.11(13)(b)6, F.A.C. The last standard, Section 10-5.11(13)(b)10, F.A.C., provides that extenuating circumstances pertaining to health care quality or access problems, improved cost benefit consideration or research needs may be considered. The facts do not support a finding that there are extenuating circumstances in this case. The facts do prove that any hospital such as the AMI proposed hospital should have access to a CAT Scanner. This need, however, can be met by a mobile CAT Scanner or by transferring patients to a facility with a CAT Scanner, although the latter alternative is less desirable. The evidence clearly proves that there is not access problem with regard to obtaining the services of a CAT Scanner. AMI has not met the requirements of Section 10-5.11(13)(b), F.A.C. Taking into account the factors to be considered under Section 10-5.11(13)(a)1- 8, F.A.C., also supports a finding that a certificate of need for a CAT Scanner should not be issued to AMI even if there is a need for its proposed hospital.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the certificate of need applications for a 100-bed acute care hospital and CAT Scanner filed by AMI, case number 84-1819, be denied. It is further DONE and ENTERED this 26th day of July, 1985, in Tallahassee, Florida. LARRY J. SARTIN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of July, 1985. COPIES FURNISHED: Fred Baggett, Esquire Michael J. Cherniga, Esquire ROBERTS, BAGGETT, LaFACE & RICHARD 101 East College Avenue Post Office Drawer 1838 Tallahassee, Florida 32302 Michael Von Eckhardt, Esquire American Medical International, Inc. 414 Camden Drive Beverly Hills, California 90210 Kenneth F. Hoffman, Esquire OERTEL & HOFFMAN, P.A. Suite C 2700 Blair Stone Road Tallahassee, Florida 32301 J. P. "Rusty" Carolan, III, Esquire WINDERWEEDLE, HAINES, WARD & WOODMAN, P.A. P.O. Box 880 Winter Park, Florida 32790-0880 Harden King, Esquire Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32301 E. G. "Dan" Boone, Esquire Stephen K. Boone, Esquire E.G. BOONE, P.A. P.O. Box 1596 Venice, Florida 34284 Steven R. Bechtel, Esquire Brain D. Stokes, Esquire MATEER & HARBERT, P.A. 100 East Robinson Street P.O. Box 2854 Orlando, Florida 32802 David Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Florida 32301 LIST OF WITNESSES AMI NAME EXPERTISE Jim Palmer Phillip L. Coppage Hospital administration including staffing. Thomas C. Wohlford Patient group and insurance programs in the health care industry. J.D. Garland Health care facilities, including hospital construction management and budgeting and cost estimating. Manuel Viamonte, M.D. Radiology. Dick Chadbourne Manpower staffing requirements for health care facilities. Jan Stirrat Health care facility equipment planning and equipment cost budgeting. Preston Thompson Physician relations and recruiting. Joseph Akerman, M.D. Peter Hiribarnc, M.D. Louis Trefonas, Ph.D. Need, development and operation of sponsored research projects at UCF. Thomas S. Mendenhall, Ph.D. Need, development and operation of health education and affiliation programs. Alan Denner, M.D. Louis C. Murray, M.D. Joseph Sandberg, M.D. Myles Douglas, M.D. Robert D. Fennell Corporate health facilities planning, processing, implementation and development. Manuel J. Coto, M.D. Jerold J. Faden, M.D. Zivko Z. Gajk, M.D. Don Steigman Hospital operations and administration. William A. Tipton Traffic and transportation. Neal B. Hiler Civil engineering and property site analysis. Trevor Colbourn Ben E. Whisenant Frederick A. Raffa, Ph.D. Demographics and socioeconomic forecasting. Nilo Regis, M.D. Richard Pajot Mark Richardson Health planning. Richard Altman Hospital management engineering. Walter Wozniak Armond Balsano Health care facility financial feasibility and analysis and third- party reimbursements. Rick Knapp Health care facility financial feasibility and analysis, third- party reimbursement and rate-setting for health care facilities. Richard Anderson Edward E. Weller Real estate appraisal. John Winfrey Health care accounting and financial feasibility analysis. Van Talbert Health care planning. Margo Kelly Financial management, analysis and feasibility. WINTER PARK NAME EXPERTISE Katherine J. Brown Florida Hospital Cost Containment Board procedures; hospital costs and charges, data gathering and review; and hospital costs and charges comparisons. Karl Schramm, Ph.D. Hospital cost and charges and comparisons thereof and health care financing, including the impact upon the health care consumer. Willard Wisler Hospital administration including staffing and operating hospitals. John H. Roger Construction design and costs, including site preparation, and analysis thereof, in central Florida; including health care facilities construction. R. Sans Lassiter Traffic engineering, travel times and access in central Florida. Richard Anderson Sarah Mobley Equipment and cost of equipment. William J. Serow, Ph.D. Demographics. Van Talbert Health care planning. John Winfrey Health care accounting and financial feasibility analysis. Robert C. Liden Investment banking, including tax-exempt financing of health care facilities. Lewis A. Siefert Hospital accounting and Medicare Reimbursement. FLORIDA HOSPITAL NAME EXPERTISE Steven Windham Health planning. W. Eugene Nelson Health planning, CON administration and transportation planning. Ronald J. Skantz Radiology training and management. Sven Kansman Traffic engineering and travel time studies. John Crissey Stan Smith, Ph.D. Demographics. Gabriel Mayer, M.D. Physician. Larry Margolis Health care planning, hospital administration, facility planning, HMO's and PPO's. Scott Allen Miller Health care accounting and financial feasibility. OGH NAME EXPERTISE Patrick J. Carson, D.O. Medical emergencies and operation of an emergency room. Tracey Watson Michael Sherry B. Jean Martell Walter J. Wozniak Lawrence Kramer, O.D. Family practice. Patrick Deegan Accounting, hospital finance and budgeting. Andrea Walsh DEPARTMENT NAME EXPERTISE W. Eugene Nelson Health planning, CON administration and transportation planning. PUBLIC WITNESSES Mike Baumann Bob Mandell Luddy Goetz Martin Goodman Yvonne Opfell Martin Lebnick
The Issue Whether under Section 381.494(6)(c)-(d), Florida Statutes, and Rule 10-5.11, Florida Administrative Code, Respondent, Martin Memorial Hospital Association, Inc., is entitled to a Certificate of Need ("CON") authorizing a proposed 75-bed satellite hospital in Port Salerno, Martin County, Florida.
Findings Of Fact Background Respondent, Martin Memorial Hospital Association, Inc. ("Martin Memorial"), seeks a CON to construct and operate a 75- bed satellite hospital in Port Salerno, Florida. Of the proposed 75 acute-care beds, 50 will be new and 25 will be transferred from Mar in Memorial's existing hospital in Stuart, Florida. The proposed satellite hospital will have six intensive care beds, 69 medical-surgical beds, and two operating rooms. Respondent, Department of Health and Rehabilitative Services ("DHRS"), preliminarily issued the applied-for CON. After Petitioner, Palm Beach-Martin County Medical Center ("PBMC"), owner of nearby Jupiter Hospital in northern Palm Beach County, requested a Section 120.57 hearing to contest issuance of the CON, DHRS forwarded this case to the Division of Administrative Hearings for assignment of a hearing officer. This case, in its earlier stages, was a consolidated proceeding with numerous parties and party-applicants. In the fall of 1984, several parties withdrew or were dismissed. One of the them, American Healthcorp., dismissed its challenge of DHRS' denial of its application to construct a 120-bed new hospital in Vero Beach, Florida. Prior to that dismissal, American Healthcorp. had filed a mandamus action in Leon County Circuit Court to require DHRS to issue a CON. The writ of mandamus was issued and that order was appealed by DHRS to the First District Court of Appeal. On June 18, 1985, the First District reversed the Circuit Court's order. DHRS never issued a CON to American Healthcorp., as the writ of mandamus was stayed during the pendency of the appeal. Initially, PBMC, another party-applicant, contested DHRS' denial of a proposed 66-bed addition to its existing hospital in Jupiter, Palm Beach County, Florida. Later, PBMC dropped its opposition to the denial after concluding that, due to a dramatic drop in patient census during 1984, additional beds in the area were not needed.1 On Martin Memorial's unopposed motion to dismiss, PBMC was dismissed as a party. Other nonapplicant intervenors subsequently withdrew. In the earlier consolidated proceeding, Martin Memorial had contested the denial of its initial application (filed in 1983) for a CON to construct a 150-bed satellite hospital in Port Salerno, on the same site as now proposed for the 75-bed hospital. In October, 1984, Martin Memorial revised its application, within a deadline for submittal of amended applications set by prehearing order. This revised application, now the subject of this proceeding, reduced the number of beds in the proposed hospital from 150 to 75: 50 were to be new and 25 were to be transferred from Martin Memorial's existing hospital in Stuart.2 This 75-bed application was then preliminarily approved by DHRS, as part of an effort to settle the pending consolidated proceeding. After notice of the approval was published on December 7, 1984 in the Florida Administrative Weekly, PBMC timely requested a hearing to contest it. PBMC's position is, generally, that another hospital in the area is not needed and will result in an unnecessary duplication of services and that, if built, the hospital would draw patients who would otherwise use Jupiter Hospital, to the economic injury of PBMC. The remaining party-applicant in the consolidated proceeding was Lawnwood Medical Center, whose proposed 50- bedexpansion of its hospital in Fort Pierce (St. Lucie County), was preliminarily approved by DHRS. Martin Memorial requested a Section 120.57(1) hearing to contest the approval. By stipulation dated May 15, 1985, Lawnwood Medical Center was dismissed as a party. Martin Memorial II. The Parties The applicant, Martin Memorial, operates a not-for- profit community hospital in Stuart, Florida, which has served the health care needs of the area since 1939. At that time, it had 25 beds and the site consisted o eight acres. In subsequent years, Martin Memorial added five additional acres of land, and the hospital now has 336 beds, including 26 new beds: nearing completion. Martin Memorial is a subsidiary of Coastal Health Corporation, a not-for-profit holding company. One of the holding company's other non-profit subsidiaries, Coastal Care Corporation, provides services such as ambulatory surgery and primary or emergency care at medical treatment centers. Martin Memorial and its parent corporation, Coastal Health Corporation, are governed by boards comprised of full- time residents of Martin County who serve without compensation. Martin Memorial Hospital has a proven record of providing health care to indigents. Its policy is to provide health services without regard to race, religion, national origin, or a patient's ability to pay. It has always participated in the Medicare/Medicaid Programs and participates in the county indigent program. It proposes to follow the same policy at the proposed satellite hospital. Martin Memorial Hospital, in Stuart, is adjacent to the St. Lucie River on the north, bounded by the Heida-Brad Park residential development on the east, by the St. Mary's Episcopal Church on the south, and by various businesses and residences on the west. It would be difficult for Martin Memorial Hospital to expand to meet anticipated future demand. It has found it impractical to buy additional land adjacent to its existing facility. (It does not nave eminent domain power.) Under current zoning, its height is limited to the existing six floors. Other obstacles include problems with parking access and compliance with fire safety codes. Palm Beach-Martin (PBMC) PBMC is a non-profit corporation, organized in 1973, with the stated purpose of serving tee health care needs of residents of northern Palm Beach County and southern Martin County. It operates a community not-for-profit hospital, known as Jupiter Hospital, in Jupiter, Florida. A 156-bed acute care hospital, it is the northern most hospital in Palm Beach County and provides health care services to the residents of northern Palm Beach and southern Martin Counties. Over 10% of Jupiter Hospital's patients come from the Hobe Sound area of Martin County, and another 20% come from the Tequesta area of Martin County. The boards which operate PBMC and Jupiter Hospital are made up of volunteers; one-half of whom are doctors on the hospital's medical staff, and the other half are lay-members from the community. All policy decisions are made by the boards. The hospital is managed, under contract, by hospital Corporation of America Management Company (owned by Hospital Corporation of America) which supplies only the hospital administrator and finance director, all other personnel are employees of PBMC. Like Martin Memorial, PBMC has a practice of providing health care to indigent patients. It has a Medicaid contract at its convalescent pavilion and treats Medicaid patients requiring care. (Since it has not had a Medicaid contract with the state, PBMC "writes-off" the cost of care provided to Medicaid and indigent patients. But due to an increasing number of Medicaid patients, PBMC has applied for a Medicaid contract.) It has a current contract with Palm Beach County to treat indigents in its out-patient facility. Department of Health and Rehabilitative Services (DHRS) DHRS is designated by statute as the single state agency charged with issuing and denying CONs in accordance with district plans, DHRS rules, and state and federal statutes. See, Section 381.494, Florida Statutes (1983). Geographic Facts The proposed satellite hospital would be located in Port Salerno, Martin County, 5 1/2 miles south of Martin Memorial Hospital and 15 miles north of Jupiter Hospital. The site of the proposes hospital is 35 acres in size, and is located approximately 1/4 mile east of Highway U.S. 1, on Port Salerno Road. Jonathan Dickinson State Park, abutting Highway U.S. 1 for five miles, is situated between the site of the proposed satellite hospital and PBMC's Jupiter Hospital. The area of Hobe Sound is just north of this State Park. The proposed hospital would be adjacent to the Martin County Campus of Indian River Community College. III. Standing of PBMC: Expected Impact of Proposed Hospital on PBMC. Since it is physicians who admit patients to hospitals, the extent to which medical staffs overlap is one factor used to project how a new hospital will affect an existing one. Martin Memorial Hospital and Jupiter Hospital have distinct medical staffs and there is no material overlap. Neither has it been shown that Jupiter Hospital physicians will seek staff privileges at the proposed satellite hospital. It is reasonably expected that the proposed hospital will be staffed, for the most part, by physicians who are also on the staff of Martin Memorial Hospital. Nevertheless, the proposed satellite hospital would draw away a substantial portion of Jupiter Hospital's patient base and is intended to reduce Jupiter Hospital's market share in the Hobe Sound area to near zero. (Indeed, this is a result projected in Martin Memorial's Long Range Plan.) Martin Memorial (in its Long Range Plan) estimates Jupiter Hospital's current market share to be 65%. Jupiter Hospital's primary service area includes Hobe Sound, from which it draws approximately 10% of its patients. The northern boundary of the Hobe Sound area is 20 minutes driving time from Jupiter Hospital. Hobe Sound is also within the primary service area of the proposed satellite hospital. The proposed hospital would be in the same DHRS Service District as Jupiter Hospital and both hospitals would have overlapping primary service areas. The projected loss of 10% of its patient base to the proposed satellite hospital would have a significant adverse financial impact on PBMC. It has not been shown, however, this impact would imperil the continued financial feasibility of Jupiter Hospital. IV. Numerical Bed-need Projected by Applying DHRS Rule-Based Bed-need Methodology. The proposed satellite hospital would be located in DHRS Health District 9, which consists of Indian River, St. Lucie, 55artin, Okeechobee, and Palm Beach Counties. The state acute care bed-need methodology is a complex formula contained in Rule 10-5.11(23), Florida Administrative Code. It projects bed-need, on a district-wide basis, five years into the future, creating what is referred to as a "five-year planning horizon" for assessing acute care bed-need. The formula requires several district-specific inputs, including population forecasts in four age groups, the average fertility rate in the district for the three most recent years, the average historical utilization rate in the district for the three most recent years, together with specific factors used to determine the net flow of elderly patients. Three other input factors are applied uniformly to all districts: discharge rates by service and by age cohort for Florida residents, average length of stay by service and by age cohort, and occupancy standards by service and by age cohort. Application of the formula entails seven steps: Project patient days by service and by age cohort using the formula: Patient days = projected population x discharge rate x average length of stay Adjust the projected patient days for the 65 and over age cohort to account for patient flows. Calculate bed-need by applying service- specific occupancy standards to projected patient days. Calculate the district bed allocation by summing the beds needed by service. Calculate the projected occupancy of these beds using the district's historical utilization rate. If the projected occupancy. rate is less than 75 percent or greater than 90 percent, apply specified formulas to adjust the district bed allocation (downward or upward, respectively. Check to ensure that each district will be able to meet peak demand based on the adjusted allocation. (R-l8l/, Testimony of Kolb) Population projections used in the methodology are: "for age- specific cohorts residing in the relevant district projected five years into the future," Rule 10-5.11(23)(f)1., Florida Administrative Code. These age-specific cohort projections (of county populations) must be "those developed by the State Health Planning Agency, and will be based on the latest mid-range projections published by the Bureau of Economic and Business Research of the University of Florida [BEBR]." Id. There are currently 4,695 licensed or approved acute care beds in District 9, which includes the 50 additional beds (preliminarily) approved for the proposed satellite hospital and the 45 beds approved in a subsequent batching cycle. For July, 1989, application of the bed-need methodology shows a district wide gross need of 4,621 beds. This is based on population forecasts for July, 1939, released by the Governor's Budgeting and Planning Office on- January 1, 1985.This office interpolates and publishes population forecasts based on figures received from BEBR. Since later 1934 (when Rule 27E-2.01-.04 was adopted requiring state agencies to use, in their planning, population projections provided by the Governor's Office), DHRS's Office of Health Planning and Development has used such forecasts to project bed-need under the methodology. These forecasts are appropriate for such use since they are "developed" by the State Health Planning Agency and based on the latest mid-range projections published by BEBR. When the licensed or approved bed total of 4,645 (excluding 50 beds for the proposed satellite hospital) are subtracted from the district wide gross need, there is a net surplus of 24 beds. If the 50 beds of the proposed satellite hospital are included, the net surplus increases to 74 beds. A planning horizon of January, 1990, however, is more appropriate. It more closely conforms to the methodology's requirement that need be projected five years into the future. (At hearing, all parties agreed or acquiesced to the proposition that the five year planning horizon should begin to run, to the extent possible, from the date of final hearing in June, 1985.) The latest county-wide projections released by the Governor's Office for state agency use, projects population by age and sex cohorts for January 1, 1990 and July 1, 1990. The July 1, 1990 projections are beyond the five year horizon and so less suitable for use in the methodology. Applying, then, the bed-need methodology to project bed-need for January, 1990, shows a gross need of 4,702 beds, resulting in a total district wide net need of 57 beds (excluding the proposed 50-beds satellite hospital). Hence the methodology shows (just barely) a January, 1990 need for the 50- beds sought for the proposed satellite hospital. Because of projected increases in district population, the methodology predicts a significant growth in bed-need between July, 1989 and January, 1990: bed-need grows by 81 beds or by more than 10 beds per month. PBMC contends that a planning horizon of July 1, 1989, and no later, must be used since DHRS has, historically, updated bed-need projections only on July 1 of each year. Annual updates were limited to once a year because updated population figures were received only in July. Now, however, -he situation has greatly improved. DHRS receives updated population forecasts from the Governor's Office twice a year--in January and July. There is no reason why these updated and, presumably, more accurate population forecasts cannot be used to project bed-need Martin Memorial, on the other hand, argues for a more distant planning horizon--April 1, 1990. This horizon, however, requires use of BEBR projections recently received but not yet released or interpolated by the Governor's Office, until released, such projections are not appropriate for use by state agencies. See, Rule 27E-2.01-2.04, Fla. Admin. Code. V. Consideration of Other CON Review Criteria [A CON may be denied even though the bed- need methodology projects a need for the proposed beds five years into the future. Rule 10-5.11(23)(b): "An unfavorable Certif- icate of Need determination may be made when a calculated bed-need exists, but other criteria specified in Chapter 3Bl.494(6)(c), Florida Statutes, are not met." DHRS must consider CON applications in light of all statutory and rule criteria. See, Department of Health and Rehabilitative Services v. Johnson & Johnson, 447 So. 2d 361 (Fla. 1st DCA 1984).] Subdistrict Need: Allocation of District Wide Bed-need to|-. Relevant Subdistrict In 1983, the Local Health Council divided District9 into five subdistricts: (1) Indian River County, (2) Martin and St. Lucie Counties, (3) Okeechobee County, (4) northern Palm Beach County, and (5) southern Palm Beach County. Each subdistrict "is an area where the co-unity, by itself, uses the facilities in an area. It is supposed to be a sort of natural boundary that separates the different communities." (TR-413) The council also adopted a methodology for allocating acute care beds among the five component subdistricts. (R.-19) Although DHRS has not yet adopted, by rule, District9's subdistricts and subdistrict bed-need allocation methodology, both are part of District 9's Local Health Plan, adopted after a series of workshops and public hearings. The subdistricts were identified pursuant to a protocol furnished by DHRS which required consideration of whether an area was urban or rural, or comprised a standard metropolitan statistical area (SMSA). Under the protocol, an SMSA must be designated a separate subdistrict. Since Martin and St. Lucie Counties form a SMSA, they form a separate subdistrict. The five subdistricts of District 9 were identified in a rational manner, have a factual basis, and are useful tools for health care planning purposes. The methodology for allocating district wide bed-need to the subdistricts, also part of the Local Health Plan, has also been shown to be supported by reason and accepted health care planning concepts. DHRS cannot rationally determine the need for additional acute care beds, at least in =he context of this case without looking at subdistrict need or lack of need. In this way, local needs and conditions are considered in the decision- making process. District 9 is too large to serve as a useful unit for acute care bed planning purposes. Applying the Local Health Plan's sur5istrict bed-need allocation methodology to the July, 1989 planning horizon, indicates a net acute care bed-need for the Martin/St. Lucie-- County Subdistrict (not counting the 50 beds at issue) of 103beds. If the proposed hospital were approved, the subdistrict bed-need methodology would show a remaining subdistrict need for53 acute care beds. (R-18, TR-249) When applied to the January, 1990 planning horizon, preferred to the July, 1999 horizon., the subdistrict methodology shows a net acute care bed-need of 119 beds for the Martin/St. Lucie County Subdistrict (not counting the 50 beds at issue). Thus, the bed-need allocation methodology contained in District 9's Local Health Plan, shows a need for the proposed 50-acute care beds, with a 69-bed margin. (T-18, TR-248) Since the total number of licensed and approved beds (excluding the 50-beds at issue) for the subdistrict is 761, the projected need for 119 new acute care beds in January, 1990, is considered to be substantial. But the subdistrict bed allocation methodology assumes, incorrectly, that patients do not "cross-over" from one subdistrict to another. It fails, therefore, to consider or take to account the significant number of patients residing in the Martin/St. Lucie Counties Subdistrict who use acute care beds at Jupiter Hospital, located in the subdistrict to the south. This failure in the subdistrict methodology detracts from the weight to be given the resulting bed-need calculation. Availability, Accessibility and Adequacy of Like and Existing Facilities. Section 384.494(6) (c) 2.; Florida Statutes, requires review of CON applications in context with the "availability . . . accessibility and adequacy of like and existing health care services . . . in the district of the applicant."] Excess or under-utilized acute care bed capacity is a problem because it contributes to higher health costs. There are fixed overhead costs associated with acute care beds, whether empty or filled by a patient. These costs must ultimately be borne by the patients, or their insurers In reviewing a CON application, DHRS considers the number of available unoccupied beds at the facility and in the county or subdistrict for the most recent calendar year, determines actual occupancy rates, and compares them against an 80% occupancy standard, a standard generally accepted by health care planners. For example, one stated reason for DHRS' denial of Martin Memorial's initial 150-bed application was the availability of 20 unoccupied medical-surgical beds at Martin Memorial in 1982, on an average daily basis. Similarly, the average daily availability of 73 unoccupied medical-surgical beds in the five hospitals within PBMC's service area, plus additional approved but not licensed beds in the area, were stated reasons for DHRS' denial of PBMC's initial 1983 application for additional beds. (R-13) Applying the 80% occupancy standard to 1984 bed utilization statistics in the Martin/St. Lucie County Subdistrict, there were 111 unoccupied acute care beds on an average daily basis, not counting the 50 new beds recently approved for Lawnwood Hospital and the 26 new beds soon to be available at Martin Memorial. This is a 63.7% occupancy rate. Moreover, there were 47 unoccupied licensed beds on an average daily basis at Martin Memorial Hospital (not counting the 26 new beds under construction). The same calculation using only medical-surgical beds shows that in 1984, on an average daily basis, Martin Memorial had 36 unoccupied medical-surgical beds or an occupancy rate of 661. At Jupiter Hospital and Port St. Lucie Medical Center, the two hospitals having overlapping service areas with Martin Memorial, there were 31 (58.2% occupancy rate) and 49 (43.7% occupancy rate) unoccupied medical-surgical beds, respectively, on an average daily basis. (HRS-4) There is an ample supply of available beds: there is not a shortage of acute care hospital beds at Martin Memorial Hospital or in the Martin/St. Lucie Subdistrict. Martin Memorial has shown only that there may be, or could be, bed availability problems during certain peak months at Memorial Hospital in 1990, based on seasonal considerations. At most, it has shown that, without the proposed satellite hospital, the average occupancy for its highest occupancy month in 1990 would reach 91%. (TR-263-265) However, it is possible to operate a hospital at such an occupancy level for several months and yet maintain an acceptable level of service. (Moreover, Martin Memorial's analysis fails to take into account acute care beds which would be available in 1990 at Port St. Lucie Medical Center and Jupiter Hospital, where occupancy rates would be much lower.) Martin Memorial does not assert that in 1990 its average daily occupancy rate will exceed 80%. Indeed, assuming the validity of its average length of stay and hospital utilization assumptions (which are questionable), Martin Memorial forecasts an average daily occupancy rate of 79.4%. The State Health Plan states that "the issue of surplus beds is expected to be an even greater problem in the future because of the growth of alternative delivery systems"-- (R-20, p.22)--a proposition with which Martin Memorial's expert generally agrees. (TR-287-288) The State Health Plan concludes that "the combined effect of ambulatory surgery, HMOs, DRGs, and other innovations could reduce acute care bed-need by 15% or more." Id. Thus it becomes more likely that there will be an ample supply of available unoccupied beds in the subdistrict through 1990. The proposed satellite hospital would improve or enhance the accessibility of hospital services, since it would be located closer to some patients than either Martin Memorial or Jupiter Hospital. However, it has not been shown that geographic accessibility has been or will be a serious problem without construction of the proposed satellite hospital. The proposed hospital would be located about 5 miles from Martin Memorial and about 15 1/2 miles from Jupiter Hospital. Patients in the southern part of Martin County, residing south of the northern part of Hobe Sound, can be driven to Jupiter Hospital in 20 minutes or less. The definitive standard, commonly used by DHRS and.generally accepted by health care planners to detect geographical bed-access problems, is the 30 minute drive-time standard. Under this standard, if acute care hospital beds are available and accessible, within an automobile travel time of 30 minutes under average traffic conditions to at least 90% of the population, there is no cause for concern about geographic accessibility. It is undisputed that hospital beds are now available well within 30 minutes travel time to all residents of Martin County during all relevant periods, and will continue to be so through 1990. In short, geographic accessibility is not a current or projected problem and although the satellite hospital would make in-patient services more geographically accessible to some residents, such a result could be expected whenever a new hospital is constructed, whatever its location. As to adequacy of existing and licensed and approved facilities, there is no showing that the quality or extent of health care provided is inadequate. Extent of Utilization of Like and Existing Facilities. [Under Section 3Bl.494(6)(c)2., Florida Statutes, CON applications must also be reviewed in context with the "extent of utilization . . . of like and existing health care services . . . in the service district of the applicant."] During the last two years, the health care industry has undergone major changes resulting in a sudden and dramatic decline in the use of hospital in-patient services. The main cause of this decline was the shift, in October 1983, to the Medicare prospective payment system, otherwise known as Diagnostic Related Groupings (DRGs). The DRG payment system changed Medicare reimbursement from a cost basis to a set reimbursement based on diagnosis. It has caused a sharp decline in the average length of stay of Medicare patients as well as a decrease in Medicare admissions, and a resulting decline in hospital occupancy levels. For example, in calendar year 1984, the average length of stay for hospital patients in District 9 dropped from approximately 6.8 to 6.1. (DHRS-4) Another recent development contributing to the general decline in hospital utilization .is the increasing emphasis on providing out-patient services such as out-patient surgery and home health services. In many areas of the country, the advent of Preferred Provider Organizations (PPOs) and Health Maintenance Organizations (HMOs) have significantly impacted hospital occupancy rates, not only by encouraging shorter lengths of stay, but also by greatly lowering admission rates. (TR-604-05, 773: P-3, p.l8) According to the State Health Plan, "the emergence of [these] alternative delivery systems . . . [has] exacerbated declining occupancy rates." (R-20, Vol. 1, p.26) Martin Memorial has developed free-standing medical treatment centers in Hobe Sound and Port St. Lucie, which can provide up to 80% of the services required by patients in hospital emergency rooms. (TR-56-59 R-1, Vol. II at 73) In addition, Martin Memorial is merging with VNA in Martin County to provide home health care. These alternative delivery systems, along with the expected increasing effects of PPOs, HMOs and prospective payment systems, will contribute to further declines in hospital utilization and tend to extend the time during which the existing inventory of acute care beds will be adequate to meet the needs of a growing population. Although witnesses for Martin Memorial suggest that this steady decline in bed utilization at Martin Memorial will soon bottom out and that the average length of stay will fall no further, the weight of credible evidence shows that hospital utilization in District 9, as well as in the country as a whole, is still declining and that no one can say, with any reasonable degree of certainty, just when the decline (or "nose dive," TR- 682) in average length of stay and overall utilization will stop. The Executive Director of the District 9 Health Council predicts that the average length of stay in the district may fall from its current level of 6.1 or 6.2 to 5, and a recent survey of southeastern hospitals predicts at least a 5% further decline in average length of stay from 1984 levels. Hospital admission or discharge rates in District 9 fell slightly in 1984, but on the whole have remained relatively constant. The decline in hospital utilization has been chiefly caused by the unprecedented drop in average length of stay. Several factors causing declines in hospital admissions as well as utilization in other areas of the state and country have not yet begun to significantly affect northern Palm Beach, Martin, and St. Lucie Counties. It is, however, reasonably expected that these factors, such as out-patient or ambulatory surgical centers, and home health services (which are becoming increasingly used), will continue to grow and further decrease hospital in-patient surgery and care, admissions, and utilization. (TR-39-40, 578) As stated earlier, the most recent State Health Plan predicts that the combined effect of ambulatory surgery and other alternative health care delivery systems will be to reduce hospital discharges (or admissions) by 15% or more by 1989. (R-20, Vol. 2, p.72) Another factor which will contribute to the further decline in hospital utilization in Florida will be the required adoption of prospective payment programs by hospitals and private insurers for non-;5edicare patients. Under the Florida Health Care Access Act of 1984, hospitals are required to negotiate a prospective payment arrangement with each health insurer representing 10% or more of the hospital's private pay patients (R-20, Vol. 1, p. ll) To date, the only active HMOs in District 9 are found in southern Palm Beach County and their impact has not been felt elsewhere in the district. It is reasonably anticipated, however, that HMOs will expand throughout the district in the next several years and will contribute to a further decline in admissions. (Some commentators predict HMOs will reduce hospital admission rates by as much as 40%.) (TR-605-06, 679-80) Even without these factors, the extent of the decline in hospital utilization in District 9 has been dramatic. Overall hospital utilization i., 1984 declined from a level of 73.7% in 1983 to 65.R% in 1984. (HRS-4; R-~9: P-5) The District 9 medical-surgical utilization rate dropped from 76.3% in 1983 to 67.3% in 1984. The decline in hospital utilization in the Martin/St. Lucie Subdistrict and at specific hospitals in the area have been even more pronounced: 1983-84 Subdistrict and Specific Hospital Utilization Rates Overall Rate Med-Surg Rate 1983 1984 1983 1984 Martin/St. Lucie Subdistrict 76.9%1 63.7% 78% 63.8% Martin Memorial 74.1% 65.1%4 74.8% 66.0% Port St. Lucie5 38.9% 44.1% 37.6% 43.7% Jupiter Hospital 67.7% 55.7% 71.4% 58.2% Although experts disagree on how long the decline in hospital utilization will continue and how far it will fall, it is apparent that hospital utilization is continuing to decline in District 9 in 1985. By January and February 1985, the Martin/St. Lucie Subdistrict medical-surgical utilization declined about 1% from the same period in 1984. However, the most recent data for March, 1985, shows a decline in monthly medical-surgical utilization from 73.2% in 1984 to 68.8%. Martin Memorial's patient days in 198; are less than the corresponding number of patient days .when compared to the same periods in 1984. In addition, in no single month during Martin Memorial's 1985 fiscal year, beginning on October 1, 1984, has Martin yet achieved its budgeted patient days or admissions. In fact, Martin Memorial's bed utilization is more than 10% under budget for fiscal year 1985. (TR-66-69 P-1) Martin Memorial contends that the projected increase in the population and the aging in population in the Martin/St. Lucie Subdistrict will offset the decline in average length of stay and gradually increase the in-patient population. Although it is reasonable to expect that such factors would increase utilization, over the last year in District 9, use rates have gone down and admission rates have decreased slightly even though population increased and aged. In addition, it is reasonably anticipated that the future negative impact of HMOs on use and admissions will offset these population changes and contribute to further decline in utilization. Projected Utilization of Martin Memorial Hospital and the Proposed Satellite Hospital. In projecting- utilization for its existing and proposed facilities, Martin Memorial used 1984 District 9 use rates and a constant to increasing average length of stay. (R- 18) Use and admission rates have declined steadily for several years for the under-65 population and, in the first year of DRGs, dropped by over 3% for the over-65 population. Vet, despite this t-end and projections of decreasing use and admission rates in the future due to alternative delivery programs, Martin Memorial's utilization forecast uses admission rates slightly higher than the 1984 actual admission rates. (R- 18) In projecting the average length of stay for the proposed Port Salerno Hospital, Martin 'Memorial discounted 10% from its 1984 average length of stay. This discount, however, was due to projections of lower Medicare utilization and lower intensity of services at the new hospital, and makes no allowance for any further decreases in average lengths of stay. Similarly, in projecting utilization for Martin Memorial Hospital, Martin Memorial assumed an increase over the 1984 average length of stay of 6.0 days to 6.1 days in 1990. These assumptions are unreasonable in that they 'ail to fully into account the current and projected continuing decline in hospital admissions and utilization. Consequently, little weight is assigned to Martin Memorial's forecast of future bed utilization—that the satellite hospital would experience 58% occupancy in 1990, the first year of operation. Martin Memorial projects that without the proposed Port Salerno Hospital, Martin Memorial would achieve an occupancy rate of 79.4% in 1990. This utilization projection was based on population projections for Martin County done in 1984 by Dr. Stanley Smith it fails to take into account Dr. Smith's recent revision downward of the 1990 population projections for Martin County from 100,900 to 98,700. (TR-95-96, 294-95 R-6) The decline in average length of stay and hospital use rates will have a major impact on the number of empty beds in District 9 and, at least as applied to this District, the bed- need methodology of Rule 10-5.11(23), over-states the need for additional beds in 1990. The methodology uses a constant average length of stay derived from prior years. It is not an accurate predictor of future occupancy when, as now, use rates and utilization are declining and are reasonably expected to continue to decline. (TR-639-41: TR-614, 621-22 P-5) Martin Memorial's projected 79.4% occupancy rate in 1990 is overstated because it fails to fully take into account continuing declines in average length of stay and use rates, and because the 1984 population figures used to derive the 1984 use rate may be understated, thereby overstating the use rate. Similarly, using the same assumptions, an occupancy rate of 69.7% was projected for Jupiter Hospital (without the proposed Port Salerno Hospital). This projection is also overstated for the same reasons. If the Port Salerno Hospital were approved, the 1990 occupancy figures for both Martin Memorial and Jupiter Hospital would, in all likelihood, be much lower. (TR-627 P-5) 21 A more credible projection of ,Martin Memorial Hospital's 1990 occupancy rate was offered by Thomas W. Schultz, PSMC's health care planning expert. By reducing the 1984 Dis- trict 9 use rate by 2.9% to account for declining utilization at Martin Memorial during the first three months of 1985, as well as the general continuing decline in hospital utilization, Mr. Schultz projected Martin Memorial's 1990 occupancy (without the new facility) to be only 72.6%. Similarly, because use rates are still declining and because the 1985 population numbers used to calculate the rates may have been understated, this projected occupancy is overstated. (TR-628-30, 635-38; P-5) The State Health Plan and the District 9 Local Health Plan [Section 381.494(6) (c)l. requires that CON applications be reviewed "in relation to the applicable district plan and state health plan "] Several specific utilization and occupancy standards are contained in the State Health Plan and the District 9 Local Health Plan. A major stated goal of the State Health Plan is to promote the efficient utilization of acute care services by raising the occupancy rates or acute care hospitals. (R-20) It identifies 80% as the appropriate minimum occupancy level for acute care hospitals: an average annual occupancy rate of at least 80% is made an objective. As conceded by Debra S. Kolb, Ph.D., Martin Memorial's expert health planner, the 80% occupancy standard is an appropriate minimum standard which should be "looked at as a hurdle before beds are added." (TR- 289) She adds, however, that "there are other factors, such as . . . size of the facility, seasonality issues, age problems. . . that would warrant special cases." (T?.-289) By policy and practice, DHRS considers current occupancy levels to be an important criterion and has applied this 80% occupancy standard in reviewing CON applications. Its use of these standards is illustrated by its initial action on the various applications which were once part of this proceeding. DHRS granted Lawnwood Hospital's application for several stated reasons, one of which was a 1982 occupancy rate of 90%. Martin Memorial's initial 150-bed application and PBMC's 60-bed application (later dropped) were denied, in substantial part, because of low utilization rates in 1982 and because there was an adequate supply of beds currently available. (Interestingly, both Martin Memorial and PBMC had 1982 occupancy rates exceeding 70%.) As stated by Gene Nelson, then supervisor of DHRS' CON review section, in the State Agency Action Report denying PBMC's application: "Overall utilization for Palm Beach Martin County Medical Center for 1982 was 72.3% and medical/surgical utilization was 76.4%, neither being sufficiently high to justify additional beds." (R-13) The Acute Care portion of District 9's Local Health Plan (1984), contains "Recommendations by Priority Ranking" reflecting policies and priorities which, according to the local health council, should be used (in addition to the DHRS bed-need methodology) in planning and allocating acute care bed-need. Priority I delineates the subdistricts for purposes of allocating acute care hospital beds: Priority II establishes the_ subdistrict allocation methodology: Priority III establishes an occupancy rate which must be met before additional beds may approved: Before needed beds, as determined by Rule 10-5.11(23), may be approved, applicants requesting additional acute care beds should demonstrate that certain occupancy thresholds have been achieved relative to medical/surgical, obstetric, pediatric and ICU/CCU beds. The average annual occupancy rate (most recent calendar year) in the applying facility and its corresponding subdistrict average, should equal or exceed the following levels (inclusive of CON approved beds): Medical/Surgical 75% Obstetrical 65% Pediatric 65% ICU/CCU, Monitored & Intermediate Care 75% (e.s.) (R-10, pp.48-49) The rationale for this standard is set forth in the plan: With the advent of the Medicare prospective reimbursement system, there is literally no way to estimate the magnitude of impact that this reimbursement mechanism will have on hospital admissions, occupancy rates, and average lengths of stay. Therefore, relying upon the national standard of 4 beds/1000 population was not adequate. There is a need for an indicator based solely on utilization for the elderly. Since the reimbursement mechanism for non-Medicare patients has not changed, a resource based methodology has been utilized for this population group. Moreover, the program goals of the Local Health Plan state that the overall occupancy rate in District 9--as a whole--for licensed acute care beds as well as the occupancy rate for medical/surgical beds should equal or exceed 756. (Id. at 47) These minimum annual district and subdistrict occupancy rates take seasonality and age considerations into account. Bed utilization or occupancy standards are the only bed-need criteria that look to actual, verifiable data reflecting current conditions as opposed to forecasts, which look to the future.6 Failure to achieve the occupancy standards of Priority III A of the Local Health Plan creates, at least, a strong presumption against the approval of the project. In exceptional situations, however, additional beds may be approved even though the occupancy standard is not met. A typical example projected continuing decline in hospital admissions and utilization. Consequently, little weight is assigned to Martin Memorial's forecast of future bed utilization--that the satellite hospital would experience 58% occupancy in 1990.the first year of operation would be where there was a geographical access problem.7 Both the State and District 9 Health Plans cite the high cost of unused hospital beds which add to the cost of hospitalization. (R-20, p.70: R-10, p.10) A primary goal of both plans is to raise occupancy rates and eliminate excess beds. With this in mind, it is reasonable to give considerable weight to current utilization rates even though a numerical "need" for the beds is projected by the DHRS bed-need methodology.8 1984 bed utilization at Martin Memorial, Port St. Lucie and Jupiter Hospitals, as well as average utilization for District 9 and the Martin/St. Lucie Subdistrict, fall well below the minimum occupancy standards normally applied by DHRS and set out in the State and Local Health Plans. These minimum occupancy standards have not been met and are not reasonably projected to be met by 1990. Considerable weight should be accorded this factor since that is the effect of the State and Local Health Plans and DHRS' normal practice. Moreover, since occupancy rates are based on actual current conditions, they are less subject to manipulation, and inject a healthy measure of reality into CON decision-making during a time of great change in the health care industry. Economies and Improvement Services Derived From Operation of Joint, Cooperative or Shared Resources. [Another CON criterion is whether there will be "[p]robable economies and improvements in service that may be derived from the operation of joint, cooperative, or shared health care resources." Section 3fll.494(6)(c)5., Florida Statutes.] Because the proposed project is a satellite hospital, there will be economies and improvements in services realized from the operation of joint, cooperative or shared health care resources, as compared to the operation of a wholly separate free-standing hospital. The satellite hospital will not offer obstetrics or a defined pediatric unit. It will not have a CAT Scanner, a -- personnel office similar to Martin Memorial's, or a hospital laundry. It will have an emergency room, normal operating room suites, and radiology and lab services, although the more complex lab tests will be performed at Martin Memorial Hospital. The Need for Research and Educational Facilities. [CON applications are also reviewed in context with the "need for research and educational facilities . . .." Section 381.494 (6)(c)7, Florida Statutes.] The proposed satellite hospital will be located directly adjacent to the Martin County campus of Indian River Community College ("IRCC"). The IRCC campus has an Allied Health Building with approximately nine classrooms, a nursing 120 and an emergency medical technician lab. IRCC has a contract with Martin Memorial Hospital which allows IRCC students to use Martin Memorial facilities for clinical training. Clinical training is an important part of the allied health curriculum at IRCC. Construction of the satellite hospital next to the IRCC campus would benefit the Allied Health Programs since there could be joint use of equipment, facilities, and personnel, and a better opportunity to invite doctors, nurses, and other health care professionals to the classroom. The satellite hospital would also be more convenient to students, in terms of scheduling and transportation, than Martin Memorial Hospital, where they now receive clinical training. Although the proposed satellite hospital would enhance the IRCC health care training programs, there is no evidence that the clinical training programs now provided at Martin Memorial Hospital are inadequate. The proposed facility is not predicated on a claim that its primary purpose will be to serve as a research or educational facility. Financial Feasibility of the Proposed Satellite Hospital. [Another CON criterion is "[t]he immediate and long-term financial feasibility of the proposal." Section 381.494 (6)(c)9, Florida Statutes.] Estimated Project Costs The estimated costs of the movable equipment for the proposed satellite hospital are reasonable. (Stipulation, P.3) The real property in Port Salerno where the proposed satellite hospital would be located, is owned by Martin Memorial and is of adequate size and otherwise appropriate for the proposed project. (Stipulation, p.3) The estimated cost of construction and fixed equipment is $7,490,625.00, which amounts a cost of $117.50t per square foot. (The hospital will have 850 square feet per bed: $117.50 X 850 X 75 = $7,490,625.00.) his is a reasonable cost for bidding the project in the spring of 1986. Estimates of the architect's fee ($545,317.00), the cost for surveys and borings ($25,000.00j, the 3% contingency cost ($251,000.00), the developmental costs ($195,000.00), the site work and utilities ( $960, 000.03 ), the actual land costs.($595,000.00), and the financing and refinancing costs($3,100,770.00) have also been shown to be reasonable. Short-Term Financial Feasibility Martin Memorial has sufficient funds to make the equity contribution necessary to obtain financing. It also has the ability to raise $16,370,000.00 through the sale of tax exempt bonds, which appear to be marketable. It is likely that Martin Memorial would be able to secure the necessary funds for construction. The proposed satellite hospital would be financially feasible in the short-term. Martin Memorial has proven its ability to operate a hospital efficiently and profitably. Even with the advent of the DRG payment system, Martin Memorial Hospital has continued to operate profitably. During the initial DRG phase-in year of 1984, Martin Memorial benefited financially from the use of the new prospective payment schedule. Even if bed use at the satellite hospital is less than projected, or desired, during the start-up years, it is likely that Martin Memorial would be able to subsidize its operation until, with expected population growth, utilization increases and it becomes financially self- sustaining. Long-Term Financial Feasibility The proposed satellite hospital is also financially feasible in the long-term his conclusion is supported by a financial analysis utilizing reasonable assumptions based on Martin Memorial Hospital's historical experience an t financial costs obtained from a qualified securities analyst. The financial analyst also used bed utilization projections supplied by Martin Memorial's qualified earth care planner. Although the reliability of the 1990 utilization forecast is questionable, over the long-term--with projected increases in population9 is likely that the proposed hospital would become financially feasible, self-sustaining, and able to meet its operating expenses and debt service payments. I. Availability of Manpower and Resources [Another CON criterion is "[t]he availability of resources, including health manpower . . .." Section 381.494 (6)(c)8, Florida Statutes.] Martin Memorial has an in-place recruiting department which, in the past, has successfully recruited new employees for expansion programs. It has the capability of recruiting, training, and staffing the 175 full-time equivalent medical personnel shown in its CON application. There has been no showing that the hiring of employees for the satellite hospital will significantly impact other facilities or that there is a shortage of health manpower and resources. III. Need for the Proposed Hospital (using a planning horizon of January, 1990) Based on a Balanced Consideration of all CON Criteria_ ["Need" for a proposed facility, under CON law, is determined by "a balanced consideration of all the statutory [and rule] criteria." Department of Health and Rehabilitative Services v. Johnson & Johnson, 447 So. 2d 361, 363 (Fla. 1st DCA 1984) See, Section 381.494(6)(c), Florida Statutes. DHRS may not adopt a rule allowing it to "ignore some statutory criteria and emphasize others." Id. Nor may it adopt a methodology, in rule form, which "rigidly control[s] the granting or withholding of [CON] approval." Humana, Inc. et al. v. Department of Health and Rehabilitative Services, So. 2d (Fla. 1st DCA Case No. AY-422, Opinion filed May 16, 1985), 10 F.L.W. 1222.] (a) The foregoing evidentiary findings support an ultimate finding that the proposed satellite hospital is not needed, either now or within the planning horizon of January, 1990. When measured against all pertinent statutory and rule criteria, the factors favoring approval of Martin Memorial's application are outweighed by the factors supporting denial. The DHRS numerical bed-need methodology projects a January, 1990 "need", but barely so. Further, the methodology, as one criterion among many, is assigned less weight since it is a less accurate predictor of "need" in times, such as these, when in-patient bed use is steadily declining. This decline is pervasive, has continued, unabated, for over 13 months and has not yet bottomed-out. The methodology uses bed-need figures rooted in the past and does not adequately reflect this decline. Allocation of bed-need to the Martin/St. Lucie Subdistrict shows a more substancial "need" (103 beds), but this figure is, in part, also derived from the DHRS methodology. There is an adequate current supply of available acute care beds at existing facilities, similar in nature. No geographical access problem has been shown. The existing hospitals which serve the area proposed to be served by the satellite hospital, as well as the subdistrict and district, have 1984 occupancy rates considerably below the,30% occupancy standard generally applied by DHRS and health care planners. There is not a current shortage of beds. In January, 1990, it is likely that the supply of acute care beds will continue to be adequate. In all likelihood, daily occupancy rates at Martin Memorial and in the subdistrict will still be below the 80% standard. At best, Martin Memorial has shown that during two or three peak winter months, its own institution-specific occupancy rate will exceed 90%.10 But on a short-term basis, such a rate is doable and consistent with quality health care. Current bed utilization, a readily ascertainable criterion which reflects actual conditions, should be accorded considerable weight on the scale of criterion when, as now, the health care industry is in rapid flux and past trends have been disrupted, or even displaced. With declining average lengths of stay and anticipated growth in alternative delivery systems, it is reasonably expected that acute care bed use will continue to decline. The steady drop in bed use makes it more likely that the currently existing and licensed or approved beds in the area will be adequate through January 1990. Martin Memorial's utilization forecast failed to fully take into account the steady decline in bed use. Approval of the proposed hospital would be inconsistent with the State Health Plan, which identifies 80% as a minimum occupancy rate for acute care hospitals and, more particularly, with the Local Health Plan (Priority III) which, with few exceptions, does not allow new beds (irrespective of the DHRS methodology numbers) until specified occupancy thresholds have been met. These thresholds have not yet been met. The proposed hospital would be financially feasible in the short-and-long-term, enhance competition, and improve the education of health care students at the adjacent Indian River Community College. These benefits, however, are outweighed by the other factors which support a conclusion that the proposed hospital will not be needed by January, 1990. Construction of an unneeded hospital would have the effect of reducing occupancy rates at nearby hospitals and exacerbating the problem of excess bed capacity.
Recommendation Based on the foregoing, it is RECOMMENDED: That Martin Memorial's application or a CON to construct and operate the Port Salerno Hospital be DENIED. DONE and ORDERED this 4th day of October, 1985, in Tallahassee, Florida. R. L. CALEEN, J . Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, FL 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of October, 1985.
Findings Of Fact Filiberto did not appear, and was not represented, at the final hearing. There is no evidence in the record of the proceeding concerning Filiberto's application for CON 4302. On or about October 10, 1985 Brevard filed an application with the Department for CON 4301 to construct a 60 bed medical-surgical satellite hospital of Holmes Regional Medical Center (HRMC) in the Palm Bay area of south Brevard County, Florida. This application does not contain any reference to, or information about, a voluntary delicensure or transfer of 60 previously approved beds, but rather seeks approval for 60 "new" beds. By letter dated February 28, 1986, the Department notified Brevard of its intent to deny this application, and thereafter Brevard timely sought review of the Department's decision. The parties stipulated as follows: Brevard's application for CON 4301 meets all statutory criteria, except for criteria set forth in Section 381.705(1)(a), (b), (d) and (1), Florida Statutes (1987). The Department does not dispute any of the data or information contained in Tables which are a part of Brevard's application, with the exception of Table 10 (Projected Utilization) which is in dispute, and Table 6 (Total Facility Utilization) upon which Brevard does not rely. There is no numeric need for additional medical- surgical beds in the applicable service district. Financial feasibility of this project is not at issue. The site proposed by Brevard for this satellite hospital is an appropriate hospital site. In certain life-threatening situations, a thirty minute drive time to a hospital may be too long, and in order to protect and save a particular patient's life, less than a thirty minute drive time may be needed. There is a dispute between the parties concerning the authenticity of the State Agency Action Report (SAAR) introduced at hearing as Brevard's Exhibit There is no signature page on the SAAR, and a review of all files relating to this matter has failed to locate the missing page, which would also normally contain a summary of the Department's findings. Although Brevard introduced the Exhibit, it did so simply to establish that the SAAR on file at the Department does not evidence approval, through signature, by any authorized representative of the Department. Nevertheless, this SAAR was obtained from the Department's official files concerning the CONs here at issue, and was also authenticated, in part, by Reid Jaffe, consultant supervisor, who prepared the original draft of the SAAR and recalled seeing the final SAAR with a signed signature page. No evidence disputing the authenticity of this document was offered. Therefore, Brevard's Exhibit 4 is accepted for all purposes as the Department's SAAR concerning CONs here at issue. In view of stipulation 4(c), set forth above, Brevard's case at hearing in support of CON 4301 is largely premised upon the offer of Holmes Regional Health Care Systems to voluntarily delicense or transfer 60 approved beds at HRMC, a wholly owned and operated non-profit corporate subsidiary of Brevard. The Department deemed Brevard's application complete on December 30, 1985, at which time the application contained no reference to, or information about, a voluntary delicensure and/or transfer of approved beds. In discussions between the parties in January, 1987, Brevard made this offer and on January 27, 1987 the Department informed Brevard of its position "that the change from `new beds' as proposed in the application, to `transferred beds' would be a substantial change in the scope of the project," and as such the Department would consider this to be a "substantial amendment to the application," which it contends is prohibited after an application is deemed complete. As a significant new issue or factor which was not addressed or raised in any way in Brevard's application prior to it being deemed complete, although its ability to have raised this issue was entirely within Brevard's control, Brevard's offer to voluntarily delicense 60 beds at HRMC if CON 4301 is approved constitutes a substantial amendment of its CON application, rather than an update or supplement of data contained therein. Such an amendment is not permitted after an application is deemed complete because it raises issues which the Department had no way to consider when it reviewed the application and the SAAR was prepared. Additionally, to allow consideration of Brevard's offer at hearing would change the entire need methodology against which this application was reviewed by the Department since the acute care bed need rule, which was properly used to review this application for new beds, is not applicable and cannot be applied to bed transfers. Brevard's offer to voluntarily delicense beds in connection with approval of an equal number of beds at a satellite facility is nothing more than an impermissible, substantial change of its new bed application. There is currently pending before the Department, in a subsequent batch, an application filed on behalf of HRMC to delicense 6 beds and relocate or transfer those beds to a new satellite hospital in the Palm Bay area. At the time of hearing, the Department had not acted upon this subsequent application. HRMC is a 528 bed acute care hospital located in Melbourne, which is in south Brevard County. Of its 528 licensed beds, 495 are actually in service. Brevard proposed to delicense 60 of these 528 beds at HRMC, which would then result in a net reduction of only 27 beds actually in service at HRMC. Brevard has proposed in its application to locate a 60 bed satellite hospital of HRMC on a 45 acre site located east of Interstate 95 and north of Malabar Road in Brevard County. This location is immediately south and east of the city limits of Palm Bay, which itself is located south of Melbourne. The site has already been purchased. The proposed satellite would have 36 private and 12 semi-private rooms. It is proposed to have a primary service area that includes an area from Palm Bay south and west to the county line and bordered on the east by the intra-coastal waterway, and will serve Medicare, Medicaid, indigent and charity patients, as well as paying patients. HRMC has had an indigent care agreement with Brevard County since 1977, and this proposed satellite would be included in that agreement. The primary service area of the proposed satellite has been an area of extremely rapid population growth. From 1970 to 1980, the area's population increased 156.3 percent (9,660 to 24,578 residents) compared with Brevard County's 18.7 percent increase. It is estimated that the primary service area's "phenomenal" population growth will continue through 1990. The population of Palm Bay has grown from 15,000 in 1980 to a current population of 55,000; Palm Bay's growth has been primarily to the south and west, away from HRMC and toward the proposed site of the satellite. A satellite hospital associated with an established acute care hospital has a number of significant advantages over a new free-standing facility, including the ability to share: administrative and management support; clinical and financial data; data processing; insurance and billing costs; purchasing; and staff orientation and education programs. Need In Relation To the Applicable Health Plans The State Agency Action Report (SAAR) prepared by the Department in its review of Brevard's application specifically indicates that this application is consistent with the applicable District 7 Local Health Plan, and therefore Brevard's ability to meet the policies, goals and priorities of the Local Health Plan is not at issue in this case. Brevard's CON application addresses certain goals, objectives and policies set forth in the 1981 Florida State Health Plan. However, the 1985-87 Florida State Health Plan was adopted prior to the filing of Brevard's CON application at issue in this case, and is therefore applicable to the review of that application. The Florida State Health Plan sets forth the following pertinent Objectives and Recommended Actions: By 1989, the ratio of acute care hospital beds to Florida's population (in 1000's) should be less than 4.11. (Objective 1.1) Restrain increases in the supply of hospital beds in Florida through the state certificate of need program. (Recommended Actions 1.1a and 3.1a) By 1989, attain an average annual occupancy rate of at least 80 percent for all non federal, short-stay hospital beds considered together in each of Florida's eleven HRS districts. (Objective 3.1) Brevard's application is inconsistent with these Objectives and Recommended Actions. Specifically, it seeks to add 60 new beds to the acute care bed inventory when the bed ratio is already less than 4.11, occupancy rates are significantly below 80 percent, there is a projected surplus of 166 beds in Brevard County for 1990, and the parties have stipulated there is no numeric need for new beds. It is directly contrary to a restraint on the increase of beds. Even if the delicensure and transfer were to be considered, rather than viewing this as an application for 60 new beds, this application is still inconsistent with the State Health Plan because it does nothing to reduce the oversupply of acute care beds, and competent, substantial evidence was not introduced to establish that such a transfer would significantly increase occupancy rates or to otherwise establish a need for these new beds. See also Recommended Action 1.16. Geographic Accessibility Brevard's application does not specifically address the issue of accessibility, or set forth reasons why its application should be approved based upon this review criterion. The State Health Plan sets forth the following Objective: Through 1989, assure that acute care hospital services are available and accessible to urban residents within thirty minutes average one way drive time . . . (Objective 2.2). The applicable Local Health Plan sets forth the following Priority: Priority for needed acute care services should be given to those applicants who transfer unutilized beds and/or establish hospital facilities in regions of the District where access to service can be substantially improved by at least 25 minutes for 10 percent of the population . . . (Priority 4). The SAAR concludes that geographic accessibility is not a problem as it relates to Brevard's application and therefore concludes that this application does not meet this criterion. A travel time sketch prepared by Reid Jaffe is included in the SAAR. Therefore, geographic accessibility is at issue in this proceeding by virtue of the Department's reliance upon this criterion, contained in the SAAR, as a basis of denial. Accordingly, the Department's objections at hearing to the admissibility of travel time data are hereby specifically overruled, and evidence concerning geographic accessibility offered at hearing is admitted, and has been considered. The residents of Palm Bay and south Brevard County are predominantly located within thirty minutes of HRMC, although the less populated area of south-west Palm Bay, which has recently started to develop, is beyond a thirty minute drive time to HRMC. This finding is based upon the testimony and study of William Tipton, who was accepted as an expert in traffic and transportation engineering, as confirmed and supported by Reid Jaffe's testimony and study contained in the SAAR, and a study performed by Wendy Thomas, who was accepted as an expert in health care planning. While Peter Wahl, Community Services Director for Brevard County, who was accepted as an expert in county health planning, testified about the inadequacy of access roads and major arterials in Palm Bay, and the increasing problems which will result as the population of Palm Bay continues its extraordinarily rapid growth, ambulance run times which he described from the scene of an accident to existing hospitals were primarily under thirty minutes. Although emergency medical response time is increasing, Wahl's testimony does not establish that the thirty minute drive time standard is being exceeded. Tipton confirmed the characterization of Palm Bay's road system as very poor, and also that as its population increases the traffic delays will worsen. Quality of Care, Efficiency HRMC renders quality care, and is a well respected acute care hospital in south Brevard county. As a corporate subsidiary of Brevard, its record of quality care can reasonably be expected to continue at the proposed satellite hospital. As set forth in Finding of Fact 13, above, a satellite hospital has a number of significant advantages over a new free-standing hospital. These advantages contribute to the efficient operation of such a satellite. Availability and Adequacy of Alternatives Brevard has not shown that other health care facilities and services, such as outpatient care and ambulatory services, are inadequate or cannot serve as alternatives to the proposed satellite hospital. There are a surplus of beds available. HRMC had only a 70.8 percent occupancy rate in 1985, and the SAAR reports that the occupancy rate for acute care beds in Brevard County in 1985, including HRMC, was only 68 percent. Thus, although HRMC's share of south Brevard County patients was approximately 87 percent, there are still surplus beds available at HRMC as well as other area hospitals. HRMC currently operates an out-patient, ambulatory service facility in Palm Bay on the site of the proposed satellite. Impact of the Proposed Project HRMC would experience a slight negative financial impact until approximately 1992 if the satellite were constructed. After 1992 both the satellite and HRMC would have recouped losses and start-up costs. Patient charges at HRMC are lower than at other hospitals in the service district, and would continue to be lower if the satellite were constructed. In addition, because of the cost-sharing and efficiencies which would result from the satellite hospital's affiliation with HRMC, the proposed satellite would be able to operate with lower patient charges than a new free- standing hospital.
Recommendation Based upon the foregoing, it is recommended that the Department issue a Final Order denying CON applications 4301 and 4302. DONE AND ENTERED this 29th day of March, 1988, in Tallahassee, Florida. DONALD D. CONN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 29th day of March, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 86-1537 87-0930 Rulings on Brevard's Proposed Findings of Fact: Adopted in Findings of Fact 2, 9. Adopted in Findings of Fact 3, 6. Adopted in Findings of Fact 3, 5 but otherwise Rejected as unnecessary. 4-5 Rejected in Findings of Fact 5. Adopted in Findings of Fact 4(c), 6, 7, 25, but Rejected as to any stipulated need based upon the access. While this was the position of Brevard, it was opposed by the Respondent. Rejected as irrelevant and not based upon competent substantial evidence. 8-9 Adopted and Rejected in part in Finding of Fact 20. Rejected as unnecessary, cumulative and otherwise irrelevant. Adopted in Finding of Fact 19, but otherwise Rejected as unnecessary. Adopted in Finding of Fact 20. 13-14 Rejected in Finding of Fact 19 and as otherwise unnecessary and irrelevant. 15 Adopted in Finding of Fact 4(e) but otherwise Rejected as unnecessary. 16-18 Rejected as irrelevant, and as simply a summation of testimony, and as otherwise not based on competent substantial evidence. Adopted in Finding of Fact 11. Rejected in Finding of Fact 19, and otherwise as irrelevant. Adopted in Finding of Fact 14 but Rejected in Findings of Fact 16, 17. Rejected in Finding of Fact 15 and otherwise as simply a summation of testimony. Rejected in Findings of Fact 16, 17 and otherwise as irrelevant. 24-25 Adopted in Findings of Fact 4(d), 26, but otherwise Rejected as irrelevant and unnecessary. 26-27 Rejected as irrelevant in view of Findings of Fact 6,7. Adopted in Finding of Fact 27. Adopted in Finding of Fact 26. Adopted in Findings of Fact 13, 27. Rejected in Finding of Fact 24. Adopted in part in Finding of Fact 10, otherwise Rejected as irrelevant and unnecessary. Rejected as irrelevant. Rulings on the Department's Proposed Findings of Fact: Adopted in Findings of Fact 1, 2. Adopted in Finding of Fact 3. Adopted in Finding of Fact 4. The parties' stipulation is set forth in Finding of Fact 4. Adopted in Findings of Fact 4(c), 17. Adopted in Finding of Fact 17. 6-7 Adopted in Findings of Fact 6, 7. Adopted in Findings of Fact 18, 19. Adopted in Findings of Fact 4(c), 17, 24. COPIES FURNISHED: E. G. Boone, Esquire Jeffrey A. Boone, Esquire Post Office Box 1596 Venice, Florida 34284 Frank P. Filiberto, M.D. 5200 Babcock Street, NE Palm Bay, Florida 32905 Guyte P. McCord, III, Esquire Post Office Box 82 Tallahassee, Florida 32302 Gregory L. Coler Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 Sam Power Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 ================================================================= DOAH ORDER RULING ON MOTION TO STRIKE =================================================================
The Issue Whether CON 8241, Palm Beach Regional's application to convert its 200 bed acute care hospital to a 60 bed long-term care hospital should be granted or denied?
Findings Of Fact The Parties The applicant in this case is The Hospital Corporation of Lake Worth d/b/a Palm Beach Regional Hospital. A subsidiary of Columbia Hospital Corporation, ("Columbia,") Palm Beach Regional is a licensed general acute care hospital with 200 beds located in Palm Beach County, AHCA District 9. Palm Beach Regional's license is issued pursuant to Chapter 395, Florida Statutes, the chapter of the Florida Statutes entitled, "Hospital Licensing and Regulation." The agency is "designated as the single state agency to issue ... or deny certificates of need ... in accordance with the district plans, the statewide health plan, and present and future federal and state statutes." Section 408.034(1), F. S. Integrated is a licensed 120-bed skilled nursing facility, also known as a long-term care facility, located in Palm Beach County, AHCA District 9. Its license is issued pursuant to Chapter 400, Florida Statutes, the statute entitled "Nursing Homes and Related Health Care Facilities." Columbia Hospital Corporation The parent company of petitioner, Columbia has a stock market capitalization of between $15 and $20 billion and enjoys a profitability of over $1 billion per year. It owns approximately 340 hospitals, well over 100 ambulatory surgical centers, and an extensive number of home health agencies. As to be expected of a Fortune 500 company, Columbia generates substantial annual revenues. In 1994, for example, the annual revenues generated by Columbia exceeded $17 billion. Columbia also lays claim to being the largest hospital system in the state. It has five divisions with approximately 60 hospitals in its "Florida Group," the organizational title for its Florida operations. The net revenues of the Columbia Florida Group is approximately $4.5 billion. One of five divisions of Columbia's Florida Group, the South Florida Division is a $1.2 billion operation. The division encompasses Dade, Broward and Palm Beach Counties and consists of 15 hospitals, six surgery centers, and one dozen home health agencies. The South Florida Division, of course, includes Palm Beach Regional. Background to the Application Palm Beach Regional was purchased by Columbia shortly after Columbia had purchased JFK Hospital, a 300-bed tertiary hospital approximately three miles from Palm Beach Regional. In August of 1995, as a business decision, Columbia consolidated the operations of the two facilities. The consolidation resulted in a patient census drop at Palm Beach Regional. Shortly thereafter, with the permission of the agency, Palm Beach Regional ceased operations at its emergency room. The result of the consolidation and limitation of the services offered was that it cost only about $100,000 a month to keep Palm Beach Regional running with its small census. Even with the small census, and the relatively low monthly operational expense, the operational expense was more than $1 million per year. In June of 1996, Palm Beach Regional and the agency entered a stipulation which authorized the hospital to suspend the acute care operations in contemplation of this proceeding. Palm Beach Regional's hospital-based skilled nursing unit has since been transferred. Palm Beach Regional is now closed and empty. The reason Palm Beach Regional had been kept operating at all after the consolidation with JFK was to preserve the opportunity to convert the license as proposed in the application. The Application Certified for accuracy on September 18, 1995, under the signature of its authorized representative, Robert L. Newman, CEO of Columbia/HCA, South Florida Division, the application was submitted to the agency bearing a date of September 20, 1995. The application describes what it seeks in the section titled "Project Summary" as follows: Hospital Corporation of Lake Worth (Palm Beach Regional) proposes in this Certificate of Need Application to convert 60 acute care hospital beds to 60 long-term acute care hospital beds and to delicense 128 existing acute care beds. (At a later date the existing 12 skilled nursing beds will be located to another Columbia/HCA hospital in District IX.) Palm Beach Regional Exhibit No. 1, AHCA Form 1455A, Oct 92, AHCA 4600-0005 Aug 93. The transfer of the 12 skilled nursing beds has already occurred and therefore is not at issue in this proceeding. Nor is the delicensure of the 128 beds really at the heart of the agency's denial and Integrated's opposition. In contrast, what is contested is the conversion of the 60 acute care hospital beds to 60 long- term acute care hospital beds. Such a conversion would make Palm Beach Regional a long-term acute care hospital. Long-term Acute Care Hospitals Referring to a hospital as both "long-term" and "acute," is confusing. The two terms have divergent meanings both in terms of average length of stay and the traits of the illness suffered by the acute and the long-term patient. In the context of hospitals, "long-term" refers to a patient with an average length of stay of greater than 25 days. By comparison, the acute patient's stay is typically much less than 25 days, with the average length of stay being between 5 and 6 days. As is the patient in need of acute care, the typical long-term hospital patient is very ill. The difference in the type of illness suffered by the acute care patient as opposed to the long-term patient, however, lies in other characteristics. Unlike the acute care patient, the long-term patient is not in the urgent, emergent or desperately critical state of patients in the acute care setting. The two terms, "long-term" and "acute" have been used together with reference to the type of hospital to which Palm Beach Regional proposes to convert because of the history of the long- term care hospital’s development. Originally in Florida, long-term hospitals were licensed as acute care hospitals and were referred to, therefore, as "long-term acute," hence the combination of terms with disparate meanings. In the context of a study conducted by the Hospital Cost Containment Board, however, the agency examined the issue of whether long-term hospitals should be subject to CON review as long-term hospitals apart from other acute hospitals. As a result, long-term hospitals came to be reviewed in their own separate category under certificate of need review, subject to the same licensure requirements as a specialty acute care hospital. Because they had been licensed earlier as acute care hospitals, the term "acute" was carried over into the new category. At present, there is a recommendation to refer to long-term acute care hospitals simply as "long-term hospitals" to clear up any confusion caused by the terminology. This recommendation will be followed for the most part in the remainder of this order when reference is made to acute and long-term facilities and acute and long-term care. Long-term Care Hospital-based long-term care is a distinction established in federal Medicare regulations that describes a hospital with patients having an average length of stay of greater than 25 days. The distinction allows an exclusion from the Medicare prospective payment system so that reimbursement is received by the long-term hospital on the basis of cost. The distinction is of great import financially because of the distinction between "cost-based" Medicaid and Medicare reimbursement systems and another payment system used by Medicaid and Medicare: the prospective payment system. Before the prospective payment system was instituted, hospitals generally were well utilized, in fact, “filled to the brim.” The high utilization was due to the "cost-based" reimbursement system which contained a financial incentive for the hospital to keep patients in the hospital. Under the cost-based system, the more a hospital spent, the more reimbursement it would receive from Medicare and Medicaid. The prospective payment system was instituted to save taxpayers the high cost of the cost-based reimbursement system. Under the prospective payment system, the hospital receives a flat fee for Medicare and Medicaid patients depending on the diagnostic category, or diagnostic-related group, ("DRG,") into which falls the illness treated. The flat fee is figured on the basis of average length of stay for that diagnostic category. Under this system, unlike the cost-reimbursed system, the hospital receives the same reimbursement for Medicare and Medicaid patients who stay for less than the average length of stay assigned to the patient's DRG as for those who stay longer. With regard to a patient who stays in the hospital longer than the average length of stay for the patient's DRG, the hospital, in many cases, not only profits less the longer the patient stays but begins to lose money at some point in the stay. If the average length of stay for an appendicitis patient is four days, for example, then the hospital profits more in the case of an appendicitis patient who stays only two days because it has incurred only two days of costs instead of the expected four days of costs. In the case of another appendicitis patient, who stays longer than the average length of stay, the hospital makes less money and reaches the point eventually in some cases where the hospital actually loses money for treating the patient if the patient stays long enough. Medicare provides additional payments for both "day-outliers" and "cost-outliers," but not enough to prevent financial pressure on hospitals to discharge acute patients as soon as possible. The prospective payment system has succeeded in forcing hospitals to operate more efficiently; the average utilization of hospitals has declined dramatically. Today, about half of the hospital beds in Florida on any given day go unused. The system does not have the same effect on long-term hospitals; they are exempt from the prospective payment system. Instead, long-term care hospitals are reimbursed under a cost-based system. A long-term hospital well located geographically is particularly attractive to a large hospital system, such as Columbia. Not only will it likely be a financial success in its own right but it will assist Columbia’s sister acute care hospitals in relieving them of patients too sick to be discharged to a subacute setting yet finished with the acute episode which required the acute care hospital’s service in the first place. Development of Long-term Care Hospitals in Florida The first long-term care hospital was instituted in Florida in the 1980's. Fairly soon thereafter there were three long-term care hospitals in Florida, but then there was a lull in the attempt to establish long-term care hospitals. With the advent of the prospective payment system, however, there eventually came the closing of a number of small hospitals in Florida because of their inability to continue to operate in sound financial condition. At the same time, four or five applications for the conversion of small hospitals to long- term care hospitals were filed with the agency. In the early part of the present decade the agency conducted a study of long-term hospital care. The study took place within a larger study by the Hospital Cost Containment Board. Ultimately, it was recommended that long-term care hospitals be regulated separately from acute care hospitals and that they be subject to separate certificate of need review. The recommendation was made for a number of reasons. First, long-term hospitals were viewed by the agency as very different from acute care hospitals because of the patients' average lengths of stay. Second, long-term care hospitals were found to be expensive for the type of care given in them which was of great concern to the state since cost control is an objective of the certificate of need program. Third, long-term hospitals were found to experience high mortality rates. As the result of the study and recommendation, the agency made the creation or conversion of hospitals into long-term hospitals subject to certificate of need review. Admission Criteria In the study, the agency also found that there are no clear admission criteria for long-term hospitals. To date, neither the Health Care Finance Administration (“HCFA”), nor the Joint Commission on Accreditation of Hospital Organizations ("JCAHO,") or any of its sub-organizations have developed any criteria to define a long-term care hospital. It is not clear, therefore, exactly what type of patients are suitable for care in a long-term hospital. Sub-acute Care The parties are in agreement that sub-acute care is a level of care that is below acute care. Palm Beach Regional claims, however, that the care provided by long-term care hospitals is not subacute but rather falls into a category of care between acute and sub-acute. An understanding of this claim requires some discussion. Unlike other classes of hospitals which are exempt from the prospective payment system, like cancer, children's or psychiatric hospitals, patients in long-term care hospitals do not have a specific type of illness nor are they limited to serving a specific age group. Generally, however, they are patients who have had an acute episode, whose program of care has been identified and who need a longer term of care to recover or to be rehabilitated because of an acute illness or surgical procedure. And, although they are not limited to a specific age group, the experience of long-term care hospitals is that a major part of their patient population is elderly, virtually all of whom are covered by Medicare. In these respects, long-term care hospital patients are not much different from patients in other "subacute" settings: comprehensive rehabilitation hospitals, acute care hospital skilled nursing units, skilled nursing facilities in free-standing nursing homes, and, even, in some cases, home health care, assisted living and outpatient services for the elderly. If there is a difference between the long-term hospital patient and patients in other subacute settings, it is that the long-term hospital patient has more at-risk types of physical problems, is more likely to be medically unstable or is, in fact, medically unstable. But this difference is not strictly observed because of the financial pressure on hospitals to discharge patients from the acute setting into a subacute setting. Medically unstable patients, therefore, are found in subacute settings such as skilled nursing facilities whether hospital-based or in free- standing nursing homes. In contrast to what has become commonplace practice, Dr. Kathleen Griffin, an expert in health care planning with a specialty in long-term acute care and subacute care, testified that it would not be appropriate for a medically unstable patient to be transferred to a skilled nursing bed. In her opinion it would be best for a medically unstable patient about to be discharged from acute care to be admitted instead to a long-term care hospital. Despite the reality that there are no admission criteria for long-term care hospitals, Dr. Griffin maintains that if a hospital discharge planner believes through information gathered from the medical and nursing staffs that the patient "is highly acute and at risk, and there is a long-term care acute hospital available, then that would be the placement of choice." (Tr. 523.) If a long-term care hospital is not available, however, the alternative is to keep the at-risk, medically unstable patient in the acute care hospital rather than discharge the patient into a nursing facility. Dr. Griffin's opinion is shared by the physician practicing in long-term hospitals. Representative of such a physician is Dr. Wendell Williams, presently the Medical Director of a long-term care hospital, Specialty Hospital of Jacksonville. Dr. Williams sees a distinction between long-term acute care and subacute care. Long-term hospital care is acute care without the need for "highly technical diagnostic capabilities," and "high surgical capabilities," but still care in the "medically complex case that requires frequent physician direction [and] high skill level of caregivers." (Petitioner's Ex. No. 16, pg. 13.) In Dr. Williams view, long-term hospital care occupies a level of care between acute and subacute care. The views of Dr. Griffin and Dr. Williams find support in analyses of nursing hours per patient. In a typical nursing home, the number of hours per patient is about 4.5 hours per day, while in a long-term care hospital, the number is around 6.5 hours per patient day. At Specialty Hospital of Jacksonville, the nursing hours per patient day for non-ventilator patients is 6.75 hours, and for ventilator patients is 10 hours. In contrast, Integrated, a nursing home, provided nursing hours per patient day in its "med-surg unit" at 4.34 hours in March of 1996, 4.60 hours in April and 4.52 hours in May although at times Integrated's nursing hours per patient day have reached as high as 6 hours. The opinions of Dr. Griffin and Dr. Williams have not yet been generally accepted. Following the agency's study in the earlier part of the 1990's, the federal government, under the auspices of HCFA, launched a major study that addresses what AHCA viewed as the "whole gamut of what is marketed as subacute care," (Tr. 272). The study included long-term care hospitals, as well as those settings which the parties all agree are clearly in the category of "subacute": hospital-based skilled nursing facilities, free-standing nursing homes, comprehensive rehab hospitals and home health care. The report was issued in November of 1995. It confirmed that there was a great deal of overlap among the settings studied including between the long-term care hospital and other settings unquestionably subacute. Moreover, it confirmed that many of the services are "primarily driven by reimbursement," (Tr. 275), and not by which provides the best or most cost-effective health care for the very ill, elderly patient no longer in need of acute care. In other words, the financial pressure on hospitals to discharge patients from the acute care setting was what accounted for the tremendous growth of subacute services and the move toward more long-term care hospitals rather than what is actually best for the patient or the health care system. The study concluded that there is insufficient data to determine the cost effectiveness of subacute care as defined in the study. As for overlap in the various settings, the extent of overlap was not precisely determined. But just as long-term care hospitals provide ventilator treatment, skilled nursing units specialize in ventilator patients. Nursing home subacute units specialize in wound care, infectious disease programs and IV antibiotic therapy programs, as well, just as would Palm Beach Regional if approved. The HCFA study also confirmed that the cost of care and mortality rates at long-term care hospitals are high, $2,000 per day and 40 percent, respectively. The average cost per discharge at a long-term care facility was between $150,000 and $250,000. Despite the long-term hospital's recognition by the federal government, the presence in Florida for more than eight years, and separate CON regulation for the last several years, it remain unsettled which patients should be treated and cared for in long-term hospitals. While for some, such as Dr. Griffin and Dr. Williams, the question is one which discharge planners, after consultation with nursing and medical staff, ably make, it is not generally accepted that it is clear which patients should be cared for in long-term care hospitals. It is not generally accepted as evidenced by the wont of admission criteria for long-term hospitals. Furthermore, it is not clear whether long-term hospitals represent the best means or the most cost-effective way of treating patients ready for discharge from an acute care setting. Specialty Hospital of Jacksonville: the Model The Palm Beach Regional proposal to convert to a long- term care hospital is modeled after another Columbia long-term care hospital, Specialty Hospital of Jacksonville, the hospital of which Dr. Williams is the medical director. Opened in 1992, Specialty offers four major program areas: ventilator and other respiratory complications, infectious diseases, wound management and complex medical and rehabilitative services. The typical ventilator patient is quite ill; often with other attendant system breakdown such as cardiac or renal failure. The goal is to free the patient from ventilator dependence. If the patient is judged to be a lifetime custodial ventilator patient, the patient would not be appropriate for Specialty. A variety of infections are treated in the infectious disease program. Often the primary antibiotic treatment has failed and there may be other conditions attendant. The typical wound care patient admitted to Specialty has severe wounds that may derive from circulatory problems. Often admission is from a hospital or nursing home. The patient may be diabetic, paraplegic or quadriplegic. The patient may have experienced a surgical intervention which has not healed. Or the patient may have a distressed digestive system which inhibits the body's ability to absorb the proper nutrients to support the healing process. The typical complex medical and rehab patient includes the spinal cord injured patient and the multiple system failure patient. The patients at Specialty are under the management of an attending physician but typically four or five different specialties are involved in each patient's care. Specialty Hospital has experienced approximately five percent Medicaid and one percent charity care. A representative patient at Specialty Hospital has an average length of stay of 23 days. The representative patient in the infectious diseases program would experience an average length of 18, 20 days in the pulmonary program, 29 days in the ventilator program, 36 days in the wound program, 18 days in the physical medicine and rehabilitation program and 26 days in the medicine program. These lengths of stay resemble acute or Medicare certified skilled nursing bed lengths of stay more than the historical 90 day lengths of stay experienced in Florida at long- term care hospitals. A representative patient at Specialty Hospital will experience an average daily charge of $1,122 and an average charge per case of $25,810, the highest averages incurred by the ventilator program at $1,848 per day and $52,781 per case. From a medical standpoint, all of the patients treated at Specialty Hospital could be treated in an acute care hospital. There is one difference between Specialty's patient profile and the one expected at Palm Beach Regional. The approach proposed by the applicant will include patients with greater levels of instability. Whereas Specialty has taken the approach that patients at the intensive care level should be in a general acute care hospital, Palm Beach Regional expects to treat patients in need of services from an intensive care unit. Palm Beach Regional, therefore, has planned for an intensive care unit at the facility should its CON application be approved. Integrated's Existing Programs Sixty of Integrated 120 beds are dedicated to meet the needs of patients requiring subacute care. Although they may differ slightly in intensity of application because of slightly lower acuity levels of the patients, the programs offered in this sixty-bed skilled nursing unit encompass the four programs proposed for Palm Beach Regional's long-term care hospital: ventilator and respiratory complications; infectious disease; wound management; and complex medical and rehabilitation service program. Integrated uses its own method to measure the acuity of its patients. Within this method, two of the levels require active treatment of co-morbidities, multiple diseases which complicate the primary diagnoses. By whatever means acuity is measured, it is reasonable to expect that the average level of acuity would be somewhat higher among patients treated at a Palm Beach Regional long-term care facility. (Although without criteria to measure acuity for admission or to know for sure what patients are actually being treated at long-term hospitals, this is not certain.) Nonetheless, considering both diagnosis and treatment, Integrated's patients at Integrated's two highest levels of acuity, even if not at quite as high an acuity level on average, would be similar to the patients Palm Beach Regional might serve if its application were granted. Patients at a Palm Beach Regional's long-term care facility who would exceed the highest level of acuity of those patients at Integrated are patients appropriate for treatment in an acute care hospital. Ventilator Care at Integrated Ventilator patients are treated in skilled nursing facilities both in hospitals and in free-standing nursing homes like Integrated. Some skilled nursing units even specialize in ventilator care. There is clearly overlap between ventilator services in skilled nursing facilities and long-term care hospitals. The precise extent of the overlap is not clear. While the overlap may not be 100%, it is certainly significant. Twenty of Integrated's 60 subacute beds are capable of assisting ventilator patients. Within this 20 bed unit, Integrated provides oxygen, air, and wall suctioning just like in a hospital setting. Additionally, Integrated can provide respiratory services outside of its specific unit by using portable suction machines and oxygen concentrators. The ventilator patients treated at Integrated are similar to the ventilator patient treated in intensive care units in hospitals. Some of Integrated ventilator patients are in need of acute care. All are hemodynamically stable but some are medically unstable. Nonetheless, there are patients who would be too unstable to allow them to be suitable for admission into Integrated's respiratory unit. Patients who would need to remain in acute care in the hospital would be patients who, for example, were bleeding or having trouble with a post-surgical trach placement. The medical director at Integrated is a pulmonologist. Integrated has a 24-hour respiratory staff. The ventilator program at Integrated meets the description in the application of the proposed ventilator program at Palm Beach Regional. Comparison of the respiratory services offered at Integrated to the services proposed to be offered in Palm Beach Regional's ventilator program reveals significant overlap between the two. Integrated primarily uses a Bear 3 Ventilator. Other equipment used by Integrated includes pulse oximeters and pneumatic blood pressure cuffs to provide hemodynamic monitoring. The respiratory unit is able to obtain an assessment of the patient's arterial blood gases within two hours through an arrangement with a courier service and nearby JFK Hospital. On average the blood work results are received within an hour of the blood being drawn from the patient. An interdisciplinary team of therapists, including respiratory therapists, physical therapists, occupational therapists and speech therapists, work together on the plan of care and recovery of the ventilator patient including weaning the patient from the ventilator. Of those ventilator patients determined to be weanable, 75% are actually weaned from the machines. Ninety-two percent of the tracheotomy patients achieve decannulation. The average length of stay in the respiratory unit for Integrated's ventilator patients is 37 days, an average length of stay that meets that which defines the long-term care hospital patient, that is, in excess of 25 days. Infectious Disease Treatment at Integrated Just as long-term care hospitals, nursing homes offer infectious disease programs employing IV anti-biotic therapies. Integrated provides its patients with multiple antibiotic therapies. Among the IV anti-biotic therapies used at Integrated are cepo, fortaz and vancomycin. Integrated treats patients with pulmonary edema, pleural affusion, pulmonary embolus and pulmonary infarcts and patients with bi-lobar and multi-lobar pneumonia. Patients are treated with intravenous cortico steroids, intravenous bronchodilators, intraveous diuretics and intramuscular antimedics. Wound Care at Integrated Nursing homes offer wound management programs. There is significant overlap between patients treated for wounds at nursing homes and at long-term care hospitals. Limitations in care of the wound patient are similar as well. Just as a patient in need of surgical intervention for wound care, for example, would be discharged to an acute care hospital from a nursing home so would that patient be discharged to an acute care hospital from Specialty Hospital of Jacksonville, the model hospital for Palm Beach Regional's long-term care facility. Integrated offers wound and skin management treatment of the type described by Palm Beach Regional's proposal. Many of Integrated's patients recieve wound care upon admission. For instance, respiratory patients who have tracheotomies receive care for their wounds throughout the day. Integrated treats all levels of decubitous ulcers, including the most severe, Stage III and IV ulcers, as required by law in order to qualify for Medicare Certification. Complex Medical and Rehabilitative Care Integrated offers radiology and other imaging services on campus: mobile chest x-rays, normal x-rays, and video flouroscopy as well as an in-house staff of rehabilitation professionals: physical and registered occupational therapists and registered speech therapists. The rehabilitation programs proposed by Palm Beach Regional and those programs of other long-term care hospitals overlap significantly with those programs already offered at Integrated. The difference between the complex medical and rehabilitative care offered at Integrated and that proposed for Palm Beach Regional lies in the expected acuity of the patients. One would reasonably expect the patients to be slightly higher in acuity at Palm Beach Regional if approved than as are presently at Integrated. Nonetheless, the patients at Integrated are similar to those Palm Beach Regional would care for, in that Integrated treats patients with co-morbidities, including combinations of congestive heart failure, post-open heart surgery, arteriosclerotic heart disease and renal failure. Integrated's Services in General On an average month, Integrated offered 7.28 hours per day of nursing and respiratory, physical and occupational therapy care per day to the patients within its subacute unit. Forty percent of Integrated's subacute nursing hours are provided by registered nurses, 20% by licensed practical nurses, and the remaining 40% by certified nurse aides. A sample of Integrated's admissions noted numerous patients admitted with cardiopulmonary vent and ventilator needs. Integrated also maintains a large number of orthopedic patients in need of complex rehabilitation. Integrated treats patients with congestive heart failures, patients recovering from recent open- heart surgery, patients requiring specialized wound care, patients with post-operative cranial head injuries, and patients requiring tube feedings, IVS, ventilator and tracheostomy care. Integrated offers the equipment that is listed in the application as equipment to be purchased by Palm Beach Regional if approved. Integrated accepts patients who are medically unstable. These include patients admitted to Integrated's cardiopulmonary unit, patients with recent tracheostomies, patients on ventilators, patients with hemodialysis and peritoneal dialysis who have co- morbidities. Palm Beach Regional's application lists diagnoses of patients to be treated through long-term care which it claims are not appropriate for skilled nursing facilities. The application alludes to various types of comprehensive therapies, care and resources available for these patients. Yet, despite the application's claim that care of these patients is not appropriate for the skilled nursing facility, present at Integrated for the benefit of patients with the same diagnoses are very nearly all, if not all, of these therapies, care and resources. These include: IV antibiotic therapy, IV drips, plasma pheresis, management of severe decubitus ulcers, tracheotomy care with hourly suction, treatment with chest tubes and PCA pumps, cardiac monitoring, dialysis and an on-site pharmacy. Moreover, Integrated's roster of consulting physicians credentialed at the facility included the range of specialists listed in Palm Beach Regional's application. Integrated's roster of physician ranges from family practitioners to practitioners specializing in internal medicine, dermatology, neurology, and infectious disease control, to orthopedic specialists, physiatrists and psychiatrists, nearly the "full gamut" of specialties in medicine. Adverse Impact There will be adverse impact on Integrated if Palm Beach Regional's proposal is approved. The impact occurs as the result of a combination of significant overlap of services offered by Integrated and proposed for Palm Beach Regional and the likely loss of admissions to Integrated's subacute unit generated by patients discharged from JFK Hospital. JFK Hospital and Palm Beach Regional are each approximately 2 miles from Integrated. Approximately 85% of Integrated's subacute admissions come from JFK. A good estimate of how many patients JFK refers to Integrated's subacute unit on an annual basis is 460. It is reasonable to assume that many of these patients would be referred to Palm Beach Regional by its sister Columbia Hospital, JFK, if the application were approved. If only two-thirds of these patients were lost to Palm Beach Regional, using a conservative figure for contribution margin of $100 per patient day, the loss to Integrated would be about $1 million in contribution margin per year. Furthermore, if the application is approved, Integrated will also have to either raise salaries to keep qualified staff for ancillary staff or risk losing them because Palm Beach Regional proposes to offer ancillary staff salaries higher than those paid by Integrated. Certificate of Need Criteria The criteria to be used in evaluating the application are found in statutes, and in rules of the agency which implement these statutes. Section 408.035(1)Health Plans Neither the District 9 Treasure Coast Health Plan nor the State Health Plan contain any mention of long-term acute care beds. Both plans were written before there were any CON requirements for this type of bed. (b) Availability, Quality of Care, Efficiency,Appropriateness, Accessibility, Extent of Utilization and Adequacy of Like and Existing Services There is no agency rule regarding need determination for long-term acute care beds. Neither is long-term hospital care defined by agency rule as a referral service, one dependent upon other hospitals to refer patients. The service area for a referral hospital is larger than just one district. Patients are referred from districts 9 and 11 to the long-term care hospitals in District 10. This is certainly not surprising for patients in district 9 since there is no long- term hospital in the district and referrals are the common way for long-term hospitals to gain patients. Patients are referred from Districts 3, 5, 6 and 8 to the long-term care facility in Tampa. With the exception of the long-term care hospital in District 11 where the largest proportion of patients came from within the District 11, all of the long-term hospitals in the state, "had referrals from all over the place." (Tr. 288.) Palm Beach Regional itself proposes to serve patients from Districts 7 and 10. The reality is that long-term care hospitals are primarily referral hospitals. Nonetheless, since there is no agency rule defining long-term care hospitals as referral hospitals and since there is no agency rule defining the service area of a long-term care hospital, District 9 may be the appropriate service area for the health planning purposes of Palm Beach Regional's application. In order for the district to be the appropriate service area, however, the application must demonstrate that there is a need for a certain number of beds based on the data collected from District 9. Since there is no need methodology applicable to long- term care acute beds, Palm Beach Regional developed three different methodologies for the agency's consideration. The agency found the "components," (Tr. 910,) of the methodologies to be reasonable. Indeed, the agency never offered any other need methodology which it claimed was superior to those offered by the agency. Instead the agency criticizes the methodologies for failing to take into consideration the availability of like and existing services and alternative to the proposed services. Patients who will be served in the proposed facility are currently being served in either the short-term acute hospitals or skilled nursing facilities in nursing homes such as Integrated, both of which are less costly alternatives to this proposal. Palm Beach Regional anticipates referrals from other Columbia Hospitals in the districts; however, six of the eight Columbia Hospitals have skilled nursing units which propose to treat the same patients and conditions the applicant proposes to treat. Furthermore, at the time of hearing, five Columbia hospitals in the districts had 56 approved skilled nursing beds not then operational. Included among the 56 were the 12 skilled nursing unit beds transferred from Palm Beach Regional. Palm Beach Regional's presents arguments in favor of improved quality of care to the patient in need of care following stabilization of an acute episode. There is, however, no data to support a conclusion that outcomes are better in long-term care hospitals. As for the applicant’s ability and record to provide quality of care, there is little doubt. The testimony of Dr. Ron Luke as to the high quality of care to be provided by Palm Beach Regional was not challenged. The patients proposed to be served by the applicant are currently being served in hospitals, subacute units at nursing homes or hospitals, or in rehabilitation facilities. Some may even be in home health with high technology equipment. Transferring these patients to a long-term care facility has significant financial implications costly to the health care system. The 60 beds proposed in the application will, in all likelihood, be adequately utilized. In the case of long-term care hospitals, demand follows the supply because of the strong financial incentive to fill the beds. There is nothing to indicate, however, that acute care beds are not an alternative to long-term hospital beds. There are plenty of empty beds in acute care hospitals to be filled by patients who would be treated by the applicant. That these patients proposed to be treated by Palm Beach Regional might receive treatment, if the application is denied, in hospital-based skilled beds or, perhaps inappropriately at times, in nursing home skilled nursing units is not due to lack of alternatives. Rather, it is the product of financial pressure on the acute care hospitals to discharge patients from the acute setting. Effective utilization of at least 85 percent of cost- based services such as long-term services is an important consideration because fixed costs can be spread over more patient days, thereby decreasing the costs per patient day. The average utilization rate in Florida for long-term care beds is 66 percent. The most recent occupancy rate for Specialty Hospital is only 41 percent. The record of long-term care hospitals would indicate that the utilization projections by Palm Beach Regional are unreasonable. But, there was nothing established that indicated the three methodologies used by Dr. Luke were unreasonable in any way. Given that Palm Beach Regional will be able to draw patients from its sister Columbia acute care hospitals, all of whom will be anxious to provide patients to this long-term hospital, and given that long-term hospital care is a kind of care for which demand follows the supply, it is likely that utilization at Palm Beach Regional, if approved, will be strong. Despite the record of other long-term care hospitals, Palm Beach Regional’s utilization projections are reasonable. Need for Research and Educational Facilities There are no plans to provide research or education at this facility. Availability of Manpower, Management Personnel and Funds for Capital and Operating Expenditures The State Agency Action Report shows that the agency believes that there will be adequate levels of staffing available. The adequacy of the staffing levels was confirmed by the administrator of Specialty Hospital of Jacksonville. Palm Beach Regional will be able to adequately staff the hospital at the salary levels proposed in the application. Long-term acute care hospitals treat the very old. Since almost all of these people have Medicare coverage, economic access is not a problem for the individuals the applicant proposes to serve. The applicant has a 1% indigent commitment and a 5% projected Medicaid utilization. Geographic access is also served well by this facility. The facility is located where the population base of the elderly population is in District 9. Financial Feasibility The immediate financial feasibility of Palm Beach Regional is evident from its ability to open and operate for the first two years with a positive cash flow with a financing letter in the amount of $407,000 from Columbia. Palm Beach Regional, in its pro formas and the analysis underlying its pro formas concluded that it would be under the prospective payment system for six months before it could transer to a facility exempt from the prospective payment system. This conclusion is reasonable. Palm Beach Regional has two months to get the necessary certification changed prior to the end of its fiscal year. Palm Beach Regional will be able to institute the necessary six month evaluation, within CON constraints, when it chooses. Furthermore, Palm Beach Regional could change the end of its fiscal year so that the six-month time period could be accommodated. Finally, short-term financial feasibility was demonstrated by the pro forma which properly shows reimbursement levels for patients who were treated in the first six months, and who were discharged after the first six months. Under Medicare regulations, the hospital would be reimbursed on a cost basis for these patients. Palm Beach Regional projected an occupancy level of 85% in the first year of operation and 87% in the second year of operation. Neither Specialty Hospital of Jacksonville, the model for Palm Beach Regional, nor the other long-term care hospitals in Florida have occupancy levels that high. Comparison, however, is not valid. The long-term care hospitals that converted from acute care facilities converted their entire complement of beds which resulted in overbedding. In contrast, Palm Beach Regional seeks to convert only 60 of its 200 beds. The situation of Specialty is very different. It is a converted 105 bed facility which was in bankruptcy when it first started, limiting its ability to attract patients. Within its district, Specialty competes with Vencor of North Florida, a 60 bed facility. Not only does Palm Beach Regional not have any in-district competition, but it will benefit greatly from being a member of the Columbia system. Palm Beach Regional's application demonstrates financial feasibility, both immediate and long-term. Special Needs and Circumstances of HMOs Whether the facility provides an additional level in the continuum of care available to HMO patients is uncertain. It is not generally accepted that the level of care Palm Beach Regional argues it will provide, that is, a level between acute care and subacute care, even exists let alone whether such a level of care is necessary, cost-effective or the best means of treating patients. Needs and Circumstances of Entities Providing Substantial Portion of Services to Individuals Residing Outside the District There are no facilities in the district which provide a substantial portion of its service to individuals residing outside the district. Probable Impact on Costs of Providing Health Services Total property costs for Palm Beach Regional amount to $3.572 million per year, or approximately $250,000 per month. This includes depreciation, interest, insurance and all other property costs. Because Palm Beach Regional would enjoy cost- reimbursement from Medicare instead of being paid on the basis of the prospective payment system, Medicare would pay as much as $190 per patient day for simple property costs and not for patient care, if Palm Beach Regional's utilization projections prove true. Were Palm Beach Regional's utilization projections to turn out to be incorrect and Palm Beach Regional's occupancies were more in the range of other long-term care facilities, (50% the first year and 60% the second), the cost would be "into the $3-400 a day cost range for the cost of [the] ... property allocated per patient day, which would be picked up in their entirety or close to their entirety [by Medicare.]" (Tr. 782.) Either way, the high property costs of Palm Beach Regional would result, should the application be approved, in shifting a huge financial burden to Medicare. The result would be to "wind up costing the Federal government, the Medicare program, multiples of what it now cost[s] ... to treat those same patients in acute care hospitals." (Tr. 792). The Applicant's Past and Proposed Provision of Services to Medicaid and the Medically Indigent Palm Beach Regional projected a 5% Medicaid utilization but its commitment is to indigent care only and that being a mere 1%. The commitment to indigent care (as opposed to the projection for Medicaid care) is meager. Furthermore, Palm Beach Regional has little established pattern accepting patients in these payor classes. Given the savings to Columbia acute care hospitals which would feed patients to Palm Beach Regional, and ultimately, the profit to be enjoyed by the applicant, a commitment of 1% is lacking. That recognized, it must be said that the modesty of the commitment is consistent with the advantage Medicare's cost- reimbursement system provides long-term care hospitals. It is not to be expected that there will be many Medicaid or indigent patients utilizing long-term care hospitals. "The vast majority of the population utilizing the facility will be the elderly, virtually all of whom are covered by Medicare." (Palm Beach Regional's Proposed Recommended Order, p. 23, Tr. 339.) Still, a greater commitment, more along the lines of the commitment provided by St. Petersburg Health Care Management, Inc., with which Palm Beach Regional has drawn comparison, (See Findings of Fact, 123- 128, below,) would lend this criterion to favor the application rather than disfavor it. The Applicant's Past and Proposed Provision of Services Which Promotes a Continuum of Care There is no long-term hospital available in District 9. But whether that means Palm Beach Regional is adding a level to the continuum of care available for patients in the district is uncertain. There is no data to support the conclusion that long- term care hospitals provide a level of care between that of acute and subacute. Despite the earnestness with which Dr. Griffin and Dr. Williams hold their opinions to the contrary, their opinions are simply not yet accepted widely enough at this point to support such a conclusion. That Less Costly, More Efficient, or More Appropriate Alternatives to Such Inpatient Services are not Available Long-term care hospitals have existed for years by Act of Congress. "[W]hile there has been an active discussion of alternatives, so far they have not come up with one which has been moved into rule or legislation." (Tr. 421). Certainly keeping long-term care hospital patients covered by Medicare in acute care hospitals would be a less costly alternative. Whether caring for these patients in one facility or another is more cost-efficient, however, is unknown. At bottom, there is no determinative data on the issue of cost-efficiency. As for more appropriate alternatives, there is a group of long-term care hospital patients for whom it is less appropriate to be in a free-standing skilled nursing unit. But, the size of this group is uncertain. Certainly, from the point of view of care to the patient, it is at least equally appropriate for all long- term care patients to remain in acute care hospitals rather than be discharged to long-term care. Alternatives to New Construction As the result of renovations, the facility requires little capital to convert it to a 60 bed long-term care hospital. The capital outlay of $500,000 is an indication of how little actual construction is necessary to complete the project. Problems in Obtaining the Proposed Inpatient Care in the Absence of the Proposed New Service With the exception of inappropriately premature discharges of patients from the acute care hospital's acute care setting, there are beds available for appropriate care in the absence of approval of the application. There is an abundance of beds in acute care hospitals available to patients who might otherwise be discharged to the long-term care hospital. As for the patient for whom discharge from the acute care setting is appropriate who might be admitted to a long-term care hospital, there are available for inpatient care skilled nursing beds in one type of facility or another. Administrative Due Process Palm Beach Regional contends that it has been treated differently by the agency, without reasonable explanation, from St. Petersburg Health Care Management, Inc., a successful applicant for the conversion of a general acute care hospital to a long-term care hospital in another district. Initially approved by the agency, the "St. Petersburg" application, CON 8213, was not subjected to the scrutiny of a formal administrative hearing at the Division of Administrative Hearings. Nonetheless, in support of its claim of unfair treatment, portions of the St. Petersburg application and omissions response for Certificate of Need number 8213 were introduced into evidence by petitioner as well as the State Agency Action Report. There are similarities between the two applications. For example, both proposed conversion of underutilized facilities to long-term acute care beds, as well as reduction of the hospitals' complements of 200 acute care beds to 60 long-term care beds. But there are differences as well. The St. Petersburg commitment to indigent and Medicaid care is 500% of the commitment by Palm Beach Regional. St. Petersburg's commitment is a combined 5%: 2% to indigent and 3% to Medicaid. In contrast, Palm Beach Regional's commitment is 1%, to indigent care only. Palm Beach Regional stated in its application that "[p]atients classified as Medicaid payers are projected to equal 5.0% of total patient days in 1999, 2000, and 2001." Petitioner's Ex. No. 1, p. 79. As reasonable as this projection may be, it is just that: a projection, nothing more and a projection is a far cry from a commitment. There is another difference between the two applications. While the facilities from which Palm Beach Regional's application received letters of support were limited to Columbia's affiliated facilities, St. Petersburg received letters of support from three disproportionate share providers as well as numerous unaffiliated hospitals and nursing homes in the Pinellas and Pasco County areas. The difference is critical to an understanding of the likelihood that the facility will, in fact, meet its commitment to the historically underserved. As Ms. Elizabeth Dudek, Chief of the Certificate of Need and Budget Review Office at the Agency for Health Care Administration testified, "You have, in the case of having the support of all the disproportionate share providers ... more of an assurance that the historically underserved, the Medicaid and the indigent patients, will be served and get access to the service." (Tr. 902). Such an assurance is omitted unfortunately from Palm Regional’s application.
Recommendation ACCORDINGLY, it is recommended that the application of Palm Beach Regional to establish a long-term acute care hospital by delicensing 128 beds and converting 60 acute care beds to 60 long- term acute care beds be denied.DONE AND ORDERED this 24th day of March, 1997, in Tallahassee, Florida. DAVID MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 COPIES FURNISHED: Eric Tilton, Esquire Filed with the Clerk of the Division of Administrative Hearings this 24th day of March, 1997. Gustafson, Tilton & Henning, P.A. 204 South Monroe Street, Suite 200 Tallahassee, Florida 32301 Lesley Mendelson, Senior Attorney Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403 Thomas F. Panza, Esquire Seann M. Frazier, Esquire Panza, Maurer, Maynard & Neel, P.A. 3600 North Federal Highway Fort Lauderdale, Florida 33308 Sam Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403 Jerome W. Hoffman, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403
Findings Of Fact Background Petitioner, NME, Inc. d/b/a Seven Rivers Community Hospital, operates a Level II hospital facility on Highway 19, approximately six miles north of Crystal River in Citrus County, Florida. It is located in HRS District No. 3. The facility has been in operation since August, 1978. On November 12, 1982, petitioner filed an application with respondent, Department of Health and Rehabilitative Services, for a certificate of need to add fifteen acute care beds to its facility at a total cost of $37,231.34. The application was denied by respondent on February 28, 1983, on the following grounds: The major reason for denial is that the proposed project is not consistent with the Goals, Standards and Objectives of the HSP. There is an excess of 28 medical/surgical beds in Planning Area IV by 1987. Overall occupancy in the two county area averaged 71.2 percent in 1981. The addition of 122 beds at Lykes Memorial and Bayonet Point Hospital, Inc., should, in the foreseeable future, satisfy demand for beds in the area. The denial prompted the instant proceeding. The hospital is classified as a Level II facility and currently has 75 beds consisting of 67 medical 1/surgical beds and 8 intensive care unit/critical care unit (ICU/CCU) beds. It is accredited by the Joint Commission on Accreditation of Hospitals. The facility provides a wide range of services including a 24-hour emergency room, pharmacy, respiratory therapy department, laboratory with clinical and pathology sections, a radiology department with nuclear medicine, ultrasound, regular radiographic and flourscopic units, and a mobile CT scanner. However, it does not provide open heart surgery, radiation therapy, renal transplantation, or obstretic and pediatric services. The staff has specialists in the areas of opthalmology, cardiology, pulminology, gastroenterology and general and peripheral vascular surgery. A large majority of these services and resources are provided to people who live within HRS District No. 3. At the present time there are 206 existing or approved acute care beds licensed for operation in Citrus County. The only other licensed facility in the county Is Citrus Memorial Hospital in Inverness. It presently has 131 acute care beds. Planning Area IV, in which petitioner's facility lies, includes Citrus and Hernando Counties. The latter county has one existing hospital, Lykes Memorial Hospital, with 161 acute care beds, and one hospital approved for construction, HCA Health Services of Florida, Inc. HCA was recently authorized 96 acute care beds and expects to open a new facility in Spring Hill, Florida in 1986. Petitioner's Proposal Petitioner proposes to add fifteen beds by converting fifteen private rooms to semiprivate rooms. This can be done quickly and inexpensively since the rooms already have the appropriate square footage, lighting and electrical systems to accommodate the conversion. If the application is approved, the conversion project can be completed in about two weeks at a cost of only $37,231.34. The hospital has historically experienced seasonal fluctations in its patient occupancy rates. Typically, the large influx of winter visitors and residents has caused its occupancy rates to increase during the winter months while a tailing off has occurred between April and September. However, in 1983 this trend changed and the so-called traditional "slack period" occurred only in the months of May and July, when the occupancy rate fell below 75 percent. Indeed, during the first four months of 1983 the rate was in excess of 92 percent, which is well above the 80 percent optimum occupancy standard used by the Department. This in turn has caused long waiting periods in the emergency room by patients waiting for a bed and postponements by persons seeking to have elective surgery. Based upon historical annual growth patterns experienced during the years 1979 through 1983, which is the most current and representative data, petitioner expects to have an annual growth rate of almost 12 percent in patient days during the years 1984 through 1988. This in turn will create the need for 57 additional beds by the year 1988. Even if the potential loss of patient days caused by the opening of the new hospital in Spring Hill in 1986 is considered, petitioner will still need 46 additional beds by 1988. In this regard, it considers the 15 bed addition sought herein as an interim measure, and intends to file another application for additional beds in the near future. The granting of the application will alleviate the overcrowding conditions in an extremely cost-efficient manner. Proposed Department Rule 10-16.004 The Department has proposed a new Rule 10-16.004 which contains the Local Health Plan for HRS District 3. 2/ The rule was published in Volume 9, No. 22, Florida Administrative Weekly, page 1954. The proposed rule was developed by the local health council in District 3. The council has proposed to eliminate the five planning areas within District 3 and to establish in lieu thereof seven separate subdistricts. Under the new proposal, Citrus County would be the only county in Subdistrict 5. The rule projects a total acute care bed need of 260 beds in 1988 for the Subdistrict, or a net need of 54 beds over the present number licensed for operation in the County. The time for filing challenges to Rule 10-16.004 has expired and none have been filed. At the time of the hearing the rule was being revised as a result of the amendment (HRS). . .made, which arose out of testimony at the public hearings", and had not yet been filed with the Department of State. The extent and nature of such amendments, if any, were not disclosed. Department Objections As noted earlier, the basic reason for denial of the application was that the proposed project was not consistent with the Goals, Standards and Objectives of the Health Systems Plans (HSP). In its state agency action report issued on February 28, 1983, the Department reasoned that because there will be an excess of 28 medical/surgical beds in Planning Area IV (Citrus and Hernando Counties) by 1987, and overall occupancy in the two county area averaged only 71.2 percent in 1981, and new beds will be added at Lykes Memorial and HCA Services of Florida, Inc., the demand for beds in the area should be satisfied. As further clarified at the hearing, a Department representative indicated the reasons for denying the application included (a) a lack of need, (b) petitioner's failure to have a Medicaid contract, and (c) petitioner having exceeded certain "screens" of the Hospital Cost Containment Board for 1983 and 1984. However, the latter "problem" was attributable to a lower patient length of stay at Seven Rivers than at other hospitals reviewed by the Board, and for this reason the excesses were acceptable. The Department's principal concern as to the Medicaid issue was that NME, the parent corporation, had an alleged corporate policy of not taking Medicaid patients which is contrary to Department "goals". But petitioner has agreed to enter into a Medicaid provider contract if the application is approved in order to satisfy this objection. Moreover, during fiscal year 1983, the facility had direct patient write-offs of approximately $750,000 which represents uncompensated care to medically indigent individuals. This amount exceeded the level of care given to indigents by Citrus Memorial Hospital, a tax supported hospital in Citrus County, during the same period of time. Under the methodology contained in Rule 10-5.11(23), Florida Administrative Code, the Department determined there is a projected need for 24 additional acute care beds by the year 1988 in the entire District 3, which encompasses 16 counties. This is based upon a current total of 3,139 beds within the District and a projected total need of 3,163 beds by that date. The record is unclear as to how 20 beds at shands Teaching Hospital in Gainesville now devoted to special psychiatric care for children are classified. If they are classified as acute care, the actual net need for beds within the District is 44 since these beds should not be classified within that category. The Department has not allocated the bed shortage to any particular county or planning area. Therefore, there is no impediment to assigning a portion of that total to Citrus County. This is especially appropriate in light of petitioner's occupancy rates, the overcrowding which has recently occurred, and the cost efficient manner in which the addition will be completed.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of NME Hospitals, Inc., d/b/a Seven Rivers Community Hospital for a certificate of need to add fifteen acute care beds to its hospital in Citrus County, Florida, be GRANTED. DONE and ENTERED this 21st day of October, 1983, in Tallahassee, Florida. DONALD R. ALEXANDER 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 21st day of October, 1983. COPIES FURNISHED: C. Gary Williams, Esquire and Michael J. Glazer, Esquire O. Box 391 Tallahassee, Florida 32301 Jay Adams, Esquire Building One, Room 406 1323 Winewood Boulevard Tallahassee, Florida 32301 David H. Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301 Alicia Jacobs, Esquire General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301 =================================================================
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 Kindred Hospitals East, LLC ("Kindred") and Select Specialty Hospital-Palm Beach, Inc. ("Select-Palm Beach"), filed applications for Certificates of Need ("CONs") with the Agency for Health Care Administration ("AHCA" or the "Agency") seeking approval for the establishment of long-term care hospitals ("LTCHs") in Palm Beach County, AHCA District 9. Select-Palm Beach's application, CON No. 9661, seeks approval for the establishment of a 60-bed freestanding LTCH in "east central" Palm Beach County about 20 miles south of Kindred's planned location. Kindred's application, CON No. 9662, seeks approval for the establishment of a 70-bed LTCH in the "north central" portion of the county. The ultimate issue in this case is whether either or both applications should be approved by the Agency.
Findings Of Fact Long Term Care Hospitals Of the four classes of facilities licensed as hospitals by the Agency, "Class I or general hospitals," includes: General acute care hospitals with an average length of stay of 25 days or less for all beds; Long term care hospitals, which meet the provisions of subsection 59A-3.065(27), F.A.C.; and, Rural hospitals designated under Section 395, Part III, F.S. Fla. Admin. Code R. 59A-3.252(1)(a). This proceeding concerns CON applications for the second of Florida's Class I or general hospitals: LTCHs. A critically ill patient may be admitted and treated in a general acute care hospital, but, if the patient cannot be stabilized or discharged to a lower level of care on the continuum of care within a relatively short time, the patient may be discharged to an LTCH. An LTCH patient is almost always "critically catastrophically ill or ha[s] been." (Tr. 23). Typically, an LTCH patient is medically unstable, requires extensive nursing care with physician oversight, and often requires extensive technological support. The LTCH patient usually fits into one or more of four categories. One category is patients in need of pulmonary/respiratory services. Usually ventilator dependent, these types of LTCH patients have other needs as well that requires "complex comprehensive ventilator weaning in addition to meeting ... other needs." (Tr. 26). A second category is patients in need of wound care whose wound is life-threatening. Frequently compromised by inadequate nutrition, these types of LTCH patients are often diabetic. There are a number of typical factors that may account for the seriousness of the wound patient's condition. The job of the staff at the LTCH in such a case is to attend to the wound and all the other medical problems of the patient that have extended the time required for care of the wound. A third category is patients with some sort of neuro-trauma. These patients may have had a stroke and are often elderly; if younger, they may be victims of a car accident or some other serious trauma. They typically have multiple body systems that require medical treatment, broken bones and a closed head injury for example, that have made them "very sick and complex." (Tr. 27). The fourth category is referred to by the broad nomenclature of "medically complex" although it is a subset of the population of LTCH patients all of whom are medically complex. The condition of the patients in this fourth category involves two or more body systems. The patients usually present at the LTCH with "renal failure ... [and] with another medical condition ... that requires a ventilator ..." Id. In short, LTCHs provide extended medical and rehabilitative care to patients with multiple, chronic, and/or clinically complex acute medical conditions that usually require care for a relatively extended period of time. To meet the definition of an LTCH a facility must have an average length of inpatient stay ("ALOS") greater than 25 days for all hospital beds. See Fla. Admin. Code R. 59A-3.065(34). The staffs at general acute care hospitals and LTCHs have different orientations. With a staff oriented toward a patient population with a much shorter ALOS, the general acute care hospital setting may not be appropriate for a patient who qualifies for LTCH services. The staff at a general acute care hospital frequently judges success by a patient getting well in a relatively short time. It is often difficult for general acute care hospital staff to sustain the interest and effort necessary to serve the LTCH patient well precisely because of the staff's expectation that the patient will improve is not met in a timely fashion. As time goes by, that expectation continues to be frustrated, a discouragement to staff. The LTCH is unlike other specialized health care settings. The complex, medical, nursing, and therapeutic requirements necessary to serve the LTCH patient may be beyond the capability of the traditional comprehensive medical rehabilitation ("CMR") hospital, nursing home, skilled nursing facility ("SNF"), or, the skilled nursing unit ("SNU"). CMR units and hospitals are rarely, if ever, appropriate for the LTCH patient. Almost invariably, LTCH patients are not able to tolerate the minimum three (3) hours of therapy per day associated with CMR. The primary focus of LTCHs, moreover, is to provide continued acute medical treatment to the patient that may not yet be stable, with the ultimate goal of getting the patient on the road to recovery. In comparison, the CMR hospital treats medically stable patients consistent with its primary focus of restoring functional capabilities, a more advanced step in the continuum of care. Services provided in LTCHs are distinct from those provided in SNFs or SNUs. The latter are not oriented generally to patients who need daily physician visits or the intense nursing services or observations needed by an LTCH patient. Most nursing and clinical personnel in SNFs and SNUs are not experienced with the unique psychosocial needs of long-term acute care patients and their families. An LTCH is distinguished within the healthcare continuum by the high level of care the patient requires, the interdisciplinary treatment model it follows, and the duration of the patient's hospitalization. Within the continuum of care, LTCHs occupy a niche between traditional acute care hospitals that provide initial hospitalization care on a short-term basis and post-acute care facilities such as nursing homes, SNFs, SNUs, and comprehensive medical rehabilitation facilities. Medicare has long recognized LTCHs as a distinct level of care within the health care continuum. The federal government's prospective payment system ("PPS") now treats the LTCH level of service as distinct with its "own DRG system and ... [its] own case rate reimbursement." (Tr. 108). Under the LTCH PPS, each patient is assigned an LTC- DRG (different than the DRG under the general hospital DRG system) with a corresponding payment rate that is weighted based on the patient diagnosis and acuity. The Parties The Agency is the state agency responsible for administering the CON Program and licensing LTCHs and other hospital facilities pursuant to the authority of Health Facility and Services Development Act, Sections 408.031-408.045, Florida Statutes. Select-Palm Beach is the applicant for a free-standing 60-bed LTCH in "east Central Palm Beach County," Select Ex. 1, stamped page 12, near JFK Medical Center in AHCA District 9. Its application, CON No. 9661, was denied by the Agency. Select-Palm Beach is a wholly owned subsidiary of Select Medical Corporation, which provides long term acute care services at 83 LTCHs in 24 states, four of which are freestanding hospitals. The other 79 are each "hospitals-in-a- hospital" ("HIH" or "LTCH HIH"). Kindred is the applicant for a 70-bed LTCH to be located in the north central portion of Palm Beach County in AHCA District 9. Its application, CON No. 9662, was denied by the Agency. Kindred is a wholly owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 73 LTCHs, 59 of which are freestanding, according to the testimony of Mr. Novak. See Tr. 56-57. Kindred Healthcare has been operating LTCHs since 1985 and has operated them in Florida for more than 15 years. At the time of the submission of Kindred's application, Kindred Healthcare's six LTCHs in Florida were Kindred-North Florida, a 60-bed LTCH in Pinellas County, AHCA District 5; Kindred-Central Tampa, with 102 beds, and Kindred-Bay Area- Tampa, with 73 beds, both in Hillsborough County, in AHCA District 6; Kindred-Ft. Lauderdale with 64 beds and Kindred- Hollywood with 124 beds, both in Broward County, ACHA District 10; and Kindred-Coral Gables, with 53 beds, in Dade County, AHCA District 11. The Applications and AHCA's Review The applications were submitted in the first application cycle of 2003. Select-Palm Beach's application is CON No. 9661; Kindred's is CON No. 9662. Select-Palm Beach estimates its total project costs to be $12,856,139. Select-Palm Beach has not yet acquired the site for its proposed LTCH, but did include in its application a map showing three priority site locations, with its preferred site, designated "Site 1," located near JFK Medical Center. At $12,937,419, Kindred's estimate of its project cost is slightly more than Select-Palm Beach's. The exact site of Kindred's proposed LTCH had not been determined at the time of hearing. Kindred's preference, however, is to locate in the West Palm Beach area in the general vicinity of St. Mary's Hospital, in the northern portion of Palm Beach County along the I-95 corridor. This is approximately 15 to 20 miles north of Select's preferred location for its LTCH. There is no LTCH in the five-county service area that comprises District 9: Indian River, Okeechobee, St. Lucie, Martin, and Palm Beach Counties. There are two LTCHs in adjacent District 10 (to the south). They have a total of 188 beds and an average occupancy of 80 percent. The Agency views LTCH care as a district-wide service primarily for Medicare patients. At the time of the filing of the applications, the population in District 9 was over 1.6 million, including about 400,000 in the age cohort 65 and over. About 70 percent of the District 9 population lives in Palm Beach County. More than 70 percent of the District's general acute care hospitals are located in that county. Kindred's preferred location for its LTCH is approximately 40 to 50 miles from the closest District 10 LTCH; Select-Palm Beach is approximately 25 to 35 miles from the closest District 10 LTCH. The locations of Select Palm-Beach's and Kindred's proposed LTCHs are complementary. The SAAR Following its review of the two applications, AHCA issued its State Agency Action Report ("SAAR"). Section G., of the report, entitled "RECOMMENDATION," states: "Deny Con #9661 and CON #9662." Agency Ex. 2, p. 43. On June 11, 2003, the report was signed by Karen Rivera, Health Services and Facilities Consultant Supervisor Certificate of Need, and Mr. Gregg as the Chief of the Bureau of Health Facility Regulation. It contained a section entitled "Authorization for Agency Action" that states, "[a]uthorized representatives of the Agency for Health Care Administration adopted the recommendations contained herein and released the State Agency Action Report." Agency Ex. 2, p. 44. The adoption of the recommendations is the functional equivalent of preliminary denial of the applications. In Section F. of the SAAR under the heading of "Need," (Agency Ex. 2, p. 40), the Agency explained its primary bases for denial; it concluded that the applicants had not shown need for an LTCH in AHCA District 9. The discussions for the two, although not precisely identical, are quite similar: Select Specialty Hospital-Palm Beach, Inc.(CON #9661): The applicant's two methodological approaches to demonstrate need are not supported by any specific discharge studies or other data, including DRG admission criteria from area hospitals regarding potential need. The applicant also failed to provide any supporting documentation from area physicians or other providers regarding potential referrals. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Kindred Hospitals East, L.L.C. (CON #9662): The various methodological approaches presented are not supported by any specific DRG admission criteria from area hospitals suggesting potential need. The applicant provided numerous letters of support for the project from area hospitals, physicians and case managers. However, the number of potential referrals of patients needing LTCH services was not quantified. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Id. At hearing, the Agency's witness professed no disagreement with the SAAR and continued to maintain the same bases contained in the SAAR for the denials of the two applications The SAAR took no issue with either applicant's ability to provide quality care. It concluded that funding for each applicant was likely to be available and that each project appeared to be financially feasible once operating. The SAAR further stated that there were no major architectural concerns regarding Kindred's proposed facility design, but noted reservations regarding the need for further study and revision of Select Palm-Beach's proposed surgery/procedure wing, as well as cost uncertainties for Select Palm Beach because of such potential revisions. By the time of final hearing, however, the parties had stipulated to the reasonableness of each applicant's proposed costs and methods of construction. The parties stipulated to the satisfaction of a number of the statutory CON criteria by the two applicants. The parties agreed that the applications complied with the content and review process requirements of sections 408.037 and 409.039, Florida Statutes, with one exception. Select reserved the issue of the lack of a Year 2 of Schedule 6, (Staffing) in Kindred's application. The form of Schedule 6 provided by AHCA to Kindred (unlike other schedules of the application) does not clearly indicate that a second year of staffing data must be provided. The remainder of the criteria stipulated and the positions of the parties as articulated in testimony at hearing and in the proposed orders that were submitted leave need as the sole issue of consequence with one exception: whether Kindred has demonstrated that its project is financially feasible in the long term. Kindred's Long Term Financial Feasibility Select-Palm Beach contends that Kindred's project is not financially feasible in the long term for two reasons. They relate to Kindred's application and are stated in Select Palm Beach's proposed order: Kindred understated property taxes[;] Kindred completely fails to include in its expenses on Schedule 8, patient medical assistance trust fund (PMATF) taxes [citation omitted]. Proposed Recommended Order of Select-Palm Beach, Inc., p. 32, Finding of Fact 97. Raised after the proceeding began at DOAH by Select- Palm Beach, these two issues were not considered by AHCA when it conducted its review of Kindred's application because the issues were not apparent from the face of the application. AHCA's Review of Kindred's Application Kindred emerged from a Chapter 11 bankruptcy proceedings on April 20, 2001, under a plan of reorganization. With respect to the events that led to the bankruptcy proceeding and the need to review prior financial statements, AHCA made the following finding in the SAAR: Under the plan [of reorganization], the applicant [Kindred] adopted the fresh start accounting provision of SOP 90-7. Under fresh start accounting, a new reporting entity is created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values. Accordingly, the prior period financial statements are not comparable to the current period statements and will not be considered in this analysis. Agency Ex. 2, p. 30. The financial statements provided by Kindred as part of its application show that Kindred Healthcare, Kindred's parent, is a financially strong company. The information contained in Kindred's CON application filed in 2003 included Kindred Healthcare's financial statements from the preceding calendar year. Kindred Healthcare's Consolidated Statement of Operations for the year ended December 31, 2002, showed "Income from Operations" to be more than $33 million, and net cash provided by operating activities (cash flow) of over $248 million for the period. Its Consolidated Balance Sheet as of December 31, 2002, showed cash and cash equivalents of over $244 million and total assets of over $1.6 billion. In light of the information contained in Kindred's CON application, the SAAR concluded with regard to short term financial feasibility: Based on the audited financial statements of the applicant, cash on hand and cash flows, if they continue at the current level, would be sufficient to fund this project as proposed. Funding for all capital projects, with the support of its parent, is likely to be available as needed. Agency Ex. 2, p. 30 (emphasis supplied). The SAAR recognized that Kindred projected a "year two operating loss for the hospital of $287,215." Agency Ex. 2, p. Nonetheless, the SAAR concludes on the issue of financial feasibility, "[w]ith continued operational support from the parent company, this project [Kindred's] is considered financially feasible." Id. The Agency did not have the information, however, at the time it reviewed Kindred's application that Kindred understated property taxes and omitted the Public Medicaid Trust Fund and Medical Assistance Trust Fund ("PMATF") "provider tax" of 1.5 percent that would be imposed on Kindred's anticipated revenues of $11,635,919 as contended by Select-Palm Beach. Consistent with Select Palm-Beach's general contentions about property taxes and PMATF taxes, "Kindred acknowledges that it likely understated taxes to be incurred in the operation of its facility." Kindred's Proposed Recommended Order, paragraph 50, p. 19. The parties agree, moreover, that the omitted PMATF tax is reasonably projected to be $175,000. They do not agree, however, as to the impact of the PMATF tax on year two operating loss. The difference between the two (approximately $43,000) is attributable to a corporate income tax benefit deduction claimed by Kindred so that the combination of the application's projected loss, the omitted PMATF tax, and the deduction yields a year two operating loss of approximately $419,000. Without taking into consideration the income tax benefit, Select-Palm Beach contends that adding in the PMATF tax produces a loss of $462,000. Kindred and Select-Palm Beach also disagree over the projection of property taxes by approximately $50,000. Kindred projects that the property taxes in year two of operation will be approximately $225,000 instead of the $49,400 listed in the application. Select-Palm Beach projects that they will be $50,000 higher at approximately $275,000. Whether Kindred's or Select-Palm Beach's figures are right, Kindred makes two points. First, if year two revenues and expenses, adjusted for underestimated and omitted taxes, are examined on a quarterly basis, the fourth quarter of year two has a better bottom line than the earlier quarters. Not only will the fourth quarter bottom line be better, but, using Kindred's figures, the fourth quarter of year two of operations is profitable. Second, and most importantly given the Agency's willingness to credit Kindred with financial support from its parent, Kindred's application included in its application an interest figure of $1.2 million for year one of operation and $1.03 million for year two. Kindred claims in its proposed recommended order that "[i]n reality ... this project will incur no interest expense as Kindred intends to fund the project out of cash on hand, or operating capital, and would not have to borrow money to construct the project." Id., at paragraph 54, p. 20. Through the testimony of John Grant, Director of Planning and Development for Kindred's parent, Kindred Healthcare, Kindred indicated at hearing that its parent might, indeed, fund the project: A ... Kindred [Healthcare] would likely fund this project out of operating capital. Like I said, in the first nine months of this year Kindred had operating cash flow of approximately $180 million. So it's not as if we would have to actually borrow money to complete a project like this. Q And what was the interest expense that you had budgeted in Year Two for this facility? A $1,032,000. Q ... so is it your statement then that this facility would not owe any interest back to the parent company? A That's correct. Tr. 221-222 (emphasis supplied). If the "financing interest" expense is excluded from Kindred's statement of projected expenses in Schedule 8 of the CON application, using Kindred's revised projections, the project shows a profit of approximately $612,0002 for the second year of operation. If Select-Palm Beach's figures and bottom line loss excludes the "finances interest" expense, the elimination of the expense yields of profit for year two of operations in excess of $500,000. If the support of Kindred's parent is considered as the Agency has signaled its willingness to do and provided that the project is, in fact, funded by Kindred Healthcare rather than financed through some other means that would cause Kindred to incur interest expense, Kindred's project is financially feasible in the long term. With the exception of the issue regarding Kindred's long term financial feasibility, as stated above, taken together, the stipulation and agreements of the parties, the Agency's preliminary review contained in the SAAR, and the evidence at hearing, all distill the issues in this case to one overarching issue left to be resolved by this Recommended Order: need for long term care hospital beds in District 9. Need for the Proposals From AHCA's perspective prior to the hearing, the only issue in dispute with respect to the two applications is need. This point was made clear by Mr. Gregg's testimony at hearing in answer to a question posed by counsel for Select-Palm Beach: Q. ... Assuming there was sufficient need for 130 beds in the district is there any reason why both applicants shouldn't be approved in this case, assuming that need? A. No. (Tr. 398). Both applicants contend that the application each submitted is superior to the other. Neither, however, at this point in the proceeding, has any objection to approval of the other application provided its own application is approved. Consistent with its position that both applications may be approved, Select-Palm Beach presented testimony through its health care planner Patricia Greenberg3 that there was need in District 9 for both applicants' projects. Her testimony, moreover, rehabilitated the single Kindred methodology of three that yielded numeric need less than the 130 beds proposed by both applications: Q ... you do believe that there is a need for both in the district. A I believe there's a need for two facilities in the district. Q It could support two facilities? A Oh, absolutely. Q And the disagreement primarily relates to the conservative approach of Kindred in terms of not factoring in out-migration and the narrowing the DRG categories? A Correct. ... Kindred actually had three models. Two of them support both facilities, but it's the GMLOS model that I typically rely on, and it didn't on the surface support both facilities. That's why I reconciled the two, and I believe that's the difference, is just the 50 DRGs and not including the out-migration. That would boost their need above the 130, and two facilities would give people alternatives, it would foster competition, and it would really improve access in that market. Tr. 150-51. Need for the applications, therefore, is the paramount issue in this case. Since both applicants are qualified to operate an LTCH in Florida, if need is proven for the 130 beds, then with the exception of Kindred's long term financial feasibility, all parties agree that there is no further issue: both applications should be granted. No Agency Numeric Need Methodology The Agency has not established a numeric need methodology for LTCH services. Consequently, it does not publish a fixed-need pool for LTCHs. Nor does the Agency have "any policy upon which to determine need for the proposed beds or service." See Fla. Admin. Code R. 59C-1.008(2)(e)1. Florida Administrative Code Rule 59C-1.008(2), which governs "Fixed Need Pools" (the "Fixed Need Pools Rule") states that if "no agency policy exist" with regard to a needs assessment methodology: [T]he applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. Fla. Admin. Code R. 59C-1.008(2)(e)2. The Fixed Need Pools Rule goes on to elaborate in subparagraph (e)3 that "[t]he existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area." Population, Demographics and Dynamics The first of the four topics to be addressed when an applicant is responsible for demonstrating need through a needs assessment methodology is "population, demographics and dynamics." The Agency has not defined service areas for LTCHs. Nonetheless, from a health planning perspective, it views LTCH services as being provided district-wide primarily for Medicare patients. Consistent with the Agency's view, Select-Palm Beach identified the entire district, that is, all of AHCA District 9, as its service area. It identified Palm Beach County, one of the five counties in AHCA District 9, as its primary service area. In identifying the service area for Select-Palm Beach, Ms. Greenberg drew data from various sources: population estimates for Palm Beach County and surrounding areas; the number of acute care hospital beds in the area; the number of LTCH beds in the area; the types of patients treated at acute care hospitals; and the lengths of stay of the patients treated at those hospitals. AHCA District 9 has more elderly than any other district in the State, and Palm Beach County has more than any other county except for Dade. Palm Beach County residents comprise 71% of the District 9 population. It is reasonably projected that the elderly population (the "65 and over" age cohort) in Palm Beach County is projected to grow at the rate of 8 percent by 2008. The "65 and over" age cohort is significant because the members of that cohort are most likely to utilize hospital services, including LTCH services. Its members are most likely to suffer complications from illness and surgical procedures and more likely to have co-morbidity conditions that require long- term acute care. Persons over 65 years of age comprise approximately 80 percent of the patient population of LTCH facilities. Both Select-Palm Beach and Kindred project that approximately 80 percent of their admissions will come from Medicare patients. Since 90 percent of admissions to an LTCH come from acute care facilities, most of the patient days expected at Select-Palm Beach's proposed LTCH will originate from residents in its primary service area, Palm Beach County. When looking at the migration pattern for patients at acute care facilities within Palm Beach County, the majority (90 percent) come from Palm Beach County residents. Thus, Select- Palm Beach's projected primary service area is reasonable. Just as Select-Palm Beach, Kindred proposes to serve the entire District. Kindred proposes that its facility be based in Palm Beach County because of the percentage of the district's population in the county as well as because more than 70% of the district's general acute care hospitals are in the county. Its selection of the District as its service area, consistent with the Agency's view, is reasonable. Currently there are no LTCHs in District 9. Availability, Utilization and Quality of Like Services The second topic is "availability, utilization and quality of like services." There are no "like" services available to District residents in the District. Select-Palm Beach and Kindred, therefore, contend that they meet the criteria of the second topic. There are like services in other AHCA Districts. For example, AHCA District 10 has at total of 188 beds at two Kindred facilities in Fort Lauderdale and Hollywood. The Agency, however, did not present evidence of their quality, that they were available or to what extent they are utilized by the residents of AHCA District 9. Medical Treatment Trends The third topic is medical treatment trends. Caring for patients with chronic and long term care needs is becoming increasingly more important as the population ages and as medical technology continues to emerge that prolongs life expectancies. Through treatment provided the medically complex and critically ill with state of the art mechanical ventilators, metabolic analyzers, and breathing monitors, LTCHs meet needs beyond the capability of the typical general acute care hospitals. In this way, LTCHs fill a niche in the continuum of care that addresses the needs of a small but growing patient population. Treatment for these patients in an LTCH, who otherwise would be cared for without adequate reimbursement to the general acute care hospital or moved to an alternative setting with staff and services inadequate to meet their needs, is a medical trend. Market Conditions The fourth topic to be addressed by the applicant is market conditions. The federal government's development of a distinctive prospective payment system for LTCHs (LTC-DRG), has created a market condition favorable to LTCHs. General acute care hospitals face substantial losses for the medically complex patient who uses far greater resources than expected on the basis of individual diagnoses. Medicare covers between 80 and 85 percent of LTCH patients. The remaining patients are covered by private insurance, managed care and Medicaid. LTCH programs allow for shorter lengths of stay in a general acute care facility, reduces re-admissions and provide more discharges to home. These benefits are increasingly recognized. Numeric Need Analysis Kindred presented a set of needs assessment methodologies that yielded numeric need for the beds applied for by Kindred. Select-Palm Beach did the same. Unlike Kindred, however, all of the needs assessment methodologies presented by Select-Palm Beach demonstrated numeric need in excess of the 130 beds proposed by both applications. Select-Palm Beach's methodologies, overall, are superior to Kindred's. Select-Palm Beach used two sets of needs assessment methodologies and sensitivity testing of one of the sets that confirmed the methodology's reasonableness. The two sets or needs assessment methodologies are: (1) a use rate methodology and (2) length of stay methodologies. The use rate methodology yielded projected bed need for Palm Beach County alone in excess of the 130 beds proposed by the two applicants. For the year "7/05 - 6/06" the bed need is projected to be 256; for the year "7/06 - 6/07" the bed need is projected to be 261; and, for the year "7/07 - 6/08" the bed need is projected to be 266. See Select Ex. 1, Bates Stamp p. 000036 and the testimony of Ms. Greenberg at tr. 114. If the use rate analysis had been re-computed to include two districts whose data was excluded from the analysis, the bed need yielded for Palm Beach County alone was 175 beds, a numeric need still in excess of the 130 beds proposed by both applicants. The use rate methodology is reasonable.4 The length of stay methodologies are also reasonable. These two methodologies also yielded numeric need for beds in excess of the 130 beds proposed. The two methodologies yielded need for 167 beds and 250 beds. Agency Denial The Agency's general concerns about LTCHs are not without basis. For many years, there were almost no LTCH CON applications filed with the Agency. A change occurred in 2002. The change in the LTCH environment in the last few years put AHCA in the position of having "to adapt to a rapidly changing situation in terms of [Agency] understanding of what has been going on in recent years with long-term care hospitals." (Tr. 358.) "... [I]n the last couple of years long-term care hospital applications have become [AHCA's] most common type of application." (Tr. 359.) At the time of the upsurge in applications, there was "virtually nothing ... in the academic literature about long- term care hospitals ... that could [provide] ... an understanding of what was going on ... [nor was there anything] in the peer reviewed literature that addressed long-term care hospitals" id., and the health care planning issues that affected them. Two MedPAC reports came out, one in 2003 and another in 2004. The 2003 report conveyed the information that the federal government was unable to identify patients appropriate for LTCH services, services that are overwhelmingly Medicare funded, because of overlap of LTCH services with other types of services. The 2004 report gave an account of the federal government decision to change its payment policy for a type of long-term care hospitals that are known as "hospitals-within- hospitals" (tr. 368) so that "hospitals within hospitals as of this past summer [2004] can now only treat 25 percent of their patients from the host hospital." Id. Both reports roused concerns for AHCA. First, if appropriate LTCH patients cannot be identified and other types of services overlap appropriately with LTCH services, AHCA cannot produce a valid needs assessment methodology. The second produces another concern. In the words of Mr. Gregg, The problem ... with oversupply of long-term care hospital beds is that it creates an incentive for providers to seek patient who are less appropriate for the service. What we know now is that only the sickest patient ... with the most severe conditions are truly appropriate for long-term care hospital placement. * * * ... [T]he MedPAC report most recently shows us that the greatest indicator of utilization of long-term care hospital services is the mere availability of those services. Tr. 368-369. The MedPAC reports, themselves, although marked for identification, were not admitted into evidence. Objections to their admission (in particular, Kindred's) were sustained because they had not been listed by AHCA on the stipulation required by the Pre-hearing Order of Instructions.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be issued by the Agency for Health Care Administration that: approves Select-Palm Beach's application, CON 9661; and approves Kindred's application CON 9662 with the condition that financing of the project be provided by Kindred Healthcare. DONE AND ENTERED this 18th day of April, 2005, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 18th day of April, 2005.
The Issue The issue in this case is whether the Agency for Health Care Administration (AHCA) should grant the application of Wuesthoff Memorial Hospital, Inc. (WUESTHOFF), for a Certificate of Need (CON) (CON 8597) to establish a new 50-bed general acute care hospital in South Brevard County, District 7.
Findings Of Fact WUESTHOFF is a 303-bed, acute care hospital in Brevard County, Florida. In addition to its hospital, WUESTHOFF has three home health locations, eight or nine walk-in clinics, a hospice, a durable medical equipment business, an ambulatory surgery center, two freestanding diagnostic centers, and outpatient labs throughout Brevard County. HRMC is a JCAHO accredited, 528-bed, regional, not-for- profit community hospital based in Melbourne, Brevard County, Florida. HRMC is comprised of two acute care campuses: a 468- bed tertiary hospital in Melbourne, and a 60-bed, general acute care hospital in Palm Bay. The Melbourne campus operates a 10-bed, Level II, neonatal, intensive care unit, and 428 general medical and pediatric beds. The Proposed Project WUESTHOFF chose to establish a satellite hospital complex in South Brevard County by applying separately for: (1) a certificate of need (CON) to decertify and de-license 100 general acute care hospital beds and undertake certain renovations and improvements at its existing Rockledge hospital facility; (2) a CON for a medical office building (MOB); (3) a non-reviewability letter for a $35 million diagnostic and treatment center (DTC), which would provide all of the ancillary services for the new satellite hospital; and (4) the CON to establish the 50-bed hospital (CON 8597) which is at issue in this case. In CON 8597, WUESTHOFF has asked AHCA to treat the $35 million DTC as the “sunk” costs of an existing facility, and to review the CON application at issue in this case incrementally— i.e., as consisting of only the inpatient tower and the additional ancillary activities that would take place at the complex, over and above those that would take place at the DTC without the inpatient tower. Viewing CON 8597 in this way, WUESTHOFF presented total project costs of only $13 million. In preparing the financial schedules for CON 8597, WUESTHOFF presented the revenues and expenses of the entire hospital operation (including the DTC), except for the additional activities (inpatient and ancillary) that would result from the addition of the inpatient tower, and the revenues and expenses of the entire hospital operation, including the additional activities (inpatient and ancillary) that would result from the addition of the inpatient tower. By presenting the financial schedules in this manner, WUESTHOFF never presented the revenues and expenses of the entirety of the new satellite hospital it is proposing to establish, and AHCA has not had the opportunity to review those revenues and expenses. WUESTHOFF planned to build the MOB, the DTC and the inpatient tower in one continual course of construction and to open the entire complex at the same time; the complex, when completed, was planned to function as a single, integrated hospital facility. AHCA granted the first three applications comprising WUESTHOFF’s project but denied CON 8597. In a subsequent batch, WUESTHOFF filed a letter of intent for a single CON application that the combined the DTC and inpatient tower projects at a total cost of approximately $50,000,000. Need In Relation To State And District Health Plans: Section 408.035(1)(a) Florida Statutes State Health Plan The first State Health Plan preference favors applicants who demonstrate that the subdistrict occupancy rate is at or exceeds 75 percent, or in the case of existing facilities, where the occupancy rate for the most recent 12 months is at or exceeds 85 percent. WUESTHOFF failed to meet this preference. For the applicable period, the subdistrict occupancy was approximately 53 percent; however, more recent data shows that occupancy is below 53 percent, which suggests a continuing decline in inpatient occupancy rates in the subdistrict. During the applicable period, the occupancy rate at WUESTHOFF’s Rockledge facility was only slightly more than 45 percent. The second State Health Plan preference favors an applicant with a history of providing a disproportionate share of the subdistrict’s acute care and Medicaid patient days, and further meets the Medicaid disproportionate share hospital criteria. WUESTHOFF failed to meet this preference, as it is not a disproportionate share provider. The third State Health Plan preference favors an applicant that provides or proposes to provide disproportionate share of Medicaid and charity care patient days in relation to other hospitals within the district or subdistrict. WUESTHOFF’s existing facility is not a disproportionate share hospital. (Although WUESTHOFF’s CON application proposes to condition award of the CON setting aside 15 percent of its discharges for Medicaid, charity, and indigent patients, its application does not provide percentages for each category.) The fourth State Health Plan preference considers the current and projected indigent inpatient case load, the proposed facility size, and the case and service mix, WUESTHOFF’s application partially complies with the preference in that it proposes to provide some indigent care. The fifth State Health Plan preference favors proposals that would not negatively affect the financial viability of an existing, disproportionate share hospital. This preference is not applicable in this case. The sixth State Health Plan preference favors applicants with a record of accepting indigent patients for emergency care. WUESTHOFF meets this preference. The seventh State Health Plan preference favors applicants for any type of hospital project if the facility is verified as a trauma center. WUESTHOFF does not meet this preference. WUESTHOFF claims that it operate the emergency room at the proposed facility with “the same level of services as WUESTHOFF’s existing emergency room.” WUESTHOFF does not currently operate a Level II trauma center at its Rockledge campus. The eighth State Health Plan preference favors applicants who can document that they provide a full range of emergency services. WUESTHOFF’s Rockledge facility offers a range of emergency services, but the emergency department at the proposed facility will necessarily offer a limited range of services, as the proposed facility will not be a tertiary care hospital, and emergency patients in need of those services will have to be transferred. The ninth State Health Plan preference favors applicants who can document that it has not been fined by HRS for any violation of the emergency services statutes. WUESTHOFF meets this preference. Local Health Plan Preferences The District 7 Local Health Plan sets forth five preferences to be used in evaluating CON applications for the transfer/relocation/delicensure of acute care beds. The health plan provides that “[p]reference shall be given to applications for transfer of existing acute care beds, delicensure/conversion of existing acute care beds and/or relocation of an entire facility if the applicant can provide substantial documentation of: The need for acute care beds or specialty beds in the service area proposed to receive the beds. Need should address specific populations, access consideration, etc. The impact of the proposed project on the parent facility including projected occupancy declines, curtailing of service effect on operating cost, use of vacated space at the main campus and charge changes. The proposed service improving access by at least 25 minutes to at least 10 percent of the population or a minimum of at least 35,000 people. This should be substantiated by analyses of patient origin to existing providers, physician referral practices and location of physician offices. Commitment to provision of care to both no-pay and low-pay medically indigent patients and Medicaid patients at a minimum of no more than 2 percent below the most recent HCB publication for the District of the charity/uncompensated care percentage of net revenues. Agreement to participate in any indigent care programs which exist in the county or counties proposed to be served. Participation should be at a rate equal to or greater than the average for the general hospitals also serving that area. As to the first preference, WUESTHOFF failed to demonstrate a need for the proposed 50-bed general acute care hospital. Even with the delicensure of 100 acute care beds as a result of WUESTHOFF’s companion application, there still is an oversupply of 215 acute care beds in the county. The evidence presented at the final hearing failed to demonstrate any geographic or other barriers to accessing acute care services that would warrant the expenditure proposed by WUESTHOFF to construct the proposed project. Indeed, WUESTHOFF’s own evidence was clear that every resident of Brevard County has access to a general acute care hospital within a maximum drive time of 30-40 minutes and, in almost all instances, to two different acute care facilities within a 30-40 minute drive time. WUESTHOFF contends that its proposed 50-bed general acute care hospital is needed for four reasons: (1) to provide a high quality alternative inpatient health care provider in south Brevard County; (2) to introduce competition into the south Brevard area; (3) to enhance access to care to Medicaid, charity, and indigent population, as well as to enhance access for the managed care segment of the population; and (4) to enable WUESTHOFF to remain competitive in the marketplace. The evidence is clear that HRMC provides high quality inpatient health care in south Brevard County. See Findings 30- 44, infra. In addition, WUESTHOFF already serves some patients, residing in south Brevard County, and so does Sebastian River Medical Center, located in the adjacent county to the south. The evidence also is clear that there already is competition for inpatient hospital services in south Brevard County. HRMC serves a much greater percentage of those patients primarily due to its location and the high quality and low costs of HRMC’s services. In view of the excess capacity of hospital beds in the county, it does not make sense to add a satellite WUESTHOFF hospital in south Brevard County that would duplicate the services of the existing providers. WUESTHOFF also attempted to show that its proposed acute care hospital was needed in order to provide services for managed care participants. However, WUESTHOFF failed to offer any competent evidence to show that participants in managed care programs are a traditionally underserved population group and did not prove that WUESTHOFF’s ability to participate in managed care networks is a valid basis for determining the need of additional acute care services in south Brevard County. To the contrary, the evidence tended to show that the expansion of managed care programs would result in a decrease in the utilization of inpatient acute care services. Furthermore, there is no barrier to WUESTHOFF’s participating in managed care programs with one or more facilities in the southern portion of Brevard County, and in fact WUESTHOFF has aligned itself with Sebastian River Medical Center in a number of managed care contracts serving residents of southern Brevard County. While WUESTHOFF is offering a larger discount to managed care payers, its charges are higher, resulting in net revenue per managed care case that is still higher than HRMC’s. The price the managed care providers pay to HRMC is actually 14 percent lower than what they pay to WUESTHOFF. Not only does HRMC provide a better “deal” to managed care payers, but HRMC’s managed care volume is also greater than WUESTHOFF’s, indicating HRMC’s willingness to negotiate and work with managed care companies. At the time WUESTHOFF submitted its CON application, the penetration of managed care in Brevard County was approximately 8.6 percent. However, more recent data from 1996 shows a significant increase in the penetration of managed care to 15 percent, without the allegedly needed new hospital. A primary thrust of WUESTHOFF’s case for the need for its proposed project was that patients in the southern portion of Brevard County cannot be admitted into HRMC’s Palm Bay facility because its physicians do not enjoy staff privileges at that facility. Each hospital establishes criterion for staff privileges. In order to be eligible for staff privileges, it is normally required that the physician reside or have his or her office within certain geographic boundaries surrounding the hospital. The primary reason for such requirement is to ensure that the physician is capable of responding to patient needs within a time certain and that the physician will be able to provide coverage for his or her patients admitted into a facility. Dr. Arnold, a physician with staff privileges at WUESTHOFF who operates an office in West Melbourne, conceded that if his physician group associated with a physician living within HRMC’s geographic boundaries who was able to meet response time criteria, the physician group could admit patients into HRMC. Dr. Arnold also conceded that his physician group is not eligible for staff privileges at other Brevard hospitals, based on geographic considerations. The Availability, Quality Of Care, Efficiency, Appropriateness, Accessibility, Extent Of Utilization, And Adequacy Of Like And Existing Health Care Services In The Service District: Section 408.035(1)(b), Florida Statutes. There is no need for another hospital in South Brevard County. The county already has more than enough hospitals. Even in light of a 27-29 percent increase in population, utilization of Brevard County hospitals has dropped 10 percent in the last five years. There has been a marked shift in the Brevard County area away from inpatient services toward outpatient services. That shift is still growing. HRMC is the only hospital in Brevard County which has been nationally recognized for quality care by the National Research Corporation. According to AHCA’s hospital report card, HRMC was shown to be a consistent, low-charge provider, operating within the expected range of outcomes. According to a study done by AHCA, HRMC performs as one of the top five hospitals in Florida for reducing overall C-section births and increasing vaginal births after Cesarean (“VBAC”). This is important because vaginal births are safer for both mother and baby and save approximately $3,000 per delivery when compared with Cesarean births. HRMC has the lowest Cesarean Section rate and the highest VBAC rate in Brevard County and is one of the five lowest charging hospitals in the State for these services. Wuesthoff, on the other hand, has some of the highest costs in the county for these services. HRMC is providing efficient hospital services when compared with WUESTHOFF and other markets where competition is a factor. Of the zip codes addressed in WUESTHOFF’s travel study, there is no zip code in Brevard County that is more than 30 minutes from an existing hospital. Of the fourteen intersections tested, the addition of the proposed project would decrease travel times from only three intersections, with the greatest decrease in travel time being only nine minutes. Thus, the construction of WUESTHOFF’s proposed facility would not significantly increase access for Brevard County patients. HRMC delivers the majority of Medicaid babies in the county and is also a contract provider for Children’s Medical Services. HRMC worked with the Public Health Department to develop a better system for giving prenatal care and delivery to Medicaid and indigent mothers. HRMC offered to subsidize the salary of a doctor, and eventually two midwives, to work with the Public Health Department for this purpose. HRMC’s HOPE programs provides access to Medicaid and indigent patients. HOPE clinic and HOPE van expenses are direct expenses of HRMC. In addition to medical care, the HOPE program also provides free medication to those who cannot afford it. HRMC’s HOPE van provides services to the homeless every Tuesday, seeing as many as 40 patients each visit. Patients are provided with an examination, medications, and referrals to specialists or the hospital, if necessary. This care is provided at no charge to the patient. HRMC’s HOPE program was given the Nova award by the American Hospital Association for its ground-breaking effort in community health improvement. It is the only program in Florida which has been so recognized. The HOPE program has also received the Heartland Award from Governor Chiles for its work at improving the status of life in Florida. HRMC supports a variety of agencies to provide care to indigent AIDS patients. HRMC provides services to a nonprofit outpatient AIDS services organization, which offers reduced-rate and free lab services. HRMC, along with the Public Health Unit, funded a dental clinic for the AIDS organization. The hospitals in Brevard County do a good job in regard to taking care of the patients who are incapable of paying, with HRMC going the extra mile to provide services to the poor. There was no evidence that persons in need of quality, general acute care services are not able to access those services at any existing provider in Brevard County. There is no lack of availability or access to general acute care services based on either geographic or financial grounds. WUESTHOFF’s proposed 50- bed general acute care hospital is not needed to accomplish this. The Ability Of The Applicant To Provide Quality Of Care And The Applicant’s Record Of Providing Quality Of Care: Section 408.035(1)(c), Florida Statutes. It is clear that WUESTHOFF is capable of providing quality inpatient health care services. However, it is found that HRMC is providing higher quality services (and at a lower cost). As shown in AHCA’s hospital report card, WUESTHOFF performed in the lowest 15 percent in the State in 5 of 6 serviced lines where mortality was measured. On the other hand, HRMC was indicated to be consistently a low-charge provider, operating within expected outcomes. HRMC’s C-section rate is significantly lower than WUESTHOFF’s, and its VBAC rate much higher. The results of a low C-section rate are lower lengths of stay and less risk to both mom and baby. The Availability And Adequacy Of Other Health Care Facilities And Services In The District Which May Serve As Alternatives For The Services To Be Provided By The Applicant: Section 408.035(1)(d), Florida Statutes. WUESTHOFF already has three home health locations, 8 or walk-in clinics, a hospice, a durable medical equipment business, an ambulatory surgery center, 2 freestanding diagnostic centers, and outpatient labs in Brevard County. In addition, WUESTHOFF plans to construct a new outpatient and diagnostic center in south Brevard County. In addition, inpatient surgeries have shifted to private, for-profit outpatient centers and ambulatory surgery centers that have opened in the last five years in Brevard County. The competent, substantial evidence presented at the final hearing demonstrates that within Brevard County, there are available and adequate alternatives to the inpatient services proposed by WUESTHOFF. First, as discussed above, the existing providers of acute inpatient health care services have capacity to absorb any increase in the utilization of acute care services in the County. Second, data introduced at the final hearing demonstrate that overall utilization for the types of services WUESTHOFF proposes to offer are declining and demonstrate that residents are seeking out alternatives to inpatient hospital services. For example, from 1993-1996, inpatient surgery services in Brevard County showed a marked decline of approximately 20 percent, both in number of patients and procedures. This trend is not unique to Brevard County, but is occurring throughout the state. Health care providers are seeking alternatives to hospitalization, with procedures being performed in physician offices and ambulatory surgical centers. Likewise, there has been a decline in utilization of several other services WUESTHOFF is proposing for its 50-bed hospital. During the period 1993-1996, while the population of Brevard County was growing at a rate of approximately 2.4 percent per year, the rate of obstetric admissions as a percentage of admissions to Brevard hospitals declined. There is excess capacity for pediatric and obstetrical services in Brevard County. The average daily census in obstetrical beds has dropped from approximately 34 patients per day to approximately 29 per day. With 66 reported available obstetrical beds in Brevard County, that means that on any day only 44 percent of the available capacity is being utilized. Likewise, pediatric census has gone from approximately 32 patients per day to only about 25. With 78 reported pediatrics beds, a demand for only 25 beds means that approximately 32 percent of available capacity is utilized. Probable Economies And Improvements In Service That May Be Derived From Operation Of Joint, Cooperative, Or Shared Health Care Resources: Section 408.035(1)(e), Florida Statutes. WUESTHOFF does not propose the operation of a joint, cooperative, or shared program with any other entity. WUESTHOFF contends that its application is consistent with this criterion because it proposes the sharing of certain resources with its main facility. But the construction of a satellite facility will result in the duplication of certain services. It is actually less efficient for a hospital to operate two campuses. The Need in the Service District for Special Equipment and Services Which Are Not Reasonably and Economically Accessible in Adjoining Areas: Section 408.035(1)(f), Florida Statutes. WUESTHOFF’s CON application does not propose to provide special equipment. This criterion is not met. The Need For Research And Educational Facilities, Health Care Practitioners, And Doctors Of Osteopathy And Medicine At The Student, Internship, And Residency Training Levels: Section 408.035(1)(g), Florida Statutes. This need is already being met in the community. WUESTHOFF, HRMC, and other Brevard County hospitals are already active in community training programs through their links with Brevard Community College and the University of Central Florida. HRMC has institutional training programs with the University of Florida, all Children’s Hospital, the local vo- tech, and University of Central Florida, in addition to other community programs. The Immediate And Long-Term Financial Feasibility Of The Proposal: Section 408.035(1)(i), Florida Statutes. The immediate financial feasibility of a proposed project is satisfied by showing that the applicant has adequate financial resources to fund the capital costs of the project and the financial ability to fund short-term operating losses. WUESTHOFF has demonstrated that its proposed project is financially feasible in the short-term. Long-term financial feasibility is established by demonstrating that projected revenues can be attained in light of the projected utilization of the proposed service and average length of stay. WUESTHOFF has not demonstrated that it can achieve its projected revenues by the second year of operation and has, therefore, failed to demonstrate long-term financial feasibility. It is impossible to tell from the information contained in WUESTHOFF’s CON application 8597 what the revenues and expenses of the new hospital will be. Staffing and supply costs associated with the ancillary building, but which will be used by the hospital when constructed and which amount to millions of dollars, are not broken out in the application. The application also does not show the totality of the costs associated with the 50-bed hospital WUESTHOFF seeks to establish. For example, provision for bad debt expense does not appear in the application, nor does the indigent care tax expense. Furthermore, the application does not provide for any administrative staff for the new hospital, nor has all other necessary staff been provided for. If these positions are included under “other,” then the salary expense projected is not enough. Also, the salaries listed on Schedule 6 do not include benefits. The preopening expenses figure shown in WUESTHOFF’s application is reasonable only if the entire facility, the ancillary, outpatient, and inpatient tower would open all at the same time. It is very difficult to analyze the reasonableness of the financial projections because the revenues and expenses do not match. All the revenue from the proposed new facility appears to be included, but not all of the expenses. Schedule 8A shows that daily ancillary expenses are $470 at WUESTHOFF’s existing hospital but only $82 at the new, proposed hospital. It is implausible that the new hospital would have costs this much lower than the existing hospital. WUESTHOFF’s staffing projections do not account for a significant number of nursing and other staff necessary for the operation of the facility as a hospital. The projections only address nursing positions for the 50-bed, inpatient tower. The schedule fails to show those nurses assigned to the ancillary services areas in the outpatient diagnostic center who will be working with inpatients. For example, the scrub nurses in the emergency department who will be working on inpatients are not included in the schedule, and the nurses working in radiology who will be caring for inpatients are not shown. The schedule fails to include a director of nursing at the proposed hospital facility. Although WUESTHOFF claimed that it will assign a director of nursing when patient volumes reach 50%, it failed to include projections for that position in this second year projections, even though patient volumes are projected to reach 50% in the second year. Wuesthoff also failed to include benefits in its computation of salaries on Schedule 6, even though it expects to pay benefits at a rate of 20% of salary. Interest expenses are also significantly understated. The project is financed with 100 percent debt, which should amount to an interest expense of approximately $850,000.00 per year. However, the application shows interest in year one as $197,000.00 and for year two, $393,000.00. It is unusual that interest would be higher in year two than year one. There is no way to tell from looking at the schedules or assumptions in the application what the utilization of the new hospital will be, or how the patient days break out by payor. Therefore, reasonableness of the financial projections cannot be tested. Without additional information, one cannot determine if the average charges projected are reasonable. There are unusual projections, such as the charges during construction, year one, and year two, in the application which without explanation are not reasonable. The financial projections as to the whole facility are unreasonable. They show that WUESTHOFF, which currently makes $7 or $8 million dollars each year, will lose money once the new facility is open but that, in its second year, the new facility will make $6.9 million. Such a projection is unreasonable. By focusing only on the incremental effect of adding an inpatient tower to a presumed existing DTC, WUESTHOFF’s financial projections are not sufficient to allow a conclusion to be drawn as to the financial feasibility of the new 50-bed hospital. However, it would appear that, if those schedules had been presented, they would have shown the new satellite hospital, taken in its entirety, not to be financially feasible in the long term. The Special Needs Of Health Maintenance Organizations: Section 408.035(1)(j), Florida Statutes. The application is not made on behalf of an HMO, and this criterion is not applicable. The Needs And Circumstances Of Those Entities Which Provide A Substantial Portion Of Their Services Or Resources, Or Both, To Individuals Not Residing In The District: Section 408.035(1)(k), Florida Statutes. The CON application does not address serving a substantial number of persons or providing a substantial portion of services to individuals residing outside the district, and this criterion is not applicable. The Probable Impact Of The Proposed Project On The Costs Of Providing Health Services Proposed By The Applicant, Including The Effect On Competition: Section 408.035(1)(l), Florida Statutes. There is significant competition for managed care services in Brevard County. HRMC seeks and desires to enter into managed care contracts and is as competitive in the managed care arena as WUESTHOFF is. In fact, HRMC’s managed-care, patient volume is higher than WUESTHOFF’s. Managed care penetration in Brevard County has increased over the last five years and especially in the last two years. One particular HMO in Brevard County that is just getting started has received an acceptable managed care offer from HRMC. If they did not receive an acceptable offer from WUESTHOFF. Brevard County does not need another inpatient facility to allow the County to achieve higher levels of managed care penetration. There are no barriers in Brevard County to increasing HMO and other managed care penetration. Even though HRMC has an 82 percent market share in South Brevard County, that by itself does not indicate HRMC is charging non-competitive prices. In fact, HRMC’s charges are much lower than WUESTHOFF’s. Both the State of Florida and the FTC found that HRMC’s merger with Cape Canaveral when Health First was formed did not create an adverse, competitive effect on the marketplace. Because HRMC’s charges are so much lower than WUESTHOFF’s, the addition of the proposed hospital would not introduce price competition into the market. The majority of the proposed hospital’s patients are likely to come from South Brevard County-–an area where HRMC has an 82.5 percent market share. Thus, the bulk of the proposed hospital’s patients will come from HRMC. If the proposed hospital meets its projected utilization, HRMC stands to lose somewhere between $4 and $5 million a year. While that loss may not put HRMC into bankruptcy, it will have a significant adverse effect. The Costs And Methods Of The Proposed Construction And The Availability Of Alternative, Less Costly, Or More Effective Methods Of Construction: Section 408.035(1)(m), Florida Statutes. WUESTHOFF’s proposal to establish a 50-bed, general, acute care hospital entails the construction of a 3-story, 50-bed patient tower adjoining an outpatient diagnostic center. The outpatient diagnostic center, and not the inpatient tower, will encompass virtually all of the ancillary services necessary for WUESTHOFF to obtain a license to operate its facility as a hospital. As more fully discussed below, WUESTHOFF’s proposed 50- bed inpatient hospital will require substantial design modification and increased square footage in order to obtain licensure as a general, acute care hospital. The Applicant’s Past And Proposed Provision Of Health Care Services To Medicaid Patients And The Medically Indigent: Section 408.035(1)(n), Florida Statutes. The evidence showed that all acute care hospitals in Brevard County provide a fair level of Medicaid and indigent care in comparison to the remainder of the state. In its CON application, WUESTHOFF proposes to condition approval of its 50- bed, general, acute care hospital on providing 15 percent Medicaid and charity care, but did not provide a breakdown of each. There was no documented access problems for Medicaid or indigent patients that would warrant a new health care facility. Because indigent care is reported to the State based on a hospital’s charges, WUESTHOFF and HRMC could be doing the same amount of indigent care, but WUESTHOFF could appear to be doing more because its charges are higher. Whether Less Costly, More Efficient, Or More Appropriate Alternatives To The Proposed Inpatient Services Are Available: Section 408.035(2)(a), Florida Statutes. HRMC’s average charges are significantly lower than WUESTHOFF’s on both a per case and per patient day basis. HRMC’s costs are also lower, indicating it is more efficient. Therefore, the addition of another less-efficient, higher- charging WUESTHOFF hospital into the market would be more costly and less efficient than what it is there now. The greater weight of the evidence establishes that denial of WUESTHOFF’s proposed 50-bed, general acute care hospital is the least costly, more efficient, and appropriate alternative. The existing providers of acute care services in Brevard County are operating efficiently and have unused capacity that is available to serve Brevard residents. Data suggests that while the population of Brevard County is growing, there is no corresponding increase in utilization of general, acute care services. While Brevard enjoys a proportionately higher growth rate than the rest of the State, the growth does not translate into higher utilization of general acute care services. Further, the age 65+ population, those most likely to use hospital services, has experienced an annual growth of approximately 3.7 percent between 1990-1996, which is higher than the overall rate of growth for Brevard. While there has been a significant growth in the number of elderly and Medicaid eligible population, only approximately percent of those eligible for Medicaid in the 14 zip codes targeted as the service area of WUESTHOFF’s proposed hospital actually use hospital services. In 1993, the last year of available data, the actual county-wide use rate for Medicaid eligible residents was only 8.4 percent. This is expected to remain constant in subsequent years, as the demand for inpatient acute care services has not increased, but has in fact decreased. There is insufficient utilization of the inpatient acute care services which already exist in Brevard County, with approximately 50 percent of the available beds unoccupied. The addition of another health care facility will not improve access, improve delivery of services, or make services available to a population that is not presently being adequately and appropriately served by existing providers. In a market where inpatient volume is going down, length of stay is going down, and utilization is going down, it does not make sense to spend scarce dollars on new inpatient services. Whether The Existing Facilities Providing Similar Inpatient Services Are Being Used In An Appropriate And Efficient Manner: Section 408.035(2)(b), Florida Statutes. The greater weight of the evidence established that there is available capacity for inpatient services like those proposed by WUESTHOFF at the existing, general, acute care facilities in Brevard County. WUESTHOFF did not demonstrate that any provider is suffering from over utilization or that any patient has not been able to access general acute care services when such services were necessary. On the contrary, there was a consensus among the experts, even WUESTHOFF’s experts, that there is no problem with geographic or financial access to existing providers. Between 1993 and 1996, hospital utilization dropped from 63 percent to 52 percent. AT WUESTHOFF’s Rockledge campus, utilization fell from a high of 63 percent in 1993, to approximately 46 percent in 1996. During this same period, the population of Brevard County grew at a rate of approximately 2.4 percent per year, which was proportionately higher than for the rest of the state. At HRMC, its occupancy dropped, but not quite as dramatically. Between 1993 and 1996, HRMC’s occupancy went from 67 percent to approximately 62 percent. The satellite facility, operated by HRMC in Palm Bay and located in the same service area where WUESTHOFF proposes to construct its 50-bed general acute care hospital, has never experienced occupancy above 31 percent. That Patients Will Experience Serious Problems In Obtaining Inpatient Care Of The Type Proposed, In The Absence Of The Proposed New Service: Section 408.035(2)(d), Florida Statutes. There was no evidence to show that any population group in Brevard County is unable to access quality health care services at any of the subdistrict’s existing facilities. Further, WUESTHOFF failed to establish that its proposed facility was needed to provide general acute care services not currently provided or currently accessible to residents of south Brevard County. WUESTHOFF maintains that participants in managed care contracts may not be able to access WUESTHOFF’s general acute care services without approval of the proposed project, but there was not demonstration that those individuals would not otherwise have access to quality affordable health care in Brevard County. WUESTHOFF also failed to demonstrate that participants in managed care programs are a “traditionally underserved” population group for a determination of need under not normal circumstances. CON Application Content And Procedures: Section 408.037, Florida Statutes And Rule 59C-1.008, Florida Administrative Code. The parties stipulated as to the timeliness of the submission of WUESTHOFF’s Letter of Intent, initial CON application and response to omissions. However, the board resolution required by Section 408.037, Florida Statutes, and Rule 59C-1.008, Florida Administrative Code, is fatally defective. The applicant is required to provide certification that its governing board enacted a resolution to license and operate the proposed facility. In this case, the proposed 50- bed, inpatient tower cannot be licensed by the applicant as a hospital. In order to obtain hospital licensure, the proposed project would necessarily include the $35+ million that WUESTHOFF proposes to spend on its outpatient diagnostic center. WUESTHOFF’s CON application also fails to comply with Section 408.037(2)(c), which requires detailed financial projection including a statement of the revenues and expense for the period of construction and the first two years of operation after completion of the project. The proposed project is a “hospital.” The hospital will report all of the revenues and expenses of the inpatient and outpatients to the state in its actual report, and those same projected revenues and expenses should be in the pro forma of a certificate of need application for a new hospital project. Instead, the projected revenues and expenses in the pro formas take an “incremental” approach and focus only on the 50-bed tower and an unspecified portion of the diagnostic center. WUESTHOFF’s own financial expert admitted that one cannot determine the revenues and expenses of the new hospital from the information contained in the application. AHCA does not have sufficient information with respect to revenues and expenditures in the pro formas to determine the financial feasibility of the hospital project. The pro formas do not meet the statutory requirement contained in 408.037(2)(c), Florida Statutes, and are fatally defective. Neither AHCA nor its predecessor agency ever have approved a CON to establish a hospital without ever seeing projections of the revenues and expenses of the hospital as a whole. Additions to hospitals have been approved on a strictly incremental basis; but, in those cases, the revenues and expenses of the hospital as a whole already had been reviewed and approved. Inpatient cardiac catheterization programs also have been approved, based on a strictly incremental review of the financial impact of converting from an existing outpatient to an inpatient program. But there is a meaningful difference between the approval of a program in a hospital facility that already has been reviewed and approved as a whole and what WUESTHOFF is seeking to have done in this case. There also is a difference between treating the costs of an existing and operating facility or program as being “sunk” and treating the $35 million capital cost and additional operating costs of the proposed DTC in this case as being “sunk.” In the former, the costs have been or are being spent and truly are “sunk”; in the latter, despite WUESTHOFF’s assurances, the DTC money has not been spent, and the DTC has not been established. Indeed, the decision properly before AHCA in this case is whether those expenditures should be made for purposes of establishing a hospital. If not, the hospital should not be approved. If WUESTHOFF still wants to build and operate its proposed $35 million anyway, as it has assured AHCA that it will do, it is free to do so. Criteria Used In Evaluation Of CON Applications: Rule 59C-1.030, Florida Administrative Code. AHCA’s rules set forth additional criteria used to evaluate CON applications which focus on whether there is a need for the proposed service in the population to be served and whether the proposed project is accessible to those in need of the service. The evidence in this case showed that there was no unmet need in Brevard County for inpatient, general, acute care services and that the target population is adequately served by the existing providers of general acute care services. Furthermore, the evidenced showed that the anticipated population growth in Brevard County is not likely to generate additional numbers of inpatient admissions, based on the decline in utilization during a period when Brevard County was experiencing unprecedented annual growth at a rate of 2.4 percent overall and 3.7 percent in the 65+ population. Any attendant increase in demand for inpatient general acute care services can be easily accommodated by the existing providers in Brevard County. The rule also examines the extent to which an applicant provides services to Medicare, Medicaid, and the medically indigent patients. The evidence showed that WUESTHOFF provides a fair amount of general acute care services to Medicare, Medicaid, and charity patients, as do the other existing providers in Brevard County. Hospital Physical Plant Requirements For Licensure: Rule 59A-3, Florida Administrative Code. WUESTHOFF’s 50-bed, general, acute care hospital, as proposed, cannot meet licensure standards without significant adjustment to the design to bring it into compliance with the licensure rules. Rule 59A-3.081(4)(c), Florida Administrative Code, specifically requires that the critical care nurse’s station be situated so that nurses have visual control of each patient from common spaces. The schematics provided by WUESTHOFF indicate that there is no visual control of two patient rooms located in the northwest end of the unit. As to functionality of the space, there is no observation from the nurses station to trauma rooms located at the end of the unit and inadequate proximity to support spaces, such as soiled and clean utility and med prep, to the trauma rooms. Seriously injured patients would necessarily be transported up to surgery through what would be public corridor spaces in order to access elevators and then through additional public spaces on the second floor. Inpatient access to the CT scan room and MRI room appears to be made through a narrow, 5-foot wide corridor. Hospital licensure regulations require inpatient access through an 8-foot corridor. The only 8-foot corridors available for inpatient use, the service corridor off the housekeeping and staff facilities area to the rear of the unit and the corridor located between radiology and dietary, do not appear to be appropriate means for inpatients to access these rooms. On the third floor of the facility, WUESTHOFF proposes to locate an aerobics and exercise room, directly above the second floor patient recovery area and two of the operating rooms. With an exercise area located above such critical areas, there is the possibility that vibrations would transmit to operating room lights, ceiling mounted microscopes, and other instruments. It would be costly to sufficiently stiffen the structure to minimize vibrations. In order to bring the proposed project into compliance with hospital licensure regulations, material changes to the plans must be made, which will necessarily increase the square footage of the facility. The square footage of the facility would likely be increased by approximately 5,000 square feet, and many of the areas would have to be significantly redesigned to accommodate concerns with compliance to ADA and hospital licensure regulations.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration enter the final order denying WUESTHOFF’s CON 8597. RECOMMENDED this 18th day of July, 1997, in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax FILING (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 18th day of July, 1997. COPIES FURNISHED: David C. Ashburn, Esquire Gunster, Yoakley, Valdes-Fauli and Stewart, P.A. 215 South Monroe Street, Suite 830 Tallahassee, Florida 32301 Mark Thomas, Esquire Agency for Health Care Administration Office of the General Counsel 2727 Mahan Drive Tallahassee, Florida 32308 Stephen K. Boone, Esquire Boone, Boone, Boone and Hines, P.A. Post Office Box 1596 Venice, Florida 34284 R. Terry Rigsby, Esquire Blank, Rigsby & Meenan 204 South Monroe Street Tallahassee, Florida 32301 Douglas M. Cook, Director Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308 Jerome W. Hoffman, General Counsel Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308 Sam Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308
