The Issue The issues are whether Respondent withdrew controlled substances from the narcotics dispensing system and failed to document the administration or wastage of those substances; if yes, whether this conduct fails to conform to minimum acceptable standards of prevailing nursing practice; and, if yes, what penalty should be imposed on Respondent's license as a registered nurse.
Findings Of Fact The Department is the state agency charged with regulating the practice of nursing in the State of Florida. Respondent Marla Gunderson ("Respondent") is, and has been at all times material hereto, a licensed registered nurse in the State of Florida, having been issued license number 2832622 by the Florida Board of Nursing in 1994. Respondent was employed by Lee Memorial Health Care System Rehabilitation Hospital ("Lee Memorial") as a registered nurse from about January 29, 2001, until about March 22, 2001. During the first three or four weeks of Respondent's employment, she participated in a full-time training program through Lee Memorial's education department. A part of this training included training in the administration of medications to patients. After completing the three or four-week training program, Respondent began working directly with patients. From about mid-February 2001 through early-March 2001, Respondent had no problems with documenting the administration of medications to patients. Some time in or near the middle of March 2001, Melanie Simmons, R.N. ("Simmons"), Lee Memorial's Nursing Supervisor, received a complaint from the night nurse following Respondent's shift. The complaint alleged that a patient's wife reported that the pain medication her husband was given by Respondent was not the Codeine that had been ordered by the physician. Pursuant to Lee Memorial's policies and procedures, Simmons conducted an investigation into the allegations of the above-referenced complaint regarding the Respondent. Lee Memorial's policies and procedures set out a specific method for conducting investigations regarding the administration of medications to patients. First, the physician's orders are checked to see what medications have been ordered for the patient. Next, the Pyxis records are pulled to determine if and when medications were withdrawn for administration to patients. The Pyxis system is a computerized medication delivery system. Each nurse has an assigned user code and a password, which must be entered before medication can be withdrawn from the Pyxis system. Then, medication administration records (MARs), the documents used by nurses to record the administration of medications to patients, are checked to verify whether the nurse documented the administration of the medications to the patients for whom they were withdrawn. Finally, the Patient Focus Notes, the forms used by nurses to document non-routinely administered medications, are also checked to determine if, when, and why a medication was given to a patient. If after comparing the physician's orders, Pyxis records, MARs, and Patient Focus Notes, it is determined that medications were not properly administered or documented, the nurse making the errors is advised of the discrepancy and given an opportunity to review the documentation and explain any inconsistencies. Simmons' investigation, which included comparing the physician's orders, Pyxis records, MARs and Patient Focus Notes, revealed discrepancies in medications withdrawn by Respondent and the MARs of the three patients under her care. The time period covered by the investigation was March 12 through March 17, 2001. Of the six days included in the investigation period, Simmons determined that all the discrepancies had occurred on one day, March 13, 2001. Nurses are required to record the kind and amount of medication that they administer to patients. This information should be recorded at or near the time the medication is administered. It is the policy of Lee Memorial that should a nurse not administer the medication or the entire amount of the medication dispensed under his or her password, that nurse should have another nurse witness the disposal of the medication. The nurse who serves as a witness to the disposal of medication would then enter his or her identification number in the Pyxis. As a result of that entry, the nurse who observed the disposal of the medication would be listed on the Pyxis report as a witness to the disposal of the medication not administered to patients. Such excess medication is termed waste or wastage. The physician's order for Patient F.R. indicated that the patient could have 1 to 2 Percocet tablets, to be administered by mouth, as needed every 3 to 4 hours. On March 13, 2001, at 14:06 Respondent withdrew 2 Percocet tablets for Patient F.R. However, there was no documentation in the patient's MAR, focus notes, and other records which indicated that Respondent administered the Percocet tablets to Patient F.R. The physician's order for Patient G.D. indicated that 1 to 2 Percocet tablets could be administered to the patient by mouth as needed every 4 to 6 hours. On March 13, 2001, at 11:18 Respondent withdrew 2 Percocet tablets and on that same day at 17:16, Respondent withdrew another 2 Percocet tablets for Patient G.D. However, there was no documentation in the patient's MAR, focus notes, or any other records which indicated that Respondent administered the Percocet tablets to Patient G.D. The physician's order for Patient T.G. indicated that 1 to 1.5 Lortab/Vicodin tablets could be administered to the patient by mouth as needed every 4 to 6 hours. On March 13, 2001, Respondent withdrew 2 Lortab/Vicodin tablets for Patient T.G. However, Respondent failed to document on the patient's MAR, focus notes, or other records that the medication had been administered to Patient T.G. With regard to the above-referenced medications withdrawn by Respondent on March 13, 2001, there is no documentation that any of the medications were wasted. All the medications listed in paragraphs 13, 14, and 15 are narcotics or controlled substances. Because Respondent did not document the patients' MARs or focus notes after she withdrew the medications, there was no way to determine whether the medications were actually administered to the patients. Proper documentation is very important because the notations made on patient records inform nurses on subsequent shifts if and when medications have been administered to the patients as well as the kind and amount of medications that have been administered. Without such documentation, the nurses taking over the subsequent shifts have no way of knowing whether medication has been administered, making it possible for affected patients to be overmedicated. Respondent has been a registered nurse since 1994 and knows or should have known the importance of documenting the administration of medications to patients. Respondent does not dispute that she did not document the administration and/or wastage of the narcotics or controlled substance she withdrew from the Pyxis system on March 13, 2001, for the patients identified in paragraphs 13, 14, and 15. Moreover, Respondent provided no definitive explanation as to why she did not properly document the records. According to Respondent, she "could have been busy, called away, [or] got distracted." Following Simmons' investigation of Respondent relating to the withdrawal and/or administration of medications, Respondent agreed to submit to a drug test. The results of the drug test were negative. Prior to being employed by Lee Memorial, all of Respondent's previous experience as an R.N. had been in long- term care. Except for the complaint which is the subject of this proceeding, there have been no complaints against Respondent's registered nurse's license.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Health enter a Final Order (1) imposing an administrative fine of $250; (2) requiring Respondent to remit the Agency's costs in prosecuting this case; (3) requiring Respondent to complete a continuing education course, approved by the Board of Nursing, in the area administration and documentation of medications; and (4) suspending Respondent's nursing license for two years. DONE AND ENTERED this 1st day of April, 2002, in Tallahassee, Leon County, Florida. CAROLYN S. HOLIFIELD 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 1st day of April, 2002. COPIES FURNISHED: Reginald D. Dixon, Esquire Agency for Health Care Administration General Counsel's Office-Practitioner Regulation Post Office Box 14229 2727 Mahan Drive Tallahassee, Florida 32317-4229 Marla Gunderson 1807 Northeast 26 Terrace Cape Coral, Florida 33909 Ruth R. Stiehl, Ph.D., R.N. Executive Director Board of Nursing Department of Health 4080 Woodcock Drive, Suite 202 Jacksonville, Florida 32207-2714 Mr. R. S. Power, Agency Clerk Department of Health 4052 Bald Cypress Way, Bin A02 Tallahassee, Florida 32399-1701 William W. Large, General Counsel Department of Health 4052 Bald Cypress Way, Bin A02 Tallahassee, Florida 32399-1701
The Issue Whether the application of Wuesthoff Memorial Hospital, Inc. (CON 8740) for a 50-bed general acute care hospital in South Brevard County should be granted?
Findings Of Fact The Parties Wuesthoff The applicant for CON 8740 is Wuesthoff Memorial Hospital, Inc., a Florida not-for-profit corporation. Wuesthoff operates a general acute care hospital (the "Hospital" or the "Rockledge campus") in Rockledge, Florida. According to the division of the county into three areas (north, central, and south) ascribed to by Wuesthoff, Rockledge is in Central Brevard County. Wuesthoff's parent corporation is a not-for-profit corporation, Wuesthoff Health Systems, Inc. (the "Wuesthoff System"). The Wuesthoff System operates health care providers across the health care spectrum. Among the entities controlled by the Wuesthoff System is Wuesthoff Health Services, Inc., which operates a home health agency, a hospice, a durable medical equipment service and a 114-bed skilled nursing facility. The Wuesthoff Foundation, responsible for fundraising activities for all components of the Wuesthoff System and Care Span, a medical services organization which owns and operates physician practices, are also under the umbrella of the Wuesthoff System. The health care system operated by the Wuesthoff System serves residents in and around Brevard County and, to a limited extent, beyond. Examples of its service throughout Brevard County are the hospice, the durable medical equipment-company, and a reference laboratory. The hospice, for example, is licensed and serves all of Brevard County. The reference laboratory, located in Viera, provides services throughout Broward County and to other counties in Florida. The Wuesthoff System also owns a mobile health unit that travels throughout the county to provide health care services. The Wuesthoff System owns two outpatient clinics or "broad based diagnostic clinics" (Tr. 98) in Brevard County. One is on Merritt Island; the other is located in Sun Tree. Home health services are provided from a base of three different offices in the county. Similar to some of the other services offered by Wuesthoff, its home health services are provided throughout the county. Although it draws patients from throughout the county, most of Wuesthoff's hospital admissions come from Central Brevard County where the Hospital is located. If one defines "Central Brevard County" to include Port St. John and Sun Tree Viera, the sites of the northernmost and southernmost physician practices owned or operated by Care Span, then all of the practices in the Wuesthoff System are within Central Brevard County. Ownership of these practices does not restrict the physicians in them from referring patients for treatment outside the Wuesthoff System. But consolidation of the various services offered by the practices (diagnostic and radiology services, for example) enables Wuesthoff to strengthen its presence in Central Brevard County. The result is "additional volume" (Tr. 164) for the Hospital. The Hospital contains 268 acute care beds, 30 psychiatric beds, and five hospice beds, for a total of 303 beds. (It also contains 10 Level II Neonatal Intensive Care Unit beds.) If the project subject to CON review in this proceeding is ultimately approved, 100 of these beds will be de-licensed, leaving a 203-bed facility. HRMC Holmes Regional Medical Center ("HRMC") is a 528-bed regional, not-for-profit hospital, headquartered in Melbourne, Florida, operating on two acute care campuses under a single hospital license. One campus is the site of a 428-bed tertiary care facility in Melbourne; the other is a 60-bed general acute care community hospital in Palm Bay. Both facilities are in the southern portion of Brevard County. In addition to the 428 general medical and pediatric beds operated at the Melbourne facility, HRMC operates there a 10-bed Level II neonatal intensive care unit. HRMC is accredited by the Joint Commission for Accreditation on Health Care Organizations ("JCAHO"). It operates the only hospice program in the county accredited with commendation by the JCAHO; the only comprehensive community cancer program that has been accredited by the American College of Surgeons; the only American Sleep Disorders Association accredited sleep lab; the only American College of Radiology accredited respiratory therapist department; the only certified pulmonary function lab; and, the only life flight helicopter in Brevard County for hospital transports. As a regional medical center, HRMC provides open heart surgery, tertiary, orthopedic and neurosurgical referrals through a seven-county area, and provides trauma support for the central and south central Atlantic Coast in the State of Florida. It is the only designated trauma center in Brevard County. HRMC was founded 60 years ago by the community and has been a not-for-profit, community-based hospital ever since. The mission of HRMC is to improve, regardless of ability to pay, the health status of every member of the community through collaborative and cooperative agreements with other organizations and agencies it its service area. To represent the community's interests, HRMC's Board is composed of community leaders, educators, and employers. HRMC plays an active role in the community. The program denominated HOPE (Health Outreach Production and Education) is a collaborative effort by the Brevard County Public Health Unit, the American Cancer Society, the School Board, the County Commission and HRMC to solve community health problems. There are currently nine HOPE sites, and three HOPE centers. Among the purposes of the HOPE sites and centers is meeting the unique needs of children with developmental disabilities. Cape Canaveral Hospital, Health First and HFHP Cape Canaveral Hospital, Inc. ("CCH") is the licenseholder for a 150-bed hospital approximately five miles east of Wuesthoff in Cocoa Beach, Florida. Like Wuesthoff, Cocoa Beach is located in Central Brevard County. In August of 1995, HRMC entered into an agreement with CCH to create Health First, Inc. The presidents/chief operating officers of HRMC and CCH are employees of Health First. Similar to the Wuesthoff System, Health First controls the operations of its hospital facilities (HRMC and CCH) and owns and operates physician practices, health clinics, a home health agency, a hospice, and a skilled nursing facility. Health First is the sole shareholder of a Florida not- for-profit corporation known as Health First Health Plans, Inc. ("HFHP"). HFHP is the largest managed care organization in Brevard County operating both a traditional health maintenance organization ("HMO") and a Medicare HMO. Other Nearby Hospitals Parrish Medical Center, operated by a statutorily created tax district, is located in Titusville. If the county is considered to contain three distinct areas (north, central, and south) as proposed by Wuesthoff, Parrish is the only hospital in North Brevard County. Sebastian River Medical Center is located in Indian River County, south of Brevard County. Located in a relatively rural area, it is a small hospital. It provides no tertiary services. It draws some patients from South Brevard County. These patients would otherwise in all probability seek hospital services from a Brevard County hospital. Second Attempt by Wuesthoff Wuesthoff's CON application seeks to establish a new 50-bed general acute care hospital in South Brevard County. This is not the first time Wuesthoff has attempted to obtain such a CON. It applied earlier in CON 8597 for a 50-bed hospital in South Brevard County. In the first attempt, the Agency preliminarily denied the application. Wuesthoff petitioned for a formal administrative hearing. Following receipt of a Recommended Order entered in DOAH Case No. 97-0389 that CON 8597 be denied, Wuesthoff withdrew its application and dismissed its petition for a formal administrative hearing. The Agency entered a "final order" closing its file and dismissing Wuesthoff's petition in light of the application's withdrawal. (Legal proceedings which followed issuance of the order are briefly described in the Preliminary Statement of this Recommended Order.) No New Beds in the Subdistrict Proposed by the Application By the application subject to this proceeding, Wuesthoff does not propose the addition of new beds to Brevard County (the acute care subdistrict at issue, designated by the Agency as Subdistrict 7-1.) In fact, because of Wuesthoff's commitment to delicense 100 beds as a condition of the approval of its application, the granting of the application will result in a net loss of 50 hospital beds in the subdistrict. "[F]ixed need pool[s] only appl[y] to the addition of new beds to a subdistrict." (Tr. 3468). That the fixed need pool resulted in a published need of zero for general acute care hospital beds for the batching cycle in which Wuesthoff's application was filed, therefore, has "no bearing" (Id.) on the issues in this proceeding. For the same reason (that granting Wuesthoff's application will not result in the addition of new general acute care beds in the district) the applicant is not required to prove the existence of "not normal circumstances" to overcome any presumption created by the calculation of the fixed need pool as zero. The Proposed Project The site of the proposed hospital, 43 acres purchased by Wuesthoff for approximately $2.5 million, is on Wickham Road in the city of Melbourne. Twenty of the 43 acres will be devoted to a medical complex of which the 50-bed hospital will be a part. The complex will be "one building that has three very definite components." (Tr. 83). The three components are "an ambulatory and diagnostic center" (Id.), a medical office building, and the 50-bed hospital. The diagnostic center is CON- exempt and the medical office building has been issued a certificate-of-need. Although committed to construct the diagnostic facility and the medical office building at least since March of 1997, at the time of hearing, no construction permits for the property had been obtained nor had any activity on the two components been commenced. Nonetheless, Wuesthoff remains committed toward construction of the diagnostic center and the office building regardless of the outcome in this proceeding. Although the proposed hospital will not provide tertiary services, it will provide all services typically provided in a community hospital. These include obstetrics, pediatrics, and emergency services in a 24-hour emergency department. The services to be offered will not be unique in the subdistrict; all are presently available in the community. In other words, the services to be offered will duplicate services presently offered by existing providers. The estimated cost of the 50-bed hospital proposed in CON 8740 is $38,512,961, a cost that, in the case of a not-for- profit hospital, will ultimately be born by the public "one way or another." (Tr. 2402.) Wuesthoff's application included projections of revenues and expenses attributable to the proposal for the proposed construction period and the first two years of operation. It also included, as required, audited financial statements for two years and a listing of all Wuesthoff's capital projects planned, pending or underway at the time of the filing of the application. A Purpose of CON Law One of the purposes of CON review of an application for a new hospital is "to limit unnecessary, costly duplication of services that are available at other hospitals . . . at least where those services are being provided at reasonable costs." (Tr. 2401-02). Preliminary Agency Action Initially, AHCA Staff intended to recommend denial of Wuesthoff's application. After a meeting with the Director of AHCA, the decision was made to approve the application. The most important factor weighing in favor or approval was one related to competition and costs of hospital services to the ultimate consumer of the services, "[n]amely that . . . large HMO providers have no access to [HRMC] . . . or have been unable to get contractual relationships with [HRMC]." HRMC No. 75, p. 20. The meeting with the Director clarified the Agency's priorities. On July 11, 1997, AHCA issued its State Agency Action Report ("SAAR") containing its determination that the application should be approved. This proceeding was initiated on August 15, 1997, when HRMC filed its Petition for Formal Administrative Hearing on August 15, 1997, in order to challenge the Agency's decision. Need in Relation to the District Health Plan: Section 408.035(1)(a), F.S. The portion of the District 7 Local Health Plan governing the transfer of existing beds includes five parts. Preference is given to applicants that provide documentation of compliance with the five parts. The first part addresses need in the service area proposed to receive the beds. In addressing specific populations, access is one of the considerations. There was no published need for beds to be provided if the application is granted. "[A]t the time the application was filed the Agency's formula showed in excess of 342 beds. [At the time of hearing], the current formula shows an excess of 333 acute care beds for Brevard County." (Tr. 3385). There are no barriers (such as geographic barriers) typically associated with access to acute care services in the subdistrict. Every resident of Brevard County has access to a general acute care hospital within a drive time of 30 minutes usually and 40 minutes at the most. In South Brevard County, Holmes Regional at its two campuses provides high quality inpatient care and excellent medical services. Wuesthoff's hospital in Central Brevard County and Sebastian Medical Center in the adjacent county to the south also serve some of the residents of South Brevard County. Wuesthoff does not receive preference under the first part of the district plan applicable to this proceeding. The second part of the local health plan applicable to this proceeding governs impact to 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. "[T]here would be minimal utilization decline at the Rockledge facility tied to some redirection of patients from Rockledge to south Brevard." (Tr. 1222). The space that will be vacated will be reused. Wuesthoff receives preference under this part of the district plan. The third part calls for documentation of improvement of access by at least 25 minutes to at least 10% of the population or a minimum of at least 35,000 people. While Wuesthoff's proposal will provide a competitive alternative to substantially more than 10% of the population of South Brevard County, a number in excess of 35,000 people, access to acute care hospital services is presently satisfactory in South Brevard County. Wuesthoff does not receive any preference under this part of the plan. The fourth part relates to the commitment of the applicant to the provision of charity care and care to the medically indigent. Wuesthoff meets this preference based on its commitment that 15% of the discharges from the proposed facility will be Medicaid and charity care. The fifth part addresses the applicant's participation in indigent care programs in the county. Wuesthoff participates in a significant number of community benefit and outreach programs that meet the concerns of this part: There is the We Care Program, . . . a distributed medical access point . . . [and]. . . the United Order of True Sisters, . . .a service group which Wuesthoff supports. Wuesthoff works with a CMS program to provide baby and young children support services. Wuesthoff was involved with the development of the Children's Advocacy Center . . . a community-based program. It's a participant in the Health Start Coalition. And Wuesthoff has also sponsored its own mobile health program with a specific focus and purpose to provide care to [the indigent]. (Tr. 1225). Wuesthoff clearly meets this preference. On balance, despite the lack of an access problem for residents of the subdistrict, Wuesthoff meets the need criteria identified in the applicable portion of the district 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 408.035(1)(b),F.S. There is an excess of capacity in acute care beds in Brevard County. Despite an increase in population from 1993 to 1997 of about 2% per year overall and about 3.5% per year in the populace over 65 years of age, the use rate of hospital services declined. In 1993, the use rate was 600 acute care patient days per thousand population. In 1997, the rate was 484 acute care patients per thousand. The occupancy rates for Brevard County hospitals, despite the population increase, is also trending downward. In 1990, overall occupancy of hospital beds in Brevard County was 63%. In 1997, it was approximately 53%. This is due to a number of factors. Managed care penetration has increased; managed care exerts influence to hold down admissions and inpatient days; and there has also been a shift from inpatient surgical procedures to outpatient surgical procedures. The SunTree/Viera area, mid-way between Wuesthoff and Holmes Regional, is the most rapidly growing area of its size in Brevard County. As opposed to areas south of the SunTree/Viera area, where the overwhelming majority of patients use Holmes Regional for hospital services, the SunTree/Viera area is subject to active competition between Wuesthoff and HRMC for patients. Holmes Regional has been shown to be a consistent low charge provider operating within the expected range of outcomes. Furthermore, HRMC has performed as one of the top five hospitals in Florida in reducing overall Cesarean-Section births and increasing vaginal births after Cesarean ("VBAC"). This is important because "unnecessary Cesarean Section presents a real risk for both the mom and the baby . . . [and] the cost to the State for Cesarean Sections performed when vaginal birth would be a desirable alternative added about $3,000 per delivery to the State funded [deliveries]." (HRMC No. 77, p. 1091). Holmes Regional has had the lowest Cesarean Section rate in the county and the highest VBAC rate in the County. The construction of the proposed facility would not significantly increase access to hospital services for Brevard County patients. Holmes Regional delivers the majority of Medicaid babies in the county and is also a contract provider for Children's Medical Services. Ten years ago or so, in recognition of a substantial portion of the population in Brevard County without health insurance, Holmes Regional collaborated with the school board, the public health unit, civic organizations and others to create two school-based community health clinics. "[T]argeted at young families and children" (HRMC No. 77, p. 1063), the clinics provide pro bono health care services. The collaboration was the genesis of the HOPE program. The HOPE program's agenda was expanded to include a mobile clinic to reach those in need of pro bono services who were without transportation to the school-based clinics. The agenda was again enlarged to provide integrated services for children with developmental and cognitive disabilities and delays. Holmes Regional provides direct funding of approximately $1.5 million per year through operational costs of the HOPE program. Holmes Regional not only provides funding to HOPE but it subsidizes salaries of nurses, midwives, and obstetricians directly employed by the Public Health Unit, whose duties include the provision of medical care to the indigent. Dr. Manuel Garcia, Medical Director of the Public Health Unit in Brevard County for over 20 years until his retirement in 1998 offered the following in his testimony in the hearing before Administrative Law Judge Johnston (admitted into evidence in this proceeding as HRMC No. 65) about Holmes Regional's support of the Public Health Unit: "Holmes has always been willing to go the extra mile to help the Health Department with other programs and activities." HRMC No. 65, p. 1211. With regard to the question of which hospital "in Brevard County sets the pace in providing indigent care" (Id.) Dr. Garcia answered: ll the hospitals do a pretty good job . . . [t]here is no doubt that Holmes has been more aggressive in terms of getting into the community to kind of use all the resources available and putting together different organizations and agencies in order to provide more services to the poor in the community. They have been going the extra mile . . . (HRMC Ex. No. 65, pgs. 1211, 1212.) Holmes Regional's efforts in support of the Public Health Unit have continued following Dr. Garcia's tenure. At the same time, "it is true" (Tr. 274) that Wuesthoff, Cape Canaveral, and Parrish Medical Center all "go the extra mile in providing services to the patients that come through the health department." (Id.) Holmes Regional works with the Brevard County Public Health Unit, whose duties include provision of medical care to the poor and indigent patients in the county to develop a better system for giving prenatal care to Medicaid and indigent mothers. In 1998, HRMC provided $10 million of free charity for indigent patients not admitted through HOPE. General community donations and contributions totaled $542,000 and in-kind contributions totaled $714,000. The HOPE program, funded entirely by Holmes Regional, paid $1.1 million in clinical services for staff, pharmacy, services, and supplies to operate its clinics. In addition to these direct dollars, HRMC contributed 2.1 million in uncompensated services to the HOPE program in 1998. The HOPE program has been honored for ground-breaking work in community health improvement and for improving life in Florida through the American Hospital Association's Nova Award and the Heartland Award from the Governor of Florida. Holmes Regional supports a variety of agencies to provide care to AIDS patients. One such clinic is the Comprehensive Health Clinic. In existence since 1991, it currently treats 400 AIDS patients. Its services are mostly paid for through federal programs. Without the assistance of HRMC, the clinic would not be able to provide the quality of services it offers these AIDS patients. Holmes Regional is involved with several children's health programs, including a Healthy Families Program providing in-kind screening assessment. Health Kids Plan subscribers are provided access to managed care insurance products by Health First Health Plans, the managed care company affiliated with Holmes Regional through its parent, Health First, Inc. The company loses "hundreds of thousands of dollars" (Tr. 2108) on the Health Kids segment of its business. There was no evidence presented that persons in need of quality, general acute care services are not able to obtain those services at existing providers in Brevard County. There is no lack of availability or access to general acute care services on either geographic or financial grounds. 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), F.S. Wuesthoff is capable of providing quality inpatient health care services and has done so in the past. The Availability and Adequacy of Other Health Care Facilities in the District which may serve as Alternatives to the Health Care Facilities and Health Services to be Provided by the Applicant: Section 408.035(1)(d), F.S. There are available alternatives to the inpatient services proposed by Wuesthoff. The existing providers of acute care services have excess capacity to absorb any increase in the utilization of acute care services in the county. Utilization of the services Wuesthoff proposes, moreover, have been in decline in relation to the earlier part of the decade of the nineties. From 1993 to 1997, inpatient surgery procedures conducted in Brevard County declined approximately 18.8%, a trend consistent with the statewide trend. In 1998, "the number of inpatient procedures pretty much level[ed] off." (Tr. 3410). In contrast, the number of outpatient procedures in the county rose in 1997 from the number conducted in 1993. For each year in the same time period, the number of outpatient surgical procedures conducted in the county far exceeded the number of inpatient ones. In 1997, for example, there were more than twice as many outpatient procedures as inpatient. The move toward outpatient procedures is the result of health care providers seeking alternatives to hospitalization. Among the alternatives in the case of surgical procedures are the provision of those procedures on an outpatient basis performed in physician offices and ambulatory surgical centers. There has been a decline in Brevard County in utilization of other services Wuesthoff proposes for its 50-bed hospital. During the period of 1993-1997, while the population of Brevard County was growing at a rate in excess of 2% per year, obstetric admissions as a percentage of admissions to Brevard hospitals declined. Pediatric admissions did likewise. Not surprisingly, therefore, there is excess capacity for pediatric and obstetrical beds in Brevard County. With 66 reported available beds in Brevard County, the average daily census is about 34 beds. The average daily census for the 86 pediatric beds in the county is about 32 to 35. At the time of hearing, available data for 1998 showed a continued decline in pediatric bed demand and "[b]ased on the annualized data . . . a very slight increase" (Tr. 3402) in obstetric bed demand. The excess capacity demonstrated for the period from 1993 through 1997 remains. Although alternatives are available, they are not adequate for one reason. That reason is a competitive problem which exists in South Brevard County, discussed in Findings of Fact Nos. 91-107, below. 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), F.S. Wuesthoff does not propose its new hospital operate a joint, cooperative, or shared program with any entity except its Rockledge facility. It proposes the sharing of resources with its main facility in Rockledge. "The services that are being proposed for the South Brevard hospital [the proposed hospital] are a subset of what's there now." (Tr. 1257). The proposed services, therefore, are a duplication of existing services. There are some economies of scale and benefits enjoyed by a second campus of a hospital by virtue of the first hospital's existence, but generally, it is 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), F.S. Wuesthoff does not intend to provide equipment that is not available within the county or in adjacent districts. 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), F.S. This need is met in Brevard County. The Brevard County hospitals are active in community training programs in conjunction with Brevard County Community Hospital and the University of Florida. Holmes Regional has institutional training programs with the University of Florida, All Children's Hospital, the local vo-tech, and the University of Central Florida, in addition to other community programs. Immediate and Long-term Financial Feasibility of the Proposal: Section 408.035(1)(i), F.S. a. Immediate Financial Feasibility. Immediate financial feasibility is determined by whether the applicant has adequate financial resources to fund the capital costs of the project and the financial ability to fund short-term operation losses. The project costs projected in Schedule 1 of Wuesthoff's application, taking into account inflation and other factors arising from delays associated with this proceeding, are reasonable and appropriate. Wuesthoff proposes to finance the project with $10.5 million in existing funds and $28 million in debt financing. At the time of hearing, Wuesthoff had $51 million in cash assets on its balance sheet available to cover the $10.5 million proposed to come from existing funds. The $28 million in debt financing was proposed in the application to be provided by "proceeds from a fixed rate bond issue." (Wuesthoff No. 1, Vol. I of II, Schedule 3 Assumptions.) "The interest rate for the debt is expected to be approximately 6.5%." (Id.) As part of its case for immediate financial feasibility, Wuesthoff presented a letter from The Robinson- Humphrey Company, Inc., dated April 6, 1999. In support of the opinion that Wuesthoff would qualify for tax exempt financing, the company wrote: Based on our long relationship and thorough understanding of Wuesthoff and its strategic direction, we believe that the rating agencies, bond insurers and capital markets will react positively to the Hospital's project. In addition, based on the Hospital's ability to secure a competitive insurance bid on its Series 1996 Bonds, the Hospital will be able to secure a new competitive bond insurance policy as well as credit ratings in the "A" category from the rating agencies in conjunction with the financing to help fund a portion of the proposed facility. Based on today's market conditions, the average interest rates available on a 30-year tax-exempt bond issue would be in the range of 5.25% to 5.50% based on an "A" rating category issue and "AAA/Aaa" rated issue with bond insurance, respectively. Although it is difficult to anticipate the interest rate environment throughout 1999, we would expect rates to be in the 5.50% to 5.75% range , using recent interest history as a benchmark. (Wuesthoff No. 3, pgs. 1 and 2). After testimony with regard to the letter by Wuesthoff's witness Rebecca M. Colker, qualified as an expert in health care finance, the following colloquy between Ms. Colker and Wuesthoff's counsel took place at hearing: Now, based on your assessment of the marketplace and your investigation of the marketplace, do you have an opinion as to whether Wuesthoff has the ability to finance the project that it proposed in [its] application . . .? A. Yes, sir, I feel [Wuesthoff] has the ability to finance the project. (Tr. 179). During the hearing, but after Ms. Colker's testimony, allegations surfaced publicly that Wuesthoff had violated the law with respect to its tax-exempt status as a "501(c)(3) organization" under the Internal Revenue Code by engaging in political activity and obtaining private benefit. Proof of the violations exposes Wuesthoff to revocation of its tax-exempt status. At the time of hearing, the IRS had not determined the truth of the allegations. If the IRS determines that the violations occurred, there are penalty options available to the Service short of revocation of Wuesthoff's tax exempt status. These options are referred to as intermediate sanctions. In addition, the IRS may enter a closing agreement with the offender in which an intermediate sanction is accepted in lieu of revocation. Wuesthoff, moreover, can take certain steps in mitigation of any ultimate penalty imposed by the IRS. Wuesthoff presented evidence that "upon a resolution of the allegations of wrongdoing which falls short of revocation of Wuesthoff's tax exempt status, there will be no cloud upon Wuesthoff's ability to obtain the tax exempt debt financing it has proposed." Joint Proposed Recommended Order of Wuesthoff Memorial, Inc., and the Agency for Health Care Administration, p. 39. Such a resolution, if it is the one chosen by the IRS, can reasonably be expected to occur within a single year. In the meantime, whatever the outcome of the IRS' dealing with the allegations, their very existence jeopardizes Wuesthoff's ability to obtain tax exempt debt financing. Given what he had heard and read about the allegations, Mr. Todd Holder, an investment banker who provides "basically the same services that Robinson-Humphrey would provide to a hospital client" (Tr. 3337) testified: At this time, my firm would not underwrite these bonds [proposed by Wuesthoff] and I wouldn't imagine at this time any firm would underwrite these bonds . . . (Tr. 3339). If Wuesthoff's tax exempt status were revoked, its bonds would be in jeopardy of being called to cover loss to existing bond holders. Such action would affect its bond rating. A BBB rating would involve approximately a 3% rise in interest rates. If its rating were to fall below investment grade, the interest rate could rise 5% or more. Based on a $28 million issue, the amount Wuesthoff proposes for financing the new facility, each percentage point rise in interest rate equates to an annual debt service cost of $250,000. Furthermore, a loss of its tax exempt status would make it more difficult to obtain bond insurance. It is by no means certain that the IRS will revoke Wuesthoff's tax exempt status as explained above. When a charitable organization continues to fulfill its charitable obligations, "the IRS has, in practice, not revoked [its] tax- exempt status but tried to exact some other type of penalty." (Tr. 3600). Furthermore, when an offending organization has removed from authority the individuals responsible for the violations, the IRS considers such action to mitigate the penalty it imposes. At bottom, predicting the action of the IRS is speculative. If the IRS does revoke Wuesthoff's tax exempt status, Wuesthoff has enough cash assets on hand to build the proposed facility without resort to financing. If it comes to that, however, Wuesthoff's decision to carry the costs of construction and getting the facility off the ground in the first few years of operation without debt financing has implications for the project's long-term financial feasibility. b. Long-term financial feasibility. Historically, AHCA has defined long-term financial feasibility as at least breaking even, if not making a profit, by the end of the second year of operation. Among other matters Wuesthoff must prove in order to satisfy the test employed by AHCA historically, it must demonstrate that "projected revenues can be attained in light of the projected utilization of the proposed service and average length of stay." OR-1, p. 18. The processes used by Wuesthoff's expert to conclude that the project is financially feasible were conservative. But the processes contained flaws. Wuesthoff, for example, projects that it will have a volume of 8,327 patient days at its South Brevard campus in year one of operation and 11,224 patient days in year two. For the same time periods, it projects volumes of 50,000 patient days at its Rockledge facility for both year one and year two of operation, the same volume it projects at its Rockledge facility for the 12-month period during which the new facility will be built. The projections are not reasonable. Building the new hospital will not increase the demand for hospital services in Brevard County. Rather, patients will be reallocated. The proposed facility will receive patients who otherwise would be hospitalized at Holmes Regional or the Wuesthoff Rockledge campus. It is not reasonable, therefore, for Wuesthoff to project that its patient days at the Rockledge facility will remain the same in years one and two of operation of the new facility as during the year's period of construction. The Agency concurred with Holmes Regional's expert that Wuesthoff's utilization projections were overstated but did not see the overstatement as a problem because "while the applicant may not fully attain what is projected within the application . . . [it] will attain a level which will be successful, especially for a provider that is financially stable at this point in time and has the resources to carry out this project." (Tr. 3474). There are other flaws. Wuesthoff assumed that for the Rockledge facility pro forma all payors' reimbursement increased 4% a year for years one and two of operation resulting in a net revenue increase in excess of 9% for the two-year period. Managed care companies are typically not allowing a 4% per year increase to providers. Medicare reimbursement (the largest single payor source) was not likely to increase 4% per year prior to the Balanced Budget Act of 1997 (see finding of fact no. 86, below). Medicare is the largest payor source currently at Wuesthoff, accounting for in excess of 50% of operating revenues. It is also the largest payor source projected for the proposed project. In the wake of the Balanced Budget Act of 1997, Medicare margins have declined and are expected to continue to decline. Wuesthoff's Medicare revenue in year one of operation were overstated by 4.3% and in year two by 5.7%. Wuesthoff's expert did not assess the impact of the Balanced Budget Act on the Wuesthoff projections at the time they were made since they were made before the effective date of the Act. But he had not assessed the impact of the Act on the pro forma prepared for the new facility as of March 1999, after effects of the Act's impact were observable. Presumably, no such impact analysis was undertaken because Wuesthoff is a hospital that takes action to contain costs, a method for reducing the negative impact of the Act on a hospital's revenue. Other assumptions that underlie projections by Wuesthoff in the application are also not reasonable. Wuesthoff assumed that Medicare HMO would generate higher charges than traditional Medicare, but have a length of stay almost half the time such that the net reimbursement per case would be identical. On a per day basis, Weusthoff assumed that the Medicare and Medicaid HMO patient will generate a greater per diem reimbursement than a traditional Medicare and Medicaid patient, respectively. This is not a reasonable assumption. The assumption that commercial insurance remains a significant payor at the South Brevard campus is critical to the financial viability of the project. If the pro forma had shown a more reasonable managed care percentage and less commercial insurance in the payor mix, net revenue would decrease by approximately $280,000 in year two. The projected costs of operation at the South Brevard campus are unrealistically low because the projected salary expenses have been understated. The nursing staff will comprise almost one-third of the total hospital FTEs for years one and two at the South Brevard campus. There currently exists a nursing shortage such that hospitals in Brevard County are having to pay a several thousand dollar signing bonus when hiring nursing staff. Projected nursing salaries for the first and second year of operation were only minimally higher above what Wuesthoff was paying its nursing staff three years earlier. 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 409.035(1)(k), F.S. Wuesthoff's application does not address providing a substantial portion of its services or resources to individuals not residing in the District. The Probable Impact of the Proposed Project on the Costs of Providing Health Services Proposed by the Applicants, Including the Effect on Competition: Section 408.035(1)(l), F.S. Brevard County's Unusual Shape Brevard County is relatively narrow from East to West and extremely long from North to South, stretching 72 miles from its northern border to its southern one. Because of its unusual geographic shape, the county is easily divisible into three areas, north, central and south. North Brevard County's population was approximately 68,000 in 1998. Central Brevard County's population was approximately 168,000 and South Brevard County's was approximately 234,700. Since 1970, the share of total county growth has consistently been lowest in North Brevard County, peaking at 13% in 1990, with a projected share of total county growth in 2003 at 10.4%. Next in order, Central Brevard County's share of growth since 1970 has been on the rise but has remained substantially lower than South Brevard County's. Its share of growth in 2003 is expected to be about 38.8%. The County's "growth has been predominantly in [S]outh Brevard." (Tr. 375). In 1971, its share of total county growth was 71.1%. Although "the share of growth in [S]outh Brevard has declined over time . . . it is still about 50%." (Id.) In 2003, South Brevard County's share of total growth is projected to be 51.2%. Consistent with its higher share in total county growth, more than half of Brevard County housing starts have within recent years occurred in South Brevard County and more than half of Brevard County employers and employees are located in South Brevard County. South Brevard, for some time, has been the most populated of the county's three areas. It will continue to be the most heavily populated area for a considerable time in the future. North Brevard has one hospital: Parrish Medical Center. Central Brevard has two hospitals: Wuesthoff and Cape Canaveral Hospital. The two are operated by different hospital systems; Wuesthoff by the Wuesthoff Health System and Cape Canaveral by Health First. South Brevard has two hospital facilities: Holmes Regional Medical Center and Palm Bay Community Hospital. Unlike the situation in Central Brevard the two South Brevard facilities operate under a single hospital license and are part of one system: Health First. Markets, Monopolies, and the Exercise of Monopoly Power A great deal of evidence was introduced by both Wuesthoff and Holmes about whether or not South Brevard County, by itself, constitutes a market for purposes of economic analysis and, if so, whether Health First through its operation of the two South Brevard hospitals has a monopoly on hospital services within the market. Further evidence was introduced about whether Health First, in fact, exercises monopoly power. Wuesthoff posits that South Brevard County, in and of itself, is an economic market for purposes of economic analysis. While there was evidence that indicated that South Brevard County is a market for purposes of economic analysis, none of the experts who testified could ever recall a proceeding in which they had been involved in which an area smaller than a county had ever been found to constitute a market. Wuesthoff's approach, moreover, is problematic in a Certificate of Need proceeding (as distinguished from other types of proceedings that typically employ economic analysis, such as anti-trust proceedings.) Brevard County is one part of AHCA District VII, a district established by the Legislature for health planning purposes. The district is divided into subdistricts. Subdistrict 1 is composed of Brevard County, nothing more and nothing less. But the subdistricts are not further divided for health planning purposes. There is no question (nor any argument from Wuesthoff otherwise) that Health First does not have a monopoly on hospital services over the entire subdistrict, let alone the district. Assuming for the sake of argument that South Brevard County is a market for purposes of this proceeding and that Health First has a monopoly over hospital services in that market, Health First has not exercised its monopoly power as would typically be expected on the basis of net price. First of all, while one might expect that an entity with monopoly power would exercise it, that expectation cannot be assumed in the case of not-for-profit hospitals, such as Holmes Regional. The not-for-profit hospital "can't act like a profit- maximizing organization because of the way it is structured." (Tr. 2958). More importantly, "the economic hallmark of the exercise of monopoly power is a price above the competitive level, one that permits the earning of an above-competitive profit rate." (Tr. 2946). Holmes Regional's average net prices are 90.8% of what would be expected. In contrast, Wuesthoff's are 115.1% of what would be expected. Neither of these is "extraordinarily far from what you would expect." (Tr. 2971). In the final analysis, pricing data with regard to both list prices and net prices, no matter the payor source, does not indicate "the systematic exercise of monopoly power by Holmes . . ." (Tr. 2973), in "[S]outh Brevard County." (Tr. 2975). It is clear, however, that residents of South Brevard do not have convenient access to Brevard County hospitals other than the two Health First hospitals in South Brevard, Holmes Regional and Palm Bay Medical Center. The other Brevard County hospitals are either too far away in distance or require too much travel time to reach by automobile for most of the residents of South Brevard. Consistent with this convenience factor, 82% of the South Brevard County residents discharged from hospitals in the first six months of 1998 were discharged from Holmes Regional and Palm Bay Community. Of the remaining South Brevard County residents discharged from hospitals, the highest percentage (6%) of patients were discharged from Sebastian River Medical Center. Sebastian River, while close to some South Brevard County residents, does not provide a high enough level of services in many cases to be a reasonable substitute for Holmes Regional. Even if it is convenient to use hospital services that are close by, a patient will chose a more inconvenient hospital if the nearby hospital does not provide services of reasonable quality at reasonable prices. The two Health First hospitals provide services of reasonable quality at reasonable prices. Nonetheless, the establishment of Wuesthoff's proposed hospital would substantially increase the accessibility of South Brevard County residents to a non-Health First facility. The presence of Wuesthoff's proposed hospital in South Brevard County would offer residents of South Brevard more of a meaningful choice. In essence, granting Wuesthoff's application would produce a more competitive environment for the hospital services to be offered by Wuesthoff in South Brevard County, whether South Brevard County constitutes a market or not. Wuesthoff presents a greater question for resolution in this proceeding than whether granting the application would simply provide more competition. Even though Holmes Regional's net pricing in general does not indicate that it is exercising monopoly power in South Brevard County, is there, nonetheless, a need for a more competitive environment for hospital services in South Brevard County? The answer to that question is "yes" when one considers competition from the perspective of managed care payors. Need for Competition for Hospital Services in South Brevard County. In general, competition enhances the quality of health care services even when services being provided are of high quality. Competition also provides an incentive for hospitals, including non-profit hospitals to serve patients more efficiently. Competition lowers the costs consumers pay for hospital services. When managed care payors are able to reduce their payments to hospitals, they are able to lower the premiums paid by the "end purchaser." (Tr. 609). If the end purchaser is an employer, the "employer then makes [its] business decision internally as to how much of that cost is passed along to the individual employee." (Id.) This effect of competition is the basis for a number of managed care contractors and employers' vigorous support of Wuesthoff's application, the success of which will create competition in South Brevard County. Wuesthoff's proposed hospital will spur competition which will benefit consumers by lowering Holmes Regional's prices. Managed care helps contain costs and injects price sensitivity into the market. At the same time, higher levels of hospital concentration are associated with lower levels of discounting to managed care companies. Managed care penetration has been increasing in Brevard County. In South Brevard County, managed care penetration has increased but mainly due to increase in enrollment in HFHP, Health First's managed care plan. Managed care penetration in South Brevard County achieved by HFHP "in itself is not the issue." (HRMC No. 75, p. 32.) With only one active HMO in South Brevard County, there is no incentive to achieve better rates for the ultimate consumers especially if the main HMO is part of the same organization as the hospital as in this case. "[I]f you have several large commercial plans . . . they will be able to get better rates from Holmes Regional than if you only have one." (Id., p. 32-33). Commercial HMO inability to contract with HRMC was considered by the agency as the most important factor in approving Wuesthoff's application. Health maintenance organizations, other than HFHP, do not have meaningful competitive ability to compete with HFHP in South Brevard County. In recognition of their inability to use Central Brevard County hospitals or Sebastian River Medical Center as substitutes, and to avoid losses caused by the lack of hospital competition in South Brevard County, Aetna and United, two large managed care payors in Brevard County, have embarked on an exit strategy with regard to South Brevard County. It is difficult for managed care payors to steer south Brevard residents to central Brevard hospitals. Patients are generally unwilling to change physicians when it becomes necessary to enter a hospital. Discharge data demonstrates the lack of overlap in physician privileges between South and Central Brevard. The Central Florida Health Care Coalition, an organization comprised of businesses and formed to address health care issues which includes the largest of Brevard County employers, supports Wuesthoff's application because of the competition it will create and a number of consumers expressed support for the Wuesthoff application based on the need for competition in South Brevard County. In contrast, not a single employer, large or small, testified in support of opposition to the application. Wuesthoff's new hospital would provide an alternative for managed care payors to negotiate hospital prices in South Brevard County. More favorable hospital prices in managed care contracts, in turn, would lead to managed care premiums that would be lower for managed care customers. Lower health care premiums enable larger numbers of consumers to purchase health care coverage, thereby reducing the number of persons who have no source of payments for health care services. The ability of managed care plans to negotiate hospital prices is dependent upon ability to engage in selective contracting, the ability of a managed care plan to refuse to include a hospital in its network of providers. Selective contracting induces hospitals to offer discounted prices to assure participation in a managed care plan's network of hospitals in order to avoid losing the managed care plan's business to other competitive hospitals. Selective contracting can only be an effective strategy if managed care contractors have meaningful choices among hospital providers. In Brevard County, only in the central area do managed care plans have more than one hospital system from which to choose meaningfully and only in Central Brevard County has there been any real competition among hospitals for managed care contracts. Holmes Regional does not face the threat of a loss of business if it refuses to contract with any one managed care plan because South Brevard residents for the most part will not seek hospital services outside South Brevard County. Without the threat of a loss of business, Holmes Regional has little, if any, incentive to offer reduced prices to managed care plans. The lack of incentive for Holmes Regional to reduce prices to managed care plans was demonstrated by several analyses, including one showing that from 1995 through 1998, net prices paid by all managed care contractors to Holmes Regional were on average 32% higher per year than those paid to Wuesthoff, which has competition from another hospital in Central Brevard County Apart from pricing analyses, the lack of competition in the managed care arena for Holmes Regional was demonstrated by its ability to resist entry into any per diem managed care contracts despite efforts by some managed care contractors to negotiate such agreements with Holmes Regional. Per diem contracts are a favored from of contracting by managed care payors because they tend to enable managed care payors to predict the level of hospital payment to which they will be exposed. Such contracts are commonly found where there is competition among hospitals. In contrast, as is to be expected of a hospital in a competitive environment, most of Wuesthoff's contract with managed care payors are per diem contracts. The Applicant's Past and Proposed Provision of Health Care Services to Medicaid Patients and the Medically Indigent: Section 408.035(1)(n), F.S. Wuesthoff has "a history of providing care to the medically indigent population." (Tr. 1244). Its commitment to continue to provide such care at the proposed facility has been discussed. Whether Less Costly, More Efficient, or More Appropriate Alternatives to the Proposed Inpatient Services are Available: Section 408.035(2)(a), F.S. The greater weight of the evidence establishes that denial of the application is less costly and more efficient. The new facility will cost $38 million to build. At the same time, existing providers are operating efficiently and have unused capacity. In fact, there is insufficient utilization of the inpatient acute care services in existence in Brevard County. The subdistrict occupancy rate is "about 54% . . .[with] at least [hundreds of] beds that are unoccupied at any point in time with the county." (Tr. 3385). Whether the alternative of denying the application is more appropriate in light of the cost of the project and efficiency considerations turns on the weight to be given Wuesthoff's case for the need for competition in the managed care arena in South Brevard County. Whether the Existing Facilities Providing Similar Inpatient Services are being Used in an Appropriate and Efficient Manner: Section 408.035(2)(b), F.S. Existing facilities are being used in an efficient manner. Whether the status quo is appropriate, again, turns on the weight to be given Wuesthoff's case for the need for competition. 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), F.S. There was no evidence that patients will experience serious problems in obtaining inpatient care of the type proposed by Wuesthoff for its South Brevard County if the application is not granted. Rule Criteria Rule 59C-1.030, Florida Administrative Code, sets forth "health care access criteria . . . [i]n addition to criteria set forth in Section 408.035, Florida Statutes . . .". Among the criteria are [t]he contribution of the proposed service in meeting the health needs of members of such medically underserved groups, particularly those needs identified in the . . . State Health Plan as deserving of priority." The first State Health Plan preference favors an applicant that provides a disproportionate share of Medicaid and charity care patient days in relation to other hospitals within the subdistrict. Wuesthoff has provided its fair share of Medicaid and charity care patient days in the past and proposes to continue to do so at the new facility if approved. But Wuesthoff is not a disproportionate share provider. As to the second preference which 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 preference in that it proposes to provide indigent care. But, Medicaid and indigent members of the population were not shown to have been denied access to hospital services in Brevard County. Approval of the facility, moreover, will not improve access or increase the number of beds since approval will result in a net loss of 50 beds in the county. The fourth preference favors an applicant with a record of accepting indigent patients for emergency care. Wuesthoff meets the preference. The fifth preference favors applicants for a type of hospital project if the facility is verified as a trauma center. Holmes Regional will remain the only verified trauma center in the subdistrict, even if the application is approved. The sixth preference favors applicants who document that they provide a full range of emergency services. The new facility will provide emergency services but not a full range unless the emergency services provided by Wuesthoff at its Rockledge campus are considered. Because the 50-bed hospital will not provide tertiary services nor high-level trauma services, "[t]he complicated or trauma cases will . . . go to Holmes Regional Medical Center" (Tr. 3384), the hospital campus closest to the new facility. The seventh preference favors applicants not fined by AHCA for any violation of emergency service statutes. Wuesthoff meets this preference. The eighth preference favors applicants who demonstrate that the subdistrict occupancy rate is at least 75%, or in the case of exiting facilities, where the occupancy rate for the most recent 12 months is at least 85%. Wuesthoff did not show that it meets this preference. The ninth preference of the State Health Plan favors an applicant with a history of providing a disproportionate share of the subdistrict's acute care and Medicaid patient days and is a Medicaid disproportionate share provider. Wuesthoff does not meet this preference.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is recommended that the Agency for Health Care Administration enter a final order denying Wuesthoff Memorial Hospital, Inc.'s application for CON 8740. DONE AND ENTERED this 12th day of July, 2000, in Tallahassee, Leon County, Florida. 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 12th day of July, 2000. COPIES FURNISHED: Richard A. Patterson, Esquire Agency for Health Care Administration Fort Knox Building Three, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 Terry Rigsby, Esquire Blank, Rigsby & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301 Stephen K. Boone, Esquire Boone, Boone, Boone & Hines, P.A. Post Office Box 1596 Venice, Florida 34284-1596 David C. Ashburn, Esquire Smith & Ashburn, P.A. 1330 Thomasville Road Tallahassee, Florida 32303 Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building Three, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 Julie Gallagher, General Counsel Agency for Health Care Administration Fort Knox Building Three, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403
Conclusions THE PARTIES resolved all disputed issues and executed a Settlement Agreement. The parties are directed to comply with the terms of the attached settlement agreement. Based on the foregoing, this file is CLOSED. DONE and ORDERED on this the day of &kvacy , 2010, in Tallahassee, Florida. 1 Filed February 26, 2010 3:40 PM Division of Administrative Hearings. A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO A JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF ARCA, AND A SECOND COPY ALONG WITH FILING FEE AS PRESCRIBED BYLAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED. Copies furnished to: David W. Nam, Esquire Agency for Health Care Administration (Interoffice Mail) Joanne B. Erde, P.A. Duane Morris LLP 200 South Biscayne Boulevard Suite 3400 Miami, Florida 33131 (U.S. Mail) Donna Holshouser Stinson Broad and Cassel 215 South Monroe Street, Suite 400 P.O. Drawer 11300 Tallahassee, Florida 32302 (U.S. Mail) Bureau of Medicaid Program Analysis Attn: Michele Hudson, Bureau Chief CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished to the above named addressees by U.S. Mail or electronic transmission on this the f 7,2010. Richard Shoop, Esquire Agency Clerk State of Florida Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308-5403 (850) 922-5873 : '
Conclusions THIS CAUSE comes before the State of Florida, Agency for Health Care Administration (“the Agency") concerning Certificate of Need (“CON”) Application No. 10194, submitted by Hope Hospice and Community Services, Inc. (“Hope Hospice”), to establish a 24-bed freestanding inpatient hospice facility in Lee County, AHCA District 8, Service Area 8C. 1. On August 19, 2013, the Agency published notice of its preliminary decision to deny CON Application No. 10194. (Ex. 1) 2. On August 23, 2013, Hope Hospice filed a petition for hearing challenging the preliminary denial of CON Application No. 10194. The matter was referred to the Division of Administrative Hearings (“DOAH”). 3. The parties have since entered into the attached settlement agreement (Ex. 2), which is adopted and incorporated into this Final Order. It is therefore ORDERED: 4. CON Application No. 10194 is approved subject to the terms and conditions set forth in the Settlement Agreement. Filed June 17, 2014 4:41 PM Division of Administrative Hearings ORDERED in Tallahassee, Florida, on this { 3 day of Creene.. 2014. Agency for Health Care Administration
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to judicial review, which shall be instituted by filing one copy of a notice of appeal with the Agency Clerk of AHCA, and a second copy, along with filing fee as prescribed by law, with the District Court of Appeal in the appellate district where the Agency maintains its headquarters or where a party resides. Review of proceedings shall be conducted in accordance with the Florida appellate rules. The Notice of Appeal must be filed within 30 days of rendition of the order to be reviewed. CERTIFICATE OF SERVICE I CERTIFY that a true and correct copy of this Final Order was served on the below- named persons by the method designated on this/ 6 4 day of [ ow . 2014. Ll WA Ka Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop #3 Tallahassee, Florida 32308 (850) 412-3630 Facilities Intake Unit Lorraine M. Novak, Esquire Agency for Health Care Administration Office of the General Counsel (Electronic Mail) Agency for Health Care Administration (Electronic Mail) David M. Maloney John Robert Griffin, Esquire Administrative Law Judge Hope Hospice and Community Services, Inc. Division of Administrative Hearings 9470 HealthPark Circle www.doah.state.fl.us Fort Myers, Florida 33908 (Electronic Mail) Bob.Griffin@hopehes.org (Electronic Mail) James McLemore, Supervisor Certificate of Need Unit Agency for Health Care Administration (Electronic Mail) Florida Administrative Register Volume 39, Number 161, August 19, 2013 Section XI Notices Regarding Bids, Proposals and Purchasing NONE Section XII Miscellaneous AGENCY FOR HEALTH CARE ADMINISTRATION Certificate of Need DECISIONS ON BATCHED APPLICATIONS The Agency for Health Care Administration made the following decisions on Certificate of Need applications for Other Beds and Programs batching cycle with an application due date of May 15, 2013: County: Hillsborough Service District: 6 CON # 10191 Decision Date: 8/16/2013 Facility/Project/Applicant: LifePath Hospice, Inc. Project Description: Establish an eight-bed inpatient hospice facility Approved Cost: $0 County: Charlotte Service District: 8 CON # 10192 Decision Date: 8/16/2013 Facility/Project/Applicant: Tidewell Hospice, Inc. Project Description: Establish a seven-bed inpatient hospice facility Approved Cost: $73,113.00 County: Desoto Service District: 8 CON # 10193 Decision Date: 8/16/2013 Facility/Project/Applicant: Tidewell Hospice, Inc. Project Description: Establish an eight-bed inpatient hospice facility Approved Cost: $49,035.00 County: Lee Service District: 8 CON # 10194 Decision Date: 8/16/2013 Decision: D Facility/Project/Applicant: Hope Hospice and Community Services, Inc. Project Description: Establish a 24-bed inpatient hospice facility Approved Cost: $0 Decision: D Decision: A Decision: A 4168 A request for administrative hearing, if any, must be made in writing and must be actually received by this department within 21 days of the first day of publication of this notice in the Florida Administrative Register pursuant to Chapter 120, Florida Statutes, and Chapter 59C-1, Florida Administrative Code. DEPARTMENT OF HEALTH Board of Occupational Therapy Notice of Emergency Action On August 15, 2013, the State Surgeon General issued an Order of Emergency Restriction Order with regard to the license of Darren Henry Combass, P.T.A., License # PTA 18687. This Emergency Restriction Order was predicated upon the State Surgeon General's findings of an immediate and serious danger to the public health, safety and welfare pursuant to Sections 456.073(8) and 120.60(6), Florida Statutes (2011). The State Surgeon General determined that this summary procedure was fair under the circumstances, in that there was no other method available to adequately protect the public. DEPARTMENT OF HEALTH Board of Occupational Therapy Notice of Emergency Action On August 15, 2013, the State Surgeon General issued an Order of Emergency Suspension Order with regard to the license of Michelle C. Broach, O.T., License # OT 9470. This Emergency Restriction Order was predicated upon the State Surgeon General’s findings of an immediate and serious danger to the public health, safety and welfare pursuant to Sections 456.073(8) and 120.60(6), Florida Statutes (2011). The State Surgeon General determined that this summary procedure was fair under the circumstances, in that there was no other method available to adequately protect the public. DEPARTMENT OF HEALTH Board of Occupational Therapy Notice of Emergency Action On August 15, 2013, the State Surgeon General issued an Order of Emergency Suspension Order with regard to the license of Melissa Terpos, R.P.T., License # RPT 39879. This Emergency Suspension Order was predicated upon the State EXHIBIT 1
Findings Of Fact On December 6, 1975 deputies from the Lee County Sheriff's Department entered the apartment of Helen Riggin and found marijuana and prescription drugs not issued to Respondent. Respondent admitted to the deputies that the drugs were in her possession without authority and that some of them had been prescribed for patients but converted by her for her own use. Miss Riggin immediately called the hospital to advise the Assistant Vice President of Nursing that she had been arrested by the Sheriff's Department. Riggin was advised not to come to work over the weekend, but to report to the Vice President of Nursing on Monday morning. At the Monday, December 8, 1975 meeting at the hospital Miss Riggin advised the Vice President of Nursing of the facts and circumstances surrounding her arrest the previous Saturday, and of the charges preferred against her. She was then suspended from further duty at Lee County Memorial Hospital. During the next three and one half to four months Miss Riggin worked as a waitress in Ft. Myers. Prior to the time Riggin's trial in the courts of Lee County was to be heard a Motion to Suppress the Evidence Seized was granted by the Circuit Court on the ground that the search was illegal and a violation of Miss Riggin's constitutional rights. Thereafter the charges against Miss Riggin were dropped by the State Attorney's office. Immediately thereafter, on March 31, 1976, Miss Riggin was re-employed by the Lee County Memorial Hospital with full knowledge of the circumstances surrounding her encounter with the Lee County Sheriff's Department and the State Attorney's Office. The Vice President of Nursing and the Assistant Vice President of Nursing at Lee County Memorial Hospital each have been R.N.'s more than 30 years. Both were fully aware of the acts committed by Respondent at the time she was rehired by the hospital and both recommended that Miss Riggin be permitted to continue to work as a R.N. at the hospital. In addition to the two senior nurses at Lee County Memorial Hospital, supervisors and coworkers of Miss Riggin also recommended that she be permitted to continue as a R.N. at the hospital. Miss Riggin is a conscientious, capable, dedicated and serious young lady who fully realizes the magnitude of the offenses of which she has been charged. She enjoys the profession of nursing and is rated by her superiors and coworkers as a very capable young nurse they would be pleased to have work with them. At the time she took the controlled substances or drugs from the hospital she was attempting to treat herself with the medication. She now fully realizes the error of judgment she exercised in trying to medicate herself. The marijuana seized in her apartment had been in her possession for a long period of time and none had ever been used by Respondent. Miss Riggin never gave any of the medication found in her possession to anyone else.
Findings Of Fact At all times relevant hereto Daniel Francis Sanchez was licensed as a physician by the Florida Board of Medical Examiners having been issued license number ME0038795. At all times relevant hereto Respondent was Regional Medical Director of IMC which operated HMO offices in Hillsborough and Pinellas Counties. On October 17, 1985, Alexander Stroganow, an 84 year old Russian immigrant and former cossack, who spoke and understood only what English he wanted to, suffered a fall and was taken to the emergency room at Metropolitan General Hospital. He was checked and released without being admitted for inpatient treatment. Later that evening his landlady thought Stroganow needed medical attention and again called the Emergency Medical Service. The ambulance with EMS personnel arrived and concluded Stroganow was no worse than earlier when taken to the emergency room and they refused to transport him again to the hospital. The landlady then called the HRS hotline to report abuse of the elderly. The following morning, October 18, 1985, an HRS case worker was dispatched to the place where Stroganow lived. She was let in by the landlady and found an 84 year old man who was incontinent, incoherent, apparently paralyzed from the waist down, with whom she could not carry on a conversation to find out what condition he was in. She called for a Cares Unit to come and evaluate the client. An HRS Cares Unit is a two person team consisting of a social worker and nurse whose primary function is to screen clients for admission to nursing homes and adult congregate living facilities (ACLF). The nurse on the team carries no medical equipment such as a stethoscope, blood pressure cuff, or thermometer, but makes her determination on visual examination only. Upon arrival of the Cares Unit both members felt Stroganow needed to be placed where he could be attended. A review of his personal effects produced by his landlady showed his income to be over the maximum for which he could qualify for medicaid placement in a nursing home; that he was a member of IMC's Gold- Plus HMO; his social security card; and several medications, some of which had been prescribed by Dr. Dayton, a physician employed by IMC at the South Pasadena Clinic. The Cares team ruled out ACLF placement for Stroganow at the time because he was not ambulatory but felt he needed to be placed where he could be attended to and not left alone over the coming weekend. To accomplish this, they proceeded to the South Pasadena HMO clinic of IMC to lay the problem on Dr. Dayton, the Assistant Medical Director for IMC in charge of the South Pasadena Clinic. Stroganow had been a client of the South Pasadena HMO for some time and was well known at the clinic and by EMS personnel. There were two and sometimes three doctors who treated patients at this clinic and, unless the patient requested a specific doctor, he was treated by the first doctor available. Stroganow had not specifically requested he be treated by Dr. Dayton. When the Cares team met with Dr. Dayton they advised him that Stroganow had been taken to Metropolitan General Hospital Emergency Room the night before but did not advise Dayton that the EMS team had refused to transport Stroganow to the hospital emergency room a second time the previous evening. Dayton telephoned the emergency room at Metropolitan General to ascertain the medical condition of Stroganow when brought in the evening before. With the information provided by the Cares team and the hospital, Dayton concluded that Stroganow should be given a medical evaluation and the quickest way for that to occur was to call the EMS and have Stroganow taken to an emergency room for evaluation. When the Cares team arrived, Dayton was treating patients at the clinic. A doctor's office, or clinic, is not a desirable place to have an incontinent, incoherent, non- ambulatory patient brought to wait with other patients until a doctor is free to see him. Nor is the clinic equipped to do certain procedures frequently needed in diagnosing the illness and determining treatment needed for an acutely ill patient. EMS squads usually arrive within minutes of a call to 911 for emergency medical assistance and it was necessary for someone to be with Stroganow with the EMS squad arrived. Accordingly, Dayton suggested that the Cares team return to Stroganow and call 911 for assistance in obtaining a medical evaluation of Stroganow. If called from the HMO office, the EMS squad would have arrived long before the Cares team could have gotten back to Stroganow. Dr. Dayton did not have admitting privileges at any hospital in Pinellas County at this time. Upon leaving the South Pasadena HMO clinic, the Cares team returned to Stroganow. Enroute, they stopped to call a supervisor at HRS to report that the HMO had not solved their problem. The supervisor then called the Administrator at IMC to tell them that one of their Gold-Plus patients had an emergency situation. Respondent, Dr. Sanchez, called and advised that Dr. Dayton would take care of the problem. Later, around 2:00 p.m. when no ambulance had arrived, the Cares team called 911 from a telephone a block away from Stroganow's residence and arrived back just before the emergency squad. The EMS squad again refused to transport Stroganow to an emergency room and this information was passed back to Sanchez who directed that Stroganow be taken to Lake Seminole Hospital. This was the first time either Dayton or Sanchez was aware that the EMS squad had refused to transport Stroganow to an emergency room. Although Sanchez did not have admitting privileges at Lake Seminole Hospital, IMC had a contractual agreement with Lake Seminole which provided that certain staff doctors at Lake Seminole would admit patients referred to Lake Seminole by IMC. Pursuant to this contractual arrangement, Stroganow was admitted to Lake Seminole Hospital where he was treated for his injuries and evaluated for his future medical needs.
The Issue Whether the certificate of need (CON) applications filed by New Port Richey Hospital, Inc., d/b/a Community Hospital of New Port Richey (Community Hospital) (CON No. 9539), and Morton Plant Hospital Association, Inc., d/b/a North Bay Hospital (North Bay) (CON No. 9538), each seeking to replace and relocate their respective general acute care hospital, satisfy, on balance, the applicable statutory and rule criteria.
Findings Of Fact The Parties AHCA AHCA is the single state agency responsible for the administration of the CON program in Florida pursuant to Chapter 408, Florida Statutes (2000). The agency separately reviewed and preliminarily approved both applications. Community Hospital Community Hospital is a 300,000 square feet, accredited hospital with 345 licensed acute care beds and 56 licensed adult psychiatric beds, located in southern New Port Richey, Florida, within Sub-District 5-1. Community Hospital is seeking to construct a replacement facility approximately five miles to the southeast within a rapidly developing suburb known as "Trinity." Community Hospital currently provides a wide array of comprehensive inpatient and outpatient services and is the only provider of obstetrical and adult psychiatric services in Sub-District 5-1. It is the largest provider of emergency services in Pasco County with approximately 35,000 visits annually. It is also the largest provider of Medicaid and indigent patient days in Sub-District 5-1. Community Hospital was originally built in 1969 and is an aging facility. Although it has been renovated over time, the hospital is in poor condition. Community Hospital's average daily census is below 50 percent. North Bay North Bay is a 122-bed facility containing 102 licensed acute care beds and 20 licensed comprehensive medical rehabilitation beds, located approximately one mile north of Community Hospital in Sub-District 5-1. It serves a large elderly population and does not provide pediatric or obstetrical care. North Bay is also an aging facility and proposes to construct a replacement facility in the Trinity area. Notably, however, North Bay has spent approximately 12 million dollars over the past three years for physical improvements and is in reasonable physical condition. Helen Ellis Helen Ellis is an accredited hospital with 150 licensed acute care beds and 18 licensed skilled nursing unit beds. It is located in northern Pinellas County, approximately eight miles south of Community Hospital and nine miles south of North Bay. Helen Ellis provides a full array of acute care services including obstetrics and cardiac catheterization. Its daily census average has fluctuated over the years but is approximately 45 percent. Mease Mease operates two acute care hospitals in Pinellas County including Mease Dunedin Hospital, located approximately 18 to 20 miles south of the applicants and Mease Countryside Hospital, located approximately 16 to 18 miles south of Community and North Bay. Each hospital operates 189 licensed beds. The Mease hospitals are located in the adjacent acute care sub-district but compete with the applicants. The Health Planning District AHCA's Health Planning District 5 consists of Pinellas and Pasco Counties. U.S. Highway 41 runs north and south through the District and splits Pasco County into Sub- District 5-1 and Sub-District 5-2. Sub-District 5-1, where Community Hospital and North Bay are located, extends from U.S. 41 west to the Gulf Coast. Sub-District 5-2 extends from U.S. 41 to the eastern edge of Pasco County. Pinellas County is the most densely populated county in Florida and steadily grows at 5.52 percent per year. On the other hand, its neighbor to the north, Pasco County, has been experiencing over 15 percent annual growth in population. The evidence demonstrates that the area known as Trinity, located four to five miles southeast of New Port Richey, is largely responsible for the growth. With its large, single- owner land tracts, Trinity has become the area's fuel for growth, while New Port Richey, the older coastal anchor which houses the applicants' facilities, remains static. In addition to the available land in Trinity, roadway development in the southwest section of Pasco County is further fueling growth. For example, the Suncoast Highway, a major highway, was recently extended north from Hillsborough County through Sub-District 5-1, west of U.S. 41. It intersects with several large east-west thoroughfares including State Road 54, providing easy highway access to the Tampa area. The General Proposals Community Hospital's Proposal Community Hospital's CON application proposes to replace its existing, 401-bed hospital with a 376-bed state- of-the-art facility and relocate it approximately five miles to the southeast in the Trinity area. Community Hospital intends to construct a large medical office adjacent to its new facility and provide all of its current services including obstetrical care. It does not intend to change its primary service area. North Bay's Proposal North Bay's CON application proposes to replace its existing hospital with a 122-bed state-of-the-art facility and also plans to relocate it approximately eight miles to the southeast in the Trinity area of southwestern Pasco County. North Bay intends to provide the same array of services it currently offers its patients and will not provide pediatric and obstetrical care in the proposed facility. The proposed relocation site is adjacent to the Trinity Outpatient Center which is owned by North Bay's parent company, Morton Plant. The Outpatient Center offers a full range of diagnostic imaging services including nuclear medicine, cardiac nuclear stress testing, bone density scanning, CAT scanning, mammography, ultrasound, as well as many others. It also offers general and specialty ambulatory surgical services including urology; ear, nose and throat; ophthalmology; gastroenterology; endoscopy; and pain management. Approximately 14 physician offices are currently located at the Trinity Outpatient Center. The Condition of Community Hospital Facility Community Hospital's core facilities were constructed between 1969 and 1971. Additions to the hospital were made in 1973, 1975, 1976, 1977, 1979, 1981, 1992, and 1999. With an area of approximately 294,000 square feet and 401 licensed beds, or 733 square feet per bed, Community Hospital's gross area-to-bed ratio is approximately half of current hospital planning standards of 1,600 square feet per bed. With the exception of the "E" wing which was completed in 1999, all of the clinical and support departments are undersized. Medical-Surgical Beds And Intensive Care Units Community Hospital's "D" wing, constructed in 1975, is made up of two general medical-surgical unit floors which are grossly undersized. Each floor operates 47 general medical-surgical beds, 24 of which are in three-bed wards and 23 in semi-private rooms. None of the patient rooms in the "D" wing have showers or tubs so the patients bathe in a single facility located at the center of the wing on each floor. Community Hospital's "A" wing, added in 1973, is situated at the west end of the second floor and is also undersized. It too has a combination of semi-private rooms and three-bed wards without showers or tubs. Community Hospital's "F" wing, added in 1979, includes a medical-surgical unit on the second and third floor, each with semi-private and private rooms. The second floor unit is centrally located between a 56-bed adult psychiatric unit and the Surgical Intensive Care Unit (SICU) which creates security and privacy issues. The third floor unit is adjacent to the Medical Intensive Care Unit (MICU) which must be accessed through the medical-surgical unit. Neither intensive care unit (ICU) possesses an isolation area. Although the three-bed wards are generally restricted to in-season use, and not always full, they pose significant privacy, security, safety, and health concerns. They fail to meet minimum space requirements and are a serious health risk. The evidence demonstrates that reconfiguring the wards would be extremely costly and impractical due to code compliance issues. The wards hinder the hospital's acute care utilization, and impair its ability to effectively compete with other hospitals. Surgical Department and Recovery Community Hospital's surgical department is separated into two locations including the main surgical suite on the second floor and the Endoscopy/Pain Management unit located on the first floor of "C" wing. Consequently, the department cannot share support staff and space such as preparation and recovery. The main surgical suite, adjacent recovery room, and central sterile processing are 25 years old. This unit's operating rooms, cystoscopy rooms, storage areas, work- stations, central sterile, and recovery rooms are undersized and antiquated. The 12-bay Recovery Room has no patient toilet and is lacking storage. The soiled utility room is deficient. In addition, the patient bays are extremely narrow and separated by curtains. There is no direct connection to the sterile corridor, and staff must break the sterile field to transport patients from surgery to recovery. Moreover, surgery outpatients must pass through a major public lobby going to and returning from surgery. The Emergency Department Community Hospital's existing emergency department was constructed in 1992 and is the largest provider of hospital emergency services in Pasco County, handling approximately 35,000 visits per year. The hospital is also designated a "Baker Act" receiving facility under Chapter 394, Florida Statutes, and utilizes two secure examination rooms for emergent psychiatric patients. At less than 8,000 total square feet, the emergency department is severely undersized to meet the needs of its patients. The emergency department is currently undergoing renovation which will connect the triage area to the main emergency department. The renovation will not enlarge the entrance, waiting area, storage, nursing station, nor add privacy to the patient care areas in the emergency department. The renovation will not increase the total size of the emergency department, but in fact, the department's total bed availability will decrease by five beds. Similar to other departments, a more meaningful renovation cannot occur within the emergency department without triggering costly building code compliance measures. In addition to its space limitations, the emergency department is awkwardly located. In 1992, the emergency department was relocated to the front of the hospital and is completely separated from the diagnostic imaging department which remained in the original 1971 building. Consequently, emergency patients are routinely transported across the hospital for imaging and CT scans. Issues Relating to Replacement of Community Hospital Although physically possible, renovating and expanding Community Hospital's existing facility is unreasonable. First, it is cost prohibitive. Any significant renovation to the 1971, 1975, 1977, and 1979 structures would require asbestos abatement prior to construction, at an estimated cost of $1,000,000. In addition, as previously noted, the hospital will be saddled with the major expense of complying with all current building code requirements in the 40-year-old facility. Merely installing showers in patient rooms would immediately trigger a host of expensive, albeit necessary, code requirements involving access, wiring, square footage, fireproofing columns and beams, as well as floor/ceiling and roof/ceiling assemblies. Concurrent with the significant demolition and construction costs, the hospital will experience the incalculable expense and loss of revenue related to closing major portions, if not all, of the hospital. Second, renovation and expansion to the existing facility is an unreasonable option due to its physical restrictions. The 12'4" height of the hospital's first floor limits its ability to accommodate HVAC ductwork large enough to meet current ventilation requirements. In addition, there is inadequate space to expand any department within the confines of the existing hospital without cannibalizing adjacent areas, and vertical expansion is not an option. Community Hospital's application includes a lengthy Facility Condition Assessment which factually details the architectural, mechanical, and electrical deficiencies of the hospital's existing physical plant. The assessment is accurate and reasonable. Community Hospital's Proposed Replacement Community Hospital proposes to construct a six- story, 320 licensed beds, acute care replacement facility. The hospital will consist of 548,995 gross square feet and include a 56-bed adult psychiatric unit connected by a hallway to the first floor of the main hospital building. The proposal also includes the construction of an adjacent medical office building to centralize the outpatient offices and staff physicians. The evidence establishes that the deficiencies inherent in Community Hospital's existing hospital will be cured by its replacement hospital. All patients will be provided large private rooms. The emergency department will double in size, and contain private examination rooms. All building code requirements will be met or exceeded. Patients and staff will have separate elevators from the public. In addition, the surgical department will have large operating rooms, and adequate storage. The MICU and SICU will be adjacent to each other on the second floor to avoid unnecessary traffic within the hospital. Surgical patients will be transported to the ICU via a private elevator dedicated to that purpose. Medical-surgical patient rooms will be efficiently located on the third through sixth floors, in "double-T" configuration. Community Hospital's Existing and Proposed Sites Community Hospital is currently located on a 23-acre site inside the southern boundary of New Port Richey. Single- family homes and offices occupy the two-lane residential streets that surround the site on all sides. The hospital buildings are situated on the northern half of the site, with the main parking lot located to the south, in front of the main entrance to the hospital. Marine Parkway cuts through the southern half of the site from the west, and enters the main parking lot. A private medical mall sits immediately to the west of the main parking lot and a one-acre storm-water retention pond sits to the west of the mall. A private medical office building occupies the south end of the main parking lot and a four-acre drainage easement is located in the southwest corner of the site. Community Hospital's administration has actively analyzed its existing site, aging facility, and adjacent areas. It has commissioned studies by civil engineers, health care consultants, and architects. The collective evidence demonstrates that, although on-site relocation is potentially an option, on balance, it is not a reasonable option. Replacing Community Hospital on its existing site is not practical for several reasons. First, the hospital will experience significant disruption and may be required to completely close down for a period of time. Second, the site's southwestern large four-acre parcel is necessary for storm-water retention and is unavailable for expansion. Third, a reliable cost differential is unknown given Community Hospital's inability to successfully negotiate with the city and owners of the adjacent medical office complexes to acquire additional parcels. Fourth, acquiring other adjacent properties is not a viable option since they consist of individually owned residential lots. In addition to the site's physical restrictions, the site is hindered by its location. The hospital is situated in a neighborhood between small streets and a local school. From the north and south, motorists utilize either U.S. 19, a congested corridor that accommodates approximately 50,000 vehicles per day, or Grand and Madison Streets, two-lane streets within a school zone. From the east and west, motorists utilize similar two-lane neighborhood streets including Marine Parkway, which often floods in heavy rains. Community Hospital's proposed site, on the other hand, is a 53-acre tract positioned five miles from its current facility, at the intersection of two major thoroughfares in southwestern Pasco County. The proposed site offers ample space for all facilities, parking, outpatient care, and future expansion. In addition, Community Hospital's proposed site provides reasonable access to all patients within its existing primary service area made up of zip codes 34652, 34653, 34668, 34655, 34690, and 34691. For example, the average drive times from the population centers of each zip code to the existing site of the hospital and the proposed site are as follows: Zip code Difference Existing site Proposed site 34652 3 minutes 14 minutes 11 minutes 34653 8 minutes 11 minutes 3 minutes 34668 15 minutes 21 minutes 6 minutes 34655 11 minutes 4 minutes -7 minutes 34690 11 minutes 13 minutes 2 minutes 34691 11 minutes 17 minutes 6 minutes While the average drive time from the population centroids of zip codes 34653, 34668, 34690, and 34691 to the proposed site slightly increases, it decreases from the Trinity area, where population growth has been most significant in southwestern Pasco County. In addition, a motorist's average drive time from Community Hospital's existing location to its proposed site is only 10 to 11 minutes, and patients utilizing public transportation will be able to access the new hospital via a bus stop located adjacent to the proposed site. The Condition of North Bay Facility North Bay Hospital is also an aging facility. Its original structure and portions of its physical plant are approximately 30 years old. Portions of its major mechanical systems will soon require replacement including its boilers, air handlers, and chillers. In addition, the hospital is undersized and awkwardly configured. Despite its shortcomings, however, North Bay is generally in good condition. The hospital has been consistently renovated and updated over time and is aesthetically pleasing. Moreover, its second and third floors were added in 1986, are in good shape, and structurally capable of vertical expansion. Medical Surgical Beds and ICU Units By-in-large, North Bay is comprised of undersized, semi-private rooms containing toilet and shower facilities. The hospital does not have any three-bed wards. North Bay's first floor houses all ancillary and support services including lab, radiology, pharmacy, surgery, pre-op, post-anesthesia recovery, central sterile processing and supply, kitchen and cafeteria, housekeeping and administration, as well as the mechanical, electrical, and facilities maintenance and engineering. The first floor also contains a 20-bed CMR unit and a 15-bed acute care unit. North Bay's second and third floors are mostly comprised of semi-private rooms and supporting nursing stations. Although the rooms and stations are not ideally sized, they are in relatively good shape. North Bay utilizes a single ICU with ten critical care beds. The ICU rooms and nursing stations are also undersized. A four-bed ICU ward and former nursery are routinely used to serve overflow patients. Surgery Department and Recovery North Bay utilizes a single pre-operative surgical room for all of its surgery patients. The room accommodates up to five patient beds, but has limited space for storage and pre-operative procedures. Its operating rooms are sufficiently sized. While carts and large equipment are routinely stored in hallways throughout the surgical suite, North Bay has converted the former obstetrics recovery room to surgical storage and has made efficient use of other available space. North Bay operates a small six-bed Post Anesthesia Care Unit. Nurses routinely prepare patient medications in the unit which is often crowded with staff and patients. The Emergency Department North Bay has recently expanded its emergency department. The evidence demonstrates that this department is sufficient and meets current and future expected patient volumes. Replacement Issues Relating to North Bay While it is clear that areas of North Bay's physical plant are aging, the facility is in relatively good condition. It is apparent that North Bay must soon replace significant equipment, including cast-iron sewer pipes, plumbing, boilers, and chillers which will cause some interruption to hospital operations. However, North Bay's four-page written assessment of the facility and its argument citing the need for total replacement is, on balance, not persuasive. North Bay's Proposed Replacement North Bay proposes to construct a new, state-of-the- art, hospital approximately eight miles southeast of its existing facility and intends to offer the identical array of services the hospital currently provides. North Bay's Existing and Proposed Sites North Bay's existing hospital is located on an eight-acre site with limited storm-water drainage capacity. Consequently, much of its parking area is covered by deep, porous, gravel instead of asphalt. North Bay's existing site is generally surrounded by residential properties. While the city has committed, in writing, it willingness to assist both applicants with on-site expansion, it is unknown whether North Bay can acquire additional adjacent property. North Bay's proposed site is located at the intersection of Trinity Oaks Boulevard and Mitchell Boulevard, south of Community Hospital's proposed site, and is quite spacious. It contains sufficient land for the facilities, parking, and future growth, and has all necessary infrastructure in place, including utility systems, storm- water structures, and roadways. Currently however, there is no public transportation service available to North Bay's proposed site. Projected Utilization by Applicants The evidence presented at hearing indicates that, statewide, replacement hospitals often increase a provider's acute care bed utilization. For example, Bartow Memorial Hospital, Heart of Florida Regional Medical Center, Lake City Medical Center, Florida Hospital Heartland Medical Center, South Lake Hospital, and Florida Hospital-Fish Memorial each experienced significant increases in utilization following the opening of their new hospital. The applicants in this case each project an increase in utilization following the construction of their new facility. Specifically, Community Hospital's application projects 82,685 total hospital patient days (64,427 acute care patient days) in year one (2006) of the operation of its proposed replacement facility, and 86,201 total hospital patient days (67,648 acute care patient days) in year two (2007). Using projected 2006 and 2007 population estimates, applying 2002 acute care hospital use rates which are below 50 percent, and keeping Community Hospital's acute care market share constant at its 2002 level, it is reasonably estimated that Community Hospital's existing hospital will experience 52,623 acute care patient days in 2006, and 53,451 acute care patient days in 2007. Consequently, Community Hospital's proposed facility must attain 11,804 additional acute care patient days in 2006, and 14,197 more acute care patient days in 2007, in order to achieve its projected acute care utilization. Although Community Hospital lost eight percent of the acute care market in its service area between 1995 and 2002, two-thirds of that loss was due to residents of Sub- District 5-1 acquiring services in another area. While Community Hospital experienced 78,444 acute care patient days in 1995, it projects only 64,427 acute care patient days in year one. Given the new facility and population factors, it is reasonable that the hospital will recapture half of its lost acute care market share and achieve its projections. With respect to its psychiatric unit, Community Hospital projects 16,615 adult psychiatric inpatient days in year one (2006) and 17,069 adult inpatient days in year two (2007) of the proposed replacement hospital. The evidence indicates that these projections are reasonable. Similarly, North Bay's acute care utilization rate has been consistently below 50 percent. Since 1999, the hospital has experienced declining utilization. In its application, North Bay states that it achieved total actual acute care patient days of 21,925 in 2000 and 19,824 in 2001 and the evidence at hearing indicates that North Bay experienced 17,693 total acute care patient days in 2002. North Bay projects 25,909 acute care patient days in the first year of operation of its proposed replacement hospital, and 27,334 acute care patient days in the second year of operation. Despite each applicant's current facility utilization rate, Community Hospital must increase its current acute care patient days by 20 percent to reach its projected utilization, and North Bay must increase its patient days by at least 50 percent. Given the population trends, service mix and existing competition, the evidence demonstrates that it is not possible for both applicants to simultaneously achieve their projections. In fact, it is strongly noted that the applicants' own projections are predicated upon only one applicant being approved and cannot be supported with the approval of two facilities. Local Health Plan Preferences In its local health plan for District 5, the Suncoast Health Council, Inc., adopted acute care preferences in October, 2000. The replacement of an existing hospital is not specifically addressed by any of the preferences. However, certain acute care preferences and specialty care preferences are applicable. The first applicable preference provides that preference "shall be given to an applicant who proposes to locate a new facility in an area that will improve access for Medicaid and indigent patients." It is clear that the majority of Medicaid and indigent patients live closer to the existing hospitals. However, Community Hospital proposes to move 5.5 miles from its current location, whereas North Bay proposes to move eight miles from its current location. While the short distances alone are less than significant, North Bay's proposed location is further removed from New Port Richey, is not located on a major highway or bus-route, and would therefore be less accessible to the medically indigent residents. Community Hospital's proposed site will be accessible using public transportation. Furthermore, Community Hospital has consistently provided excellent service to the medically indigent and its proposal would better serve that population. In 2000, Community Hospital provided 7.4 percent of its total patient days to Medicaid patients and 0.8 percent of its total patient days to charity patients. Community Hospital provided the highest percentage and greatest number of Medicaid patient days in Sub-District 5-1. By comparison, North Bay provided 5.8 percent of its total patient days to Medicaid patients and 0.9 percent of its total patient days to charity patients. In 2002, North Bay's Medicaid patients days declined to 3.56 percent. Finally, given the closeness and available bed space of the existing providers and the increasing population in the Trinity area, access will be improved by Community Hospital's relocation. The second local health plan preference provides that "[i]n cases where an applicant is a corporation with previously awarded certificates of need, preference shall be given to those which follow through in a timely manner to construct and operate the additional facilities or beds and do not use them for later negotiations with other organizations seeking to enter or expand the number of beds they own or control." Both applicants meet this preference. The third local health plan preference recognizes "Certificate of Need applications that provide AHCA with documentation that they provide, or propose to provide, the largest percentage of Medicaid and charity care patient days in relation to other hospitals in the sub-district." Community Hospital provides the largest percentage of Medicaid and charity care patient days in relation to other hospitals in Sub-District 5-1, and therefore meets this preference. The fourth local health plan preference applies to "Certificate of Need applications that demonstrate intent to serve HIV/AIDS infected persons." Both applicants accept and treat HIV/AIDS infected persons, and would continue to do so in their proposed replacement hospitals. The fifth local health plan preference recognizes "Certificate of Need applications that commit to provide a full array of acute care services including medical-surgical, intensive care, pediatric, and obstetrical services within the sub-district for which they are applying." Community Hospital qualifies since it will continue to provide its current services, including obstetrical care and psychiatric care, in its proposed replacement hospital. North Bay discontinued its pediatric and obstetrical programs in 2001, does not intend to provide them in its proposed replacement hospital, and will not provide psychiatric care. Agency Rule Preferences Florida Administrative Code Rule 59C-1.038(6) provides an applicable preference to a facility proposing "new acute care services and capital expenditures" that has "a documented history of providing services to medically indigent patients or a commitment to do so." As the largest Medicaid provider in Sub-District 5-1, Community Hospital meets this preference better than does North Bay. North Bay's history demonstrates a declining rate of service to the medically indigent. Statutory Review Criteria Section 408.035(1), Florida Statutes: The need for the health care facilities and health services being proposed in relation to the applicable district health plan District 5 includes Pasco and Pinellas County. Pasco County is rapidly developing, whereas Pinellas County is the most densely populated county in Florida. Given the population trends, service mix, and utilization rates of the existing providers, on balance, there is a need for a replacement hospital in the Trinity area. Section 408.035(2), Florida Statutes: The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant Community Hospital and North Bay are both located in Sub-District 5-1. Each proposes to relocate to an area of southwestern Pasco County which is experiencing explosive population growth. The other general acute care hospital located in Sub-District 5-1 is Regional Medical Center Bayonet Point, which is located further north, in the Hudson area of western Pasco County. The only other acute care hospitals in Pasco County are East Pasco Medical Center, in Zephyrhills, and Pasco Community Hospital, in Dade City. Those hospitals are located in Sub-District 5-2, east Pasco County, far from the area proposed to be served by either Community Hospital or North Bay. District 5 includes Pinellas County as well as Pasco County. Helen Ellis and Mease are existing hospital providers located in Pinellas County. Helen Ellis has 168 licensed beds, consisting of 150 acute care beds and an 18-bed skilled nursing unit, and is located 7.9 miles from Community Hospital's existing location and 10.8 miles from Community Hospital's proposed location. Access to Helen Ellis for patients originating from southwestern Pasco County requires those patients to travel congested U.S. 19 south to Tarpon Springs. As a result, the average drive time from Community Hospital's existing and proposed site to Helen Ellis is approximately 22 minutes. Helen Ellis is not a reasonable alternative to Community Hospital's proposal. The applicants' proposals are specifically designed for the current and future health care needs of southwestern Pasco County. Given its financial history, it is unknown whether Helen Ellis will be financially capable of providing the necessary care to the residents of southwestern Pasco. Mease Countryside Hospital has 189 licensed acute care beds. It is located 16.0 miles from Community Hospital's existing location and 13.8 miles from Community Hospital's proposed location. The average drive time to Mease Countryside is 32 minutes from Community Hospital's existing site and 24 minutes from its proposed site. In addition, Mease Countryside Hospital has experienced extremely high utilization over the past several years, in excess of 90 percent for calendar years 2000 and 2001. Utilization at Mease Countryside Hospital has remained over 80 percent despite the addition of 45 acute care beds in April 2002. Given the growth and demand, it is unknown whether Mease can accommodate the residents in southwest Pasco County. Mease Dunedin Hospital has 189 licensed beds, consisting of 149 acute care beds, a 30-bed skilled nursing unit, five Level 2 neonatal intensive care beds, and five Level 3 neonatal intensive care beds. Its former 15-bed adult psychiatric unit has been converted into acute care beds. It is transferring its entire obstetrics program at Mease Dunedin Hospital to Mease Countryside Hospital. Mease Dunedin Hospital is located approximately 18 to 20 miles from the applicants' existing and proposed locations with an average drive time of 35-38 minutes. With their remote location, and the exceedingly high utilization at Mease Countryside Hospital, neither of the two Mease hospitals is a viable alternative to the applicants' proposals. In addition, the construction of a replacement hospital would positively impact economic development and further attract medical professionals to Sub-District 5-1. On balance, given the proximity, utilization, service array, and accessibility of the existing providers, including the applicants, the relocation of Community Hospital will enhance access to health care to the residents. Section 408.035(3), Florida Statutes: The ability of the applicant to provide quality of care and the applicant's record of providing quality of care As stipulated, both applicants provide excellent quality of care. However, Community Hospital's proposal will better enhance its ability to provide quality care. Community is currently undersized, non-compliant with today's standards, and located on a site that does not allow for reasonable expansion. Its emergency department is inadequate for patient volume, and the configuration of the first floor leads to inefficiencies in the diagnosis and treatment of emergency patients. Again, most inpatients are placed in semi-private rooms and three-bed wards, with no showers or tubs, little privacy, and an increased risk of infection. The hospital's waiting areas for families of patients are antiquated and undersized, its nursing stations are small and cramped and the operating rooms and storage facilities are undersized. Community Hospital's deficiencies will be effectively eliminated by its proposed replacement hospital. As a result, patients will experience qualitatively better care by the staff who serve them. Conversely, North Bay is in better physical condition and not in need of replacement. It has more reasonable options to expand or relocate its facility on site. Quality of care at North Bay will not be markedly enhanced by the construction of a new hospital. Sections 408.035(4)and(5), Florida Statutes, have been stipulated as not applicable in this case. Section 408.035(6), Florida Statutes: The availability of resources, including health personnel, management personnel, and funds available for capital and operating expenditures, for project accomplishment and operation The parties stipulated that both Community Hospital and North Bay have available health personnel and management personnel for project accomplishment and operation. In addition, the evidence proves that both applicants have sufficient funds for capital and operating expenditures. Community Hospital proposes to rely on its parent company to finance the project. Keith Giger, Vice-President of Finance for HCA, Inc., Community Hospital's parent organization, provided credible deposition testimony that HCA, Inc., will finance 100 percent of the total project cost by an inter-company loan at eight percent interest. Moreover, it is noted that the amount to be financed is actually $20 million less than the $196,849,328 stated in the CON Application, since Community Hospital previously purchased the proposed site in June 2003 with existing funds and does not need to finance the land acquisition. Community Hospital has sufficient working capital for operating expenditures of the proposed replacement hospital. North Bay, on the other hand, proposes to acquire financing from BayCare Obligated Group which includes Morton Plant Hospital Association, Inc.; Mease; and several other hospital entities. Its proposal, while feasible, is less certain since member hospitals must approve the indebtedness, thereby providing Mease with the ability to derail North Bay's proposed bond financing. Section 408.035(7), Florida Statutes: The extent to which the proposed services will enhance access to health care for residents of the service district The evidence proves that either proposal will enhance geographical access to the growing population in the service district. However, with its provision of obstetrical services, Community Hospital is better suited to address the needs of the younger community. With respect to financial access, both proposed relocation sites are slightly farther away from the higher elderly and indigent population centers. Since the evidence demonstrates that it is unreasonable to relocate both facilities away from the down-town area, Community Hospital's proposal, on balance, provides better access to poor patients. First, public transportation will be available to Community Hospital's site. Second, Community Hospital has an excellent record of providing care to the poor and indigent and has accepted the agency's condition to provide ten percent of its total annual patient days to Medicaid recipients To the contrary, North Bay's site will not be accessible by public transportation. In addition, North Bay has a less impressive record of providing care to the poor and indigent. Although AHCA conditioned North Bay's approval upon it providing 9.7 percent of total annual patient days to Medicaid and charity patients, instead of the 9.7 percent of gross annual revenue proposed in its application, North Bay has consistently provided Medicaid and charity patients less than seven percent of its total annual patient days. Section 408.035(8), Florida Statutes: The immediate and long-term financial feasibility of the proposal Immediate financial feasibility refers to the availability of funds to capitalize and operate the proposal. See Memorial Healthcare Group, Ltd. d/b/a Memorial Hospital Jacksonville vs. AHCA et al., Case No. 02-0447 et seq. Community Hospital has acquired reliable financing for the project and has sufficiently demonstrated that its project is immediately financially feasible. North Bay's short-term financial proposal is less secure. As noted, North Bay intends to acquire financing from BayCare Obligated Group. As a member of the group, Mease, the parent company of two hospitals that oppose North Bay's application, must approve the plan. Long-term financial feasibility is the ability of the project to reach a break-even point within a reasonable period of time and at a reasonable achievable point in the future. Big Bend Hospice, Inc. vs. AHCA and Covenant Hospice, Inc., Case No. 02-0455. Although CON pro forma financial schedules typically show profitability within two to three years of operation, it is not a requirement. In fact, in some circumstances, such as the case of a replacement hospital, it may be unrealistic for the proposal to project profitability before the third or fourth year of operation. In this case, Community Hospital's utilization projections, gross and net revenues, and expense figures are reasonable. The evidence reliably demonstrates that its replacement hospital will be profitable by the fourth year of operation. The hospital's financial projections are further supported by credible evidence, including the fact that the hospital experienced financial improvement in 2002 despite its poor physical condition, declining utilization, and lost market share to providers outside of its district. In addition, the development and population trends in the Trinity area support the need for a replacement hospital in the area. Also, Community Hospital has benefited from increases in its Medicaid per diem and renegotiated managed care contracts. North Bay's long-term financial feasibility of its proposal is less certain. In calendar year 2001, North Bay incurred an operating loss of $306,000. In calendar year 2002, it incurred a loss of $1,160,000. In its CON application, however, North Bay projects operating income of $1,538,827 in 2007, yet omitted the ongoing expenses of interest ($1,600,000) and depreciation ($3,000,000) from its existing facility that North Bay intends to continue operating. Since North Bay's proposal does not project beyond year two, it is less certain whether it is financially feasible in the third or fourth year. In addition to the interest and depreciation issues, North Bay's utilization projections are less reasonable than Community Hospital's proposal. While possible, North Bay will have a difficult task achieving its projected 55 percent increase in acute care patient days in its second year of operation given its declining utilization, loss of obstetric/pediatric services and termination of two exclusive managed care contracts. Section 408.035(9), Florida Statutes: The extent to which the proposal will foster competition that promotes quality and cost-effectiveness Both applicants have substantial unused capacity. However, Community Hospital's existing facility is at a distinct competitive disadvantage in the market place. In fact, from 1994 to 1998, Community Hospital's overall market share in its service area declined from 40.3 percent to 35.3 percent. During that same period, Helen Ellis' overall market share in Community Hospital's service area increased from 7.2 percent to 9.2 percent. From 1995 to the 12-month period ending June 30, 2002, Community Hospital's acute care market share in its service area declined from 34.0 percent to 25.9 percent. During that same period, Helen Ellis' acute care market share in Community Hospital's service area increased from 11.7 percent to 12.0 percent. In addition, acute care average occupancy rates at Mease Dunedin Hospital increased each year from 1999 through 2002. Acute care average occupancy at Mease Countryside Hospital exceeded 90 percent in 2000 and 2001, and was approximately 85 percent for the period ending June 30, 2002. Some of the loss in Community Hospital's market share is due to an out-migration of patients from its service area to hospitals in northern Pinellas and Hillsborough Counties. Market share in Community's service area by out-of- market providers increased from 33 percent in 1995 to 40 percent in 2002. Community Hospital's outdated hospital has hampered its ability to compete for patients in its service area. Mease is increasing its efforts to attract patients and currently completing a $92 million expansion of Mease Countryside Hospital. The project includes the development of 1,134 parking spaces on 30 acres of raw land north of the Mease Countryside Hospital campus and the addition of two floors to the hospital. It also involves the relocation of 51 acute care beds, the obstetrics program and the Neonatal Intensive Care Units from Mease Dunedin Hosptial to Mease Countryside Hospital. Mease is also seeking to more than double the size of the Countryside emergency department to handle its 62,000 emergency visits. With the transfer of licensed beds from Mease Dunedin Hospital to Mease Countryside Hospital, Mease will also convert formerly semi-private patient rooms to private rooms at Mease Dunedin Hospital. The approval of Community Hospital's relocated facility will enable it to better compete with the hospitals in the area and promote quality and cost- effectiveness. North Bay, on the other hand, is not operating at a distinct disadvantage, yet is still experiencing declining utilization. North Bay is the only community-owned, not-for- profit provider in western Pasco County and is a valuable asset to the city. Section 408.035(10), Florida Statutes: The costs and methods of the proposed construction, including the costs and methods or energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the project costs in both applications are reasonable to construct the replacement hospitals. Community Hospital's proposed construction cost per square foot is $175, and slightly less than North Bay's $178 proposal. The costs and methods of proposed construction for each proposal is reasonable. Given Community Hospital's severe site and facility problems, the evidence demonstrates that there is no reasonable, less costly, or more effective methods of construction available for its proposed replacement hospital. Additional "band-aide" approaches are not financially reasonable and will not enable Community Hospital to effectively compete. The facility is currently licensed for 401 beds, operates approximately 311 beds and is still undersized. The proposed replacement hospital will meet the standards in Florida Administrative Code Rule 59A-3.081, and will meet current building codes, including the Americans with Disabilities Act and the Guidelines for Design and Construction of Hospitals and Health Care Facilities, developed by the American Institute of Architects. The opponents' argue that Community Hospital will not utilize the 320 acute care beds proposed in its CON application, and therefore, a smaller facility is a less- costly alternative. In addition, Helen Ellis' architectural expert witness provided schematic design alternatives for Community Hospital to be expanded and replaced on-site, without providing a detailed and credible cost accounting of the alternatives. Given the evidence and the law, their arguments are not persuasive. While North Bay's replacement cost figures are reasonable, given the aforementioned reasons, including the fact that the facility is in reasonably good condition and can expand vertically, on balance, it is unreasonable for North Bay to construct a replacement facility in the Trinity area. Section 408.035(11), Florida Statutes: The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Community Hospital has consistently provided the most health care services to Medicaid patients and the medically indigent in Sub-District 5-1. Community Hospital agreed to provide at least ten percent of its patient days to Medicaid recipients. Similarly, North Bay agreed to provide 9.7 percent of its total annual patient days to Medicaid and charity patients combined. North Bay, by contrast, provided only 3.56 percent of its total patient days to Medicaid patients in 2002, and would have to significantly reverse a declining trend in its Medicaid provision to comply with the imposed condition. Community Hospital better satisfies the criterion. Section 408.035(12) has been stipulated as not applicable in this case. Adverse Impact on Existing Providers Historical figures demonstrate that hospital market shares are not static, but fluctuate with competition. No hospital is entitled to a specific or historic market share free from competition. While the applicants are located in health planning Sub-District 5-1 and Helen Ellis and the two Mease hospitals are located in health planning Sub-District 5- 2, they compete for business. None of the opponents is a disproportionate share, safety net, Medicaid provider. As a result, AHCA gives less consideration to any potential adverse financial impact upon them resulting from the approval of either application as a low priority. The opponents, however, argue that the approval of either replacement hospital would severely affect each of them. While the precise distance from the existing facilities to the relocation sites is relevant, it is clear that neither applicants' proposed site is unreasonably close to any of the existing providers. In fact, Community Hospital intends to locate its replacement facility three miles farther away from Helen Ellis and 1.5 miles farther away from Mease Dunedin Hospital. While Helen Ellis' primary service area is seemingly fluid, as noted by its chief operating officer's hearing and deposition testimony, and the Mease hospitals are located 15 to 20 miles south, they overlap parts of the applicants' primary service areas. Accordingly, each applicant concedes that the proposed increase in their patient volume would be derived from the growing population as well as existing providers. Although it is clear that the existing providers may be more affected by the approval of Community Hosptial's proposal, the exact degree to which they will be adversely impacted by either applicant is unknown. All parties agree, however, that the existing providers will experience less adverse affects by the approval of only one applicant, as opposed to two. Furthermore, Mease concedes that its hospitals will continue to aggressively compete and will remain profitable. In fact, Mease's adverse impact analysis does not show any credible reduction in loss of acute care admissions at Mease Countryside Hospital or Mease Dunedin Hospital until 2010. Even then, the reliable evidence demonstrates that the impact is negligible. Helen Ellis, on the other hand, will likely experience a greater loss of patient volume. To achieve its utilization projections, Community Hospital will aggressively compete for and increase market share in Pinellas County zip code 34689, which borders Pasco County. While that increase does not facially prove that Helen Ellis will be materially affected by Community Hospital's replacement hospital, Helen Ellis will confront targeted competition. To minimize the potential adverse affect, Helen Ellis will aggressively compete to expand its market share in the Pinellas County zip codes south of 34689, which is experiencing population growth. In addition, Helen Ellis is targeting broader service markets, and has filed an application to establish an open- heart surgery program. While Helen Ellis will experience greater competition and financial loss, there is insufficient evidence to conclude that it will experience material financial adverse impact as a result of Community Hospital's proposed relocation. In fact, Helen Ellis' impact analysis is less than reliable. In its contribution-margin analysis, Helen Ellis utilized its actual hospital financial data as filed with AHCA for the fiscal year October 1, 2001, to September 30, 2002. The analysis included total inpatient and total outpatient service revenues found in the filed financial data, including ambulatory services and ancillary services, yet it did not include the expenses incurred in generating ambulatory or ancillary services revenue. As a result, the overstated net revenue per patient day was applied to its speculative lost number of patient days which resulted in an inflated loss of net patient service revenue. Moreover, the evidence indicates that Helen Ellis' analysis incorrectly included operational revenue and excluded expenses related to its 18-bed skilled nursing unit since neither applicant intends to operate a skilled nursing unit. While including the skilled nursing unit revenues, the analysis failed to include the sub-acute inpatient days that produced those revenues, and thereby over inflated the projected total lost net patient service revenue by over one million dollars.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: Community Hospital's CON Application No. 9539, to establish a 376-bed replacement hospital in Pasco County, Sub- District 5-1, be granted; and North Bay's CON Application No. 9538, to establish a 122-bed replacement hospital in Pasco County, Sub-District 5- 1, be denied. DONE AND ENTERED this 19th day of March, 2004, in Tallahassee, Leon County, Florida. S WILLIAM R. PFEIFFER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of March, 2004. COPIES FURNISHED: James C. Hauser, Esquire R. Terry Rigsby, Esquire Metz, Hauser & Husband, P.A. 215 South Monroe Street, Suite 505 Post Office Box 10909 Tallahassee, Florida 32302 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Saliba, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Darrell White, Esquire William B. Wiley, Esquire McFarlain & Cassedy, P.A. 305 South Gadsden Street, Suite 600 Tallahassee, Florida 32301 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Rhonda M. Medows, M.D., Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308
The Issue The issue for consideration in this matter is whether Respondent, NME's application for a Certificate of Need to provide comprehensive medical rehabilitation beds in Department District X should be approved.
Findings Of Fact At all times pertinent to the allegations contained herein, the Department was the state agency with the authority to and the responsibility for evaluating and approving CON applications for health care facilities in this state. Department District X is a single county district which encompasses the whole of Broward County, Florida. Broward County consists of two distinct service areas for health care providers; the north and the south. Facilities located in the northern part of the county, for which the dividing line is accepted as State Road 84 and Interstate 595, which run east/west across the county, primarily serve the northern area of the county. By the same token, those providers located south of the dividing line are primarily in service to residents in the southern portion of the county. Legitimate basis exists for the distinction between the north and south county segments. The county is divided into two taxing districts which generally follow the service district boundaries and these taxing districts are utilized to provide and reimburse for health care services. In addition, physician practice patterns show generally that physicians stay, refer, and admit to facilities within that portion of the county where they live and practice. There is little medical intercourse between the sections. A third basis for distinction is the fact that generally patients follow physicians, and will normally present for treatment at those facilities located in the section in which they reside and their practitioner locates. At the present time, of the five providers which offer CMR services in Broward County, (District X), four are located in the northern section of the county, and the fifth, Memorial, is located in the south. Memorial currently has 22 of the 213 existing and approved CMR beds in the District. This constitutes approximately 10% of the total number or approved and existing beds in the District while 32% of the population of the District resides in that service area. By the same token, if one considers the number of CMR beds per 100,000 population, the number in the north service area is approximately 4 times that in the south. Petitioner, Memorial, is a 618 bed acute care regional public hospital providing numerous specialized acute care services to District X as well as adjoining areas in the southeast region of the state. It is operated by the South Broward Hospital District, a taxing entity created by the Florida Legislature in 1947, and has a history of being a disproportionate share provider of medical services to the indigent through Medicare and Medicaid programs as well as other charity care programs. In fact, Memorial provides the sixth highest level of indigent care in this state. Memorial currently has provided CMR services since 1985 and operates a 22 bed CMR unit. It also offers open heart surgery, neurosurgery, pediatric cardiac catheterization, pediatric trauma, pediatric open heart surgery, and pediatric oncology and hematology. The facility has recently submitted a letter of intent to the Office of Emergency Medical Services requesting to be designated as a regional adult trauma center. HMC is a 334 bed acute care hospital also located in the southern service area of District X, in a six story building containing approximately 300,000 square feet and an adjacent five story medical office building. It also offers a broad range of general acute care services as well as specialized programs in the treatment of diabetes, laser surgery, eating disorders and oncology. It also provides intensive care, coronary care, and progressive care beds, though all may not be considered as active tertiary care services. HMC has a large medical staff consisting of over 400 physicians representing almost all medical specialties. More than 90% of the staff are board certified and the rest are board eligible. The medical staff of HMC and Memorial tend to overlap almost in its entirety. HMC's medical staff also includes five physicians who specialize in physical medicine and rehabilitation, (physiatry), all of whom are board certified except for one who has recently taken the board examination. HMC is a subsidiary of NME Hospitals, Inc., a national publicly held health care company which owns, manages or operates more than 150 acute care, rehabilitation, and pediatric hospitals throughout the United States and overseas. NME has a rehabilitation division which specializes in comprehensive rehabilitation services. This division would manage the CMR unit at HMC if approved. HMC is accredited by the Joint Commission of Accreditation of Health Care Organizations and maintains extensive quality assurance activities. On March 11, 1991, HMC filed a Letter of Intent to apply for a CON to convert 30 existing acute care medical surgical beds to 30 CMR beds. Somewhat later, but still during March, 1991, both Memorial and HMC filed applications for a CON for CMR beds. Memorial's application sought the addition of 4 CMR beds to its existing 22 bed unit. Both applications were preliminarily approved by the Department. Thereafter, both Memorial and HMC filed Petitions in opposition to the preliminary approval of the other applicant's application. HMC ultimately dismissed its Petition in opposition to Memorial's 4 beds, and that application is not in issue here. Prior to hearing, the parties agreed that the provisions of Section 381.705(1)(m), Florida Statutes, as they relate to costs of construction and construction methods and itemization and costs of equipment of HMC and its application are not in issue. Memorial, however, did not waive its right to challenge the plan and design of the plan as to quality care considerations in HMC's application. The parties also agreed that Section 381.709(2)(c), Florida Statutes, was in issue but that sup-paragraphs a, b, and d of that section were not. The Hearing Officer's resolution of Petitioner's objections on this matter established that the Letter of Intent was timely filed in the appropriate place and the proper notice published. HMC's Letter of Intent included therewith a resolution of the NME Board of Directors which was accompanied by a certificate as to its accuracy. The corporate resolution certificate, dated March 5, 1991, indicating the resolution was enacted on February 19, 1991, was executed by Mr. McKay, Vice President and Assistant Secretary of NME Hospitals, Inc. Memorial questioned Mr. McKay's authority to sign the certificate as custodian of the corporate records. The evidence presented indicated, however, that Mr. McKay is a keeper of the corporate seal and custodian of corporate records pertinent to the eastern region of NME Hospitals, Inc., and as such he was an appropriate custodian of the records and competent to execute the certificate. The issue as to the date on the certificate appears to be no more than a scrivener's error. The errors which exist are harmless. The documentation contains all certification necessary for a valid Letter of Intent. Daniel J. Sullivan, a consultant in health care management, did a need analysis study of the Broward County District for HMC to determine whether a CMR facility was needed within the District and if so, where. He first looked at the planning area and what services were available, both those in existence and those approved but not yet on line. He also looked at utilization of CMR services in the area and trends toward service utilization, geographic distribution of existing services, the fixed need pool, relevant Department rules relating to numeric need and other factors, and in that connection, any other unusual factors bearing on need. Mr. Sullivan's study clearly established to his satisfaction that HMC does not serve all of Broward County - only, primarily, those patients residing in Hollywood, Hallendale, and Dania, all of which are in the southeast corner of Broward County. The secondary service area goes down into Dade county and up to Ft. Lauderdale. The data for this study and the need analysis comes from the Hospital Cost Containment Board, (HCCB), and is considered to be reliable. Mr. Sullivan also did an analysis of areas served by other providers in the county and determined that Memorial's service area is similar to that of HMC. North Broward Medical Center serves the very northeast part of the county. Holy Cross Hospital serves the lower north to northeast part of the county. Based on this, he concluded that facilities in the northern part of the county serve the northern county area. Only Petitioner and HMC serve the southern part of Broward to any measurable extent. Utilization of CMR beds is very high district-wide, both historically and currently. Occupancy in the District for the relevant period was 91.21% county-wide, with Memorial Hospital having an occupancy rate of 99.32%. This is not, in Sullivan's opinion, a historical aberration. The same trend goes back to the mid 1980's. In 1989 for example, utilization was at 89% and it has gone up since that time. In Sullivan's opinion, the system is now near capacity and the occupancy rate remains high. Both Holy Cross and North Broward Medical Center have 20 new beds each as of the last quarter of 1991. When those beds came on line, the utilization rate still remained very high NBMC's new program was at about 75% occupancy after less than one year operation. These north county beds will be used by north county patients and will not, for the most part, be available to south county residents. Rule 10-5.039, F.A.C., is the Department's rule regarding need determination, and it contains a numeric need formula for projecting future needs for service ((2)(a)). The Department publishes a fixed need pool every six months to identify need. The last one published before this application showed a zero bed need in the fixed need pool. Mr. Sullivan believes, however, this is not an accurate predictor of bed need since the realities of the market place are not related to the Department's fixed need pool. Mr. Sullivan's calculations show a gross bed need in 1990 of 88 beds considering the existing 213 licensed and approved beds. Since these are running at an occupancy rate higher than 90%, this shows the rule grossly underpredicts the need for the service. In fact, the Department has prepared State Agency Action Reports, (SAAR), in both the NBMC and St. Joseph applications and the Memorial application which reflects this trend. Mr. Sullivan believes the need formula is not a good predictor of future needs because it assumes, incorrectly, that the number of patients needing the service is directly related to acute care hospital discharges. Historically, however, this has not been the case. Since 1986, the ratio of CMR discharges to acute care discharges has grown and has never closely approximated the rule's standard ratio of 3.9. Other factors are provided for in subparagraph (2)(b) of the rule. The District's population trends show a relatively older population, (more than 20% of the population is over 64 years old), and by 1996 that percentage will increase somewhat. Since July, 1989 approximately 33% of the people with the top ten conditions utilizing CMR services were from South Broward County. Extrapolating this indicates a net need of 11 beds if an 85% occupancy rate is experienced. Since the actual occupancy rate remains, in fact, higher than 85%, Mr. Sullivan believes this method is accurate. A modification of this need, relating to discharge rates, was done in the Omissions Response herein which shows a need, by 1996, of 39 beds, not including the 4 beds approved for Memorial. As to population, the elderly are most at risk for conditions requiring CMR care since they, by far, experience the largest percentage of strokes and orthopedic related conditions. With the elderly and very elderly percentage of the total population increasing, this would tend to drive the need for CMR services and beds. Mr. Sullivan calculated need for the purposes of the application for the southern portion of the District along, utilizing a method which, though not officially recognized, uses the same criteria for analysis used in the District analysis. Doing so, he concluded there would be a 1990 need for 53 additional beds. Utilizing the 17(a) method to project into the future, he calculates a 1996 need for 57 beds. Concerning subparagraph (2)(B)3 of the rule, considering the growth rate of CMR admissions per 1,000 population, (from 1.41 to 2.24 during the period 1986 through 1990), at HMC, Mr. Sullivan also concluded that the growth rate would be plus or minus 4.5% over the next 5 years. He also concluded that the length of stay will remain at 21 days over the next 5 years and feels this is conservative when compared to the rest of the state and the 28 day figure used in the rule. There is some pressure to have patients discharged as soon as possible which impacts on length of stay. Considering all these factors, Mr. Sullivan expects a District X need as a whole of 65 beds in 1996, not including the 4 beds approved for Memorial. This would result in an actual 61 bed need by 1996. All this means that if the number needed is the same for the South County and the County as a whole, then the number is acceptable and all the need is in the South County. As to trends in the utilization by third-party payees, this factor has driven the growth. Medicare and insurance companies recognize the efficacy of CMR services as opposed to the fragmented treatment otherwise provided. They consider that every dollar spent on CMR saves money for the health care system. Subparagraph (c)1 of the rule requires a unit have at least 20 beds. In the instant application, HMC is seeking 30 beds and this clearly meets the rule criteria. The occupancy standard of 65% in the first year, as outlined in sub- paragraph (c)2 of the rule, is estimated to be met easily, and the 85% requirement for existing providers will also be met. All together, there appears to be a high demand for CMR services in Broward County in general and in the south half of the county in particular, and it is reasonable to assume that the 30 beds for HMC, as well as the additional beds sought by Memorial, could be approved without adversely affecting any existing providers. Regarding the rule's accessibility standard which requires 90% of the target population to reside within 2 hours diving time of the proposed facility, this is clearly met since all of Broward is within 2 hours driving time of both HMC and Memorial. Turning to the provisions of Section 381.705, Florida Statutes, specifically (1)(a), (b) and (2)(a),(b) and (d), all are highly interrelated. While geographic availability may not be of concern, the availability of empty beds is of great concern. Historically, the District has operated well above the 85% occupancy rate for over 3 years. The system currently is clearly inadequate and the existing alternatives, home care and outpatient services, do not replace the services in issue but supplement and are follow-ons to inpatient CMR care. Concerning economies of shared service, Mr. Sullivan feels certain economies will accrue as a result of this conversion if approved. Existing space will be used and can share administrative and overhead expenses; the contractor to be used to accomplish the project is qualified and experienced and knows how to economize. Impacts on competition will be minimal if any, given the high level of need. As to any impact on HMC, the sharing of costs and services between the integrated portions of the facility would generate economies. At the present time there is no existing competition other than the beds at Memorial. If HMC is granted its certificate and becomes an existing provider, the resultant competition should be beneficial to both institutions. There are no alternatives to this service which are less costly or more efficient. Any alternatives would be either more expensive or inappropriate. The facilities are currently being used in a very efficient manner and this would not change. If the application is not approved, according to Mr. Sullivan there are and will be patients who are in need of and who will be denied CMR services in South Broward County. He believes the 1989 Florida State Heath Plan and the District's 1990 Health Plan, those applicable here, are consistent with this application. The preferences called for in the plans will be met and satisfied. HMC agrees to accept Medicaid patients and has committed 1% of its service to the indigent. It should be noted that Memorial's projected need for CMR beds is identical to that of this applicant, and this tends to indicate Memorial also feels there is a need for additional beds in the south county. It's application was filed subsequent to the initial approval of the 30 beds in issue here. It is immaterial at this point that District X has more CMR providers and more licensed CMR beds than any other district in the state. Also not controlling is the fact that under the state's bed need methodology, as outlined in the rule, there is a 125 bed excess projected by 1996 for District X. It must be noticed here that CMR services are defined by rule as tertiary health services which are generally specialized services using specialized equipment and personnel. They should be centralized in a centralized location to encourage better utilization of resources. HMC is a community hospital which does not now have any other tertiary hospital services but Dr. Jay S. Mendelsohn, a psyiatrist testifying on behalf of HMC claims that the majority of rehab problems are not so specialized as to require tertiary services and are mainstreamed. Dr. Mendelsohn, a specialist in physical medicine and rehabilitation, as a physiatrist, coordinates care on a rehabilitation unit including actual treatment, nursing care, and social work relative to the patient's condition. A physiatrist sees, on an inpatient basis, patients with such infirmities as stroke, hip fractures, multiple sclerosis, multiple trauma, and other similar conditions. The patients are usually those with neuromuscular or musculoskeletal problems, though he does, on occasion, see those with arthritis complications. Dr. Mendelsohn has privileges at several hospitals in Broward County including both Memorial and HMC. He practices mostly at Memorial where he was, from 1985 through 1991, Medical Director of the rehabilitation unit. His associate, Dr. Novick, is the current Medical Director. CMR patients are usually referred for this service by other physicians. Hip fractures and strokes are primarily from orthopaedic surgeons and neurologists, but internists, family practitioners, and physicians practicing in other disciplines also refer as appropriate. To Dr. Mendelsohn's knowledge, South Broward County is somewhat unique. Physicians there generally stay in that area and do not practice or draw patients from north of I-595. Another group practices primarily in the northeast portion of the county and a third group practices in the northwest county. Most physicians use the hospitals in the area in which they practice. In the south county, patients needing inpatient rehabilitation can at present, from a practical standpoint, go only to Memorial Hospital since it has the only rehabilitation beds available in the area. His experience indicates substantial difficulty in getting patients admitted to that unit since it generally fills its rehabilitation beds with patients primarily from it own patients already admitted to other services. Patients from other hospitals or from the community normally have great difficulty getting admitted, and this problems has existed for quite some time, (over 5 years). He has encouraged Memorial's staff to apply for more rehabilitation beds. If a Memorial patient is unable to get into the rehabilitation unit at Memorial, that patient then has to obtain the needed rehabilitation treatment on an acute care ward. Patients at other facilities often are not admitted at all, and this situation affects the course of treatment and reduces the amount and the beneficial effects of therapy by approximately one-half. The providers in the northern part of the county are not a good source of therapy to patients from the southern portion of the county because: Since south county physicians normally do not go to the north portion of the county, the patient has to have a different physician who is not familiar with either the patient or the condition and who must, therefore, do repeat tests and other diagnostic procedures. The patients' families find it harder to visit the patients in the north part of the county and therefore do not visit as frequently. Family visits are important to the success of the therapy. When the patient goes home, his family does not know how to help out because they did not receive the training they would have ordinarily have received had they been able to visit in the inpatient facility more frequently. Older patients' spouses often do not drive or, if they do, find the extra distance to the north portion of the county too much to travel. As a result of all the above, the continuity of care concept, which is important from a medical care standpoint, is adversely affected. Patients needing treatment at HMC's facility, if approved, would be much like those treated at the currently existing Memorial facility. Dr. Mendelsohn is familiar with Rehabilitation Hospital Services Corporation, which will be contracted with to run the HMC facility if approved. To his knowledge, the quality of care provided by it is good and comparable with that provided elsewhere. Dr. Mendelsohn anticipates he would refer 5 to 10 patients a week from his and his associate's practice to HMC's CMR facility if approved. He feels he could keep the 30 beds filled without taking any patients from Memorial's unit which would still remain operating at capacity. The 21 day stay average at Memorial is shorter than he would expect to see. This is consistent with Sullivan's conclusion, supra. If more beds were available, the stay at both facilities would probably be longer. This is in part because now the patient is getting therapy on the acute care ward while waiting to get into the rehab unit. This pretreatment would be accomplished on the CMR unit if the space were available. As a result, then, the opening of HMC's CMR unit would, in his opinion, in no way adversely affect Memorial's ability to keep its unit full. Dr. Mendelsohn's comments are not biased by the fact that he is a financial investor in the corporation which will operate HMC's unit. Within the pertinent medical community there is a great deal of frustration and anger over the inability to get patients into a rehabilitation center and keep them there for the appropriate length of time. The alternatives to the proposed facility, such as inpatient treatment on other services or in other hospital facilities in the county, or in nursing homes, are not as good. By the same token, outpatient care is not as good because of the unavailability of sufficient treatment due to Medicare and other financial restraints. The difficulties experienced by physicians practicing in the southern Broward County area who desire to admit their patients for CMR service is typified by that of Dr. Jeffrey A. Crastnopol, an orthopedic surgeon practicing in Hollywood since 1984, and a member of the staff at Memorial, HMC, and other hospitals in the area. Dr. Crastnopol sees a wide range of patients from children to the elderly. His practice deals mostly with trauma in children, sports trauma, and trauma related to bone brittleness in the elderly. Almost all his patients live within the southern Broward area. All hospitals where he is on staff are in that area as well. Dr. Crastnopol has chosen not to take patients from outside his geographical area because he has sufficient patients from in his area to keep him busy. In his experience, of all the other orthopedists he knows, none practicing in the southern Broward area is on staff in any of the hospitals in the northern Broward area. Most are on staff at both Memorial and HMC. Most of Dr. Crastnopol's patients are elderly, suffering hip fractures; pelvic, lumbar and spinal fractures; herniated discs; and the complications of arthritis as well as other symptoms. He and his associate saw between 10 and 15 patients with these conditions in the two weeks prior to the hearing. Of that number, he referred at least 3 for inpatient rehabilitation at Memorial and has an additional 4 or 5 other patients now in acute care services who will need CMR services. His trauma cases usually go to the emergency room first or the patient will call him or their primary care physician. The patients frequently request a particular hospital but, if a patient is already admitted to Memorial, he would try to keep that patient there for rehabilitation services. If the patient is at HMC, and if there were a rehab unit there, he would try for admission at that facility. At the present time, only Memorial has rehab beds available for Dr. Crastnopol to refer to and he often has trouble getting a bed for a patient there since it is usually full. The wait for an opening may be from 4 to 5 days or the patient may not be admitted at all. The delay is controlled by physiatrists at Memorial and though they try to be accommodating, frequently patients from outside that facility cannot be admitted. When that happens he then has to consider other institutions further away or nursing homes with less than full rehabilitation services. According to his experience, patients at Memorial will almost always be admitted to Memorial's rehab unit. Patients at HMC may not, and he, as well as all other physicians testifying, indicate there is a difference in the waiting lists. Dr. Crastnopol believes the best thing for the patient is for the doctor to be able to treat these injuries in a rehab unit. To transfer to one where he cannot come is not as good. He believes that patients on rehab units recover faster than those who are in alternative treatment plans. He also contends that home care and outpatient care are not suitable alternatives to inpatient care, especially for the elderly. He agrees with Dr. Mendelsohn that the northern Broward facilities are generally too far from the families of patients from the south. Since he is not on staff up there, he would not be able to provide the continuity of care which he, and all other physicians testifying, feel is so important. Dr. Crastnopol contends that from a clinical standpoint there is need for additional rehab beds in south Broward County. HMC provides a good service, and he has no doubt that it would provide a rehab service of the highest quality if its unit were approved. He would refer patients to it. He treats Medicaid and indigent patients, and in all fairness to Memorial, that installation has never tried to dissuade him from admitting that category of patient to its facility. Dr. Crastnopol took time from his busy practice to travel to Tallahassee to testify here because he feels there is a need for the service applied for. He, too, is an investor in the limited partnership which owns the building in which the hospital is situated, but in no way would this interest prejudice or bias his testimony. At the present time, only between 30 and 40% of his patients are treated at HMC, whereas between 60 to 70% are treated at Memorial. Similar testimony came from Dr. Jose M. Muniz, an internal medicine specialist practicing in Hollywood, Florida for the past 17 years. Dr. Muniz is on staff at both HMC and Memorial and serves as Chief of Staff at HMC. He is also on the utilization review and quality assurance committees there. As with Dr. Crastnopol, his patients are mainly older, 70% of whom are over 65. The other 30% are adult to middle age. Ninety-eight percent of his patients come from Hollywood and the south Broward area. As a result, Dr. Muniz has no hospital affiliation in the north Broward area. Dr. Muniz refers to rehabilitation patients who experience bone fractures and strokes, and he sees patients at both hospitals. He has had some referral problems at Memorial. He feels very strongly about the necessity for continuity of care and asserts it is important for him to continue to see his patients in a rehabilitation unit because they still have an underlying medical problem which he must continue to treat. It is not good for his patients to go far afield for rehabilitation service due to a lack of availability in the immediate area. He cannot continue to treat the patient who thereby feels abandoned, and the family also has additional difficulties in getting to see the patient. Nursing homes, while an alternative to a rehab unit, are not, in Dr. Muniz' opinion, an acceptable one. They have neither the staff nor the equipment to provide the appropriate treatment, and in his opinion, placing a patient who needs rehabilitative services in a nursing home is no more than warehousing that patient. HMC's application has a high level of support in the local medical community. A second rehab unit has been sought by numerous physicians in the area, and Dr. Muniz believes there is a definite need for additional rehabilitation beds to satisfy the need for rehab availability after the acute care condition has been stabilized. He is satisfied that if HMC gets its rehabilitation unit, its quality of care will be as high as that in the other services already provided there. Dr. Jubran Hoche, a Board certified neurologist at Memorial, HMC, and other facilities in the southern Broward area, often has patients who need inpatient rehabilitation services. Most are elderly stroke victims and younger patients with multiple sclerosis, a demographic consistent with prior evidence considered. He sees between 2 and 3 such patients per week. He begins to evaluate his stroke patients for rehabilitation when they stabilize, somewhere between 7 and 10 days after suffering their stroke. He has found rehabilitation beneficial to recovery and currently refers such patients to Memorial from all facilities where he is on staff. He often has trouble getting beds there, however, and over the years has found that patients already in Memorial have a priority over outsiders when it comes to getting into the inpatient CMR unit. Patients from other facilities face a waiting list and as a result, many are transferred outside the southern part of the county for inpatient rehabilitation. This is not a good alternative because it interferes with the beneficial continuity of care cycle and raises numerous other problems. Noting that Memorial plans to open a satellite facility in southwest Broward County and shift beds there, he contends that this will still increase the need for CMR beds in the county. There is already a clear need for more inpatient CMR beds in south Broward. In his experience, HMC provides a good quality service and would provide the same in any approved CMR unit to which he would refer patients from those who presently he cannot get into Memorial's unit. As with the other physicians who testified here, he has taken the time from his practice to travel to Tallahassee on HMC's behalf because of his sincere concern with continuity of care. Testimony in the form of depositions from Drs. Klotz, Bennett, Petti, and Moskowitz, and Mr. Jensen support and reiterate, fundamentally, the direct testimony of the above physicians and administrators. According to Holly Lerner, Administrator and Chief Operating Officer at HMC for several years, NME Hospitals, Inc. is a wholly owned subsidiary of National Medical Enterprises, an international health care corporation. The local facility is a six story hospital with approximately 300,000 square feet in addition to an adjacent office building. Over 400 physicians are on staff from most medical specialties including 5 physiatrists. HMC practices on an open staff basis meaning any qualified physician can apply. Almost all physicians on staff currently are Board certified and there is an internal requirement that all be at least Board eligible. The hospital is accredited by appropriate accrediting agencies. HMC is located approximately 1 mile from Memorial Hospital. It has an active quality assurance program, and any inpatient rehabilitation unit approved would be subject to the same quality review. HMC pays property and indigent care taxes to the taxing authorities. In contrast to Memorial, however, it gets no funds from those taxing authorities for treating indigent patients. It has a Medicare contract and has never turned away a patient because of an inability to pay. If the requested rehab unit is approved, the hospital's current outpatient physical therapy program will move off-site. The new inpatient rehab unit will have physical therapy capability on site. Management of the facility will be by an experienced firm well qualified to run it. All services required for physical therapy by Department rule are currently available and will continue to be provided. The new unit, if approved, will seek CARF accreditation. All variable services are currently provided and will continue to be provided. All optional services, except therapy for children, will be provided. HMC now has transfer agreements with Memorial and various nursing homes within the area. It also has a rehab agreement with Sunrise Hospital and a contract with the state to treat patients at a Medicaid contract rate. If at all possible, management intends to continue this on an inpatient basis. Discussions have been held with the Dean of a nearby osteopathic medical school to have a residency and intern program at the hospital and though it is still in negotiation, the parties have, in essence, formulated a tentative agreement to effectuate this development. Though disputed by Memorial, manpower requirement estimates are considered adequate to properly staff the facility if approved and the personnel costs are also considered reasonable even with cost of living increases over the next 5 years. In that regard, overhead staff has surveyed salaries within the area and tried to stay at the 70% level. HMC's salary levels are somewhat lower than that of Memorial but, nonetheless, HMC has had no difficulty in getting and retaining qualified support staff. Petitioner's evidence in opposition was not persuasive. According to Paul Echelard, Administrator and Chief Executive Officer of Pincrest Rehabilitation Hospital, and Florida Vice President of Rehabilitation Hospital Service Company, (RHSC), a subsidiary of NME which manages rehab hospitals throughout the country and which will operate the rehab unit at HMC, inpatient rehabilitation assesses an individual who has had a debilitating injury, after medical stabilization, for improvement potential, and helps improve his living capabilities. Inpatient rehabilitation helps to restore both motor and cognitive functions. The minimum requirements for a CMR program include 3 hours per day of speech therapy, occupational therapy, and physical therapy, 5 days a week. The actual program administered is tailored to the patient's individual needs. If, for example, the patient cannot take 3 hours per day, it may be less, if such reduction is documented. RHSC operates 31 rehab hospitals ranging from 60 to 101 beds. The contract management division also operates hospitals for others. All are accredited except those which have not yet been open the required 6 months. The management company brings the expertise of NME's rehab division, which has access to hundreds of experts in numerous fields, and provides program management, program development, and program education. Program Management involves the day to day running of the program. Rehabilitation programs and staffing are different from acute care functions. Management personnel are supplied. Program development defines the methodology to be followed in each type of case. It works with the staff, with physicians, and with the community to develop programs designed to fit the needs of that facility and that community. The program education division provides information on benefits of rehabilitation in areas where such is not well known. It educates hospitals in the area as well as physicians and the community. For these services, the company charges a fee of $105.00 per patient per day which includes the salary of the medical director of the rehab unit and several other supervisory personnel. Though one might see complex, high level cases at HMC, where there is a need for a lot of high level supplemental medical treatment or procedures, the patient probably will not be treated at HMC. If HMC's program is approved, transfer agreements will be entered into with Sunrise or Pinecrest Rehabilitation Hospitals to take care of those patients whose conditions are too severe or too complex for the inpatient CMR unit at HMC. South Florida's normally more elderly population generates a higher need for medical rehab services. Also, medical science now saves people who, before, would not survive their basic illness, and these people generate a greater need for medical rehab services. The utilization of rehab services has increased significantly since 1988 as the result of Medicare, and due to an increased awareness of the service by physicians. Also, insurance companies now recognize the benefits of dollar savings of rehab over acute care treatment. Another factor involves the implementation of DRG's which exempted rehab, among other areas, from the DRG limits. With this development, however, services and personal criteria for inpatient rehabilitation patients were developed to insure against abuses. Not all hospitals can meet these criteria, but the number of providers has grown fivefold due to the recognition of the health and financial benefits to society. In Mr. Echelard's opinion, the payer projections by categories of payer found in the application are reasonable and based upon the applicant's experience. The personnel costs are in addition to the $105.00 per day fee charged by RHSC. The assumed 65% utilization figure for the first year can easily be accommodated by the staff which is more than adequate to meet the requirements of good quality of care. Much the same can be said for the second year with the increase in both patient census and full-time employees. The salaries projected in the application are generally reasonable, though a few may be somewhat low. RHSC would help to recruit personnel for HMC's facility. It has a national recruiting program and sends recruiters to universities and conferences across the country. All RHSC facilities are open to serve as clinical training facilities. They advertise widely for personnel though they do not "head hunt" at other hospitals. As a result, Mr. Echelard feels HMC would have no trouble getting enough qualified personnel, and it is so found. Turning to the unit itself, from a physical standpoint Mr. Echelard has no trouble with the currently existing physical therapy unit being geographically separated from the bedroom area. In fact, this may be beneficial as it tends to simulate the real world and may increase patient mobility skills. He considers the proposed layout to be acceptable and to meet accreditation standards. The proposed patient charges of $1,078 per day is considered reasonable and closely approximates the $1,050 per day charged at Pinecrest as well as other competing providers. Sharon Gordon-Girvin, a health care consultant and formerly the chief of the Department's Office of Community Health Services, reviewed HMC's instant application for Memorial. HMC's application describes it as a provider of primary and secondary services, a general description of a normal acute care hospital. It has no licensed tertiary services. Five hospitals in Broward County are licensed to offer CMR services. They include Petitioner, Holy Cross, North Broward Regional Medical Center, St. Johns Hospital and Sunrise . Only one of these, Memorial, is in the south Broward region. District X, with the 5 providers offering a total of 213 CMR beds, has more CMR beds than districts in the rest of the state with the exception of Dade County. Other districts have greater population with fewer licensed beds, but it must be noted that without information on demographics, that statistic is of little import. Under the pertinent Department rule, the planning horizon for CMR beds is 5 years into the future. Bed need determination is provided for in Rule 10- 5.039, F.A.C., and consistent therewith, the Department did a projection of bed need for 1996 which showed a new need of 88. Because the number of existing beds exceeded that figure it determined the need to be zero. Even if there is a zero need, however, the rule provides 4 other factors for consideration, (Rule 10-5.039(2)(b)1-4), but in her opinion, HMC's application is not consistent with these 4 factors. One of these deals with historic, current and projected incidents of illness. This witness does not believe there is adequate evidence or discussion in the application of any historic incidents of disease sufficient to support any future prevalence. There is no data as to sex or group of patients. The second deals with trends by categories. Here the application, she feels, contains no detail of payment trends shown as to categories of payor. As to the third criterion, dealing with existing and projected inpatients in need of rehabilitation services, the application does contain some information in its Exhibit 17. The fourth criterion relates to availability of specialized staff, and the application discusses how the staff will be recruited, but not the availability of qualified personnel to fill the positions. In that regard, it is well recognized, she contends, that this type of staff is in short supply. Other evidence of record would tend to confirm this opinion. Ms. Gordon-Girvin indicates that the 1989 State Health Plan is pertinent to this application. This plan contains 5 preferences to be used in evaluating applications. These include: Conversion of excess acute beds. Here, the application conforms but Ms. Gordon-Girvin cannot say if the per diem costs would be lower by conversion. Specialty rehab services not currently found in the District. Here, no services not already available were proposed. Teaching hospitals. This is not truly a statutorily mandated teaching hospital even though evidence shows staff may be made available as faculty at the osteopathic medical school with which HMC plans a collaboration. A disproportionate share of charity care. Here, Ms. Gordon-Girvin feels that HMC is not such a provider and that its application is not consistent with this preference. Existing comprehensive outpatient rehab facility. This, again, is not met by the applicant. These preferences are, it must be noted, not mandatory for approval. The 1990 Broward Regional Health Plan is also applicable, and it outlines 3 priorities in its review criteria. These are: The applicant agrees to cooperate and provide data on utilization. In this regard, HMC's application is consistent. Unserved populations. Here, Ms. Gordon-Girvin contends that the instant application does not meet the preference since it is not for construc- tion of a new facility. Situations where the institution's occu- pancy is greater than 85%. Here, clearly HMC does not meet this criteria because it does not have a history of 85% occupancy. Again, however, these are merely guidelines to apply among competing applications and are not preconditions to approval. Ms. Gordon-Girvin points out that the need for CMR services is not considered on a less than district-wide basis, since the rule directs an evaluation of tertiary services on a district-wide basis, and, therefore, the breaking down of the district into north and south services areas is inappropriate. She asserts that in her opinion, the existing rule based on need is not an adequate predictor of need within a district. Instead, she feels the methodology used in Exhibit 17 to the application and omissions response is reasonable. However, she disagrees with HMC's calculations therein because, while the model is credible, the wrong data (the length of stay from 1984, rather than the actual current length of stay) was used. She feels district experience for length of stay (21 days) should be used. Ms. Gordon-Girvin also feels that the methodology used on Application Exhibit 18 is also not appropriate because the variables were not kept constant. It used some date from the sub-area which should not be done because of the rule requirement to treat tertiary services on a district-wide basis. She does not explain, however, that if the rule shows a need for 88 beds and there are already 173 beds licensed, the rationale for a subsequent approval of those excess beds. In that regard, then, the question she does not answer is, if one aspect of the rule is disregarded, cannot another also be disregarded with equal validity? HMC has urged the calculation as set forth in Exhibit 20 of its application, but Ms. Gordon-Girvin does not agree with that because it uses a constant rate of increase in the admissions rate. It also does not ground its assumptions on any existing realities. The initial figure for admissions in 1991, she opines, is overstated, and it, too, does not use accurate real information. If the 3,009 figure were corrected to an "actual" figure, it would result in a net loss of 27 beds and an increase of only 9 additional beds by 1996. She contends that Exhibit 20 is not consistent with the existing rule methodology, because the proposed facility to open in 1993, not 1996. As a result, she sees no need to compute the need in 1996. As to her disagreement with the 4.5% growth in annual admissions, she claims the actual rate shows a decrease from 1990 to 1991. Therefore, the table containing that growth assumption is not justified. She also disagrees with Exhibit 21 because it is applied to a subdistrict and her other objections, (no historical basis for utilization numbers), are also pertinent here. Accepting that the current rule is not a good predictor, she looked at the dispersion of population and beds and determined that there are about twice as many elderly in the northern part of the county as there are in the south. Applying this to the southern area, there should be a total of 46 beds there. Therefore, she asserts, that while there is a need for new beds in District X, all should be in the south, but not as many as requested. If the 30 beds applied for by HMC are approved as well as those approved for Memorial, this would result in 56 beds or 10 too many. In her opinion, based on the incidence model with some adjustment, the actual need is for somewhere between 5 and 20 beds district-wide which should all be located in the south county. Her reasoning and conclusions, however, are not persuasive. Ben F. King, Vice-President for Finance of the Florida Region, Eastern Division of NME, and an expert in health care finances, is satisfied from his familiarity with the application in issue here that the project is financially feasible in both the short and long term. The proforma submitted by HMC in the application, and amended in the omissions response, refers, among other things, to patient day projections. These are converted to revenue by taking the days listed and multiplying by the charge for room and board for each year, and he is satisfied that the rates listed are reasonable. The listed revenues are not what is actually collected, however. They are reduced by deductions for Medicare, Medicaid, indigent, and write-offs (discounts) for health maintenance organizations and insurance companies. In year 1, Medicare contractual is calculated based on reimbursement founded not on cost but on DRG (diagnostic related grouping). This results in no additional reimbursement for patients already in the hospital on an admitting DRG. Therefore, the first year revenues are much lower than in the second and subsequent years. Moving on to year 2, however, the operator gets paid for costs of operation of the unit. Medicare tracks the per-diem costs and income from the hospital, and to be conservative in the preparation of this pro forma, HMC took the existing reimbursement rate of slightly more than $700.00. In calculating reductions, indigents are assumed to be a 100% write-off. Private payments are considered to be a 50% write-off, HMO's a 20% write-off, and insurance an 11% write-off. Mr. King considers all these to be reasonable and consistent with the current experience not only of HMC and NME but of other providers as well. In Broward County, indigent patients are funneled to the county hospitals which receive tax funding for that purpose. This is different from other counties which contract with hospitals to provide indigent care. HMC calculates its revenue estimate in what it considers a conservative manner. Taking off the contractual allowances for Medicare and Medicaid and the other write-offs results in a reduction of more than 50% of gross revenue, and from that figure is taken the expenses, depreciation, interest, etc. to get to the net revenue figure. All the expense categories and the factors they include are considered reasonable by Mr. King. The salary and wages figure includes an add- on of 20% for benefits, which is above the figure for salary and wages found in Table 11 of the application. Supplies includes the provision of housekeeping services, laundry and linen, and dietary services. These, too, he considers reasonable. RHSC's management fee of $105.00 per day includes the personnel provided, the marketing services, the management services, and manuals. This is considered a valuable benefit and the fee is considered comparable with other units. The personnel sent to do the actual work are RHSC employees and not hospital employees. The indigent care assessment is 1.5% of net revenue and is a tax paid to the state. Contract costs are ancillary expenses for ancillary services such as laboratory, pharmacy, etc., already provided by the hospital. The cost listed in the pro forma is only for additional patients generated on the unit in issue. General and administrative - other expenses (joint venture rent, recruitment, insurance, utilities, property taxes, maintenance, education, etc.) are also deducted, and taken together, the above results is an operating revenue net loss for the first year. Depreciation and amortization are self explanatory as is interest expense which is calculated at 10%. Interest rates are anticipated to drop in the future, however, and this will help the picture. The net loss projected for the first year does not necessarily mean that the project is not financially feasible since financial feasibility is calculated over a 5 year basis. In the second year of operation, revenues are projected to increase by 6.5%, a figure considered to be reasonable. Expenses were inflated at 5% except for those not fixed to inflation (indigent care assessment and the joint venture rent). NME has the funds to commit the initial capital and working capital for the first year. The 1989 and 1990 NME financial statements submitted with the application are those most current to filing. These statements, along with the 1991 capital budget, show more than $750,000.00 committed to the start-up of HMC's program. Much of the information presented by Mr. King in his testimony comes from the pro forma and the amendment thereto. Primarily, the difference is only in the amount provided for RHSC's management fee. Any other inconsistencies or errors shown to exist are, for the most part, minor. The entire project is based on 30 beds. The figures assumed for both revenue and expense are reasonable, considering the "other" factors testified to by the physicians and noted previously. This is so notwithstanding the fact that HMC has experienced only a 30% use rate in its acute care beds. However, in light of these other factors, there may not be any correlation between acute care and rehab either from the Medicare or other standpoints. According to Madeline Hellman, Administrative Director of Rehab Services for Memorial, CMR is a high intensity program as well as a high cost program because it uses a large number of professionals to treat the patient in a multi-disciplinary program. Memorial's existing unit has 22 beds in semiprivate rooms. It has an admissions process designed to insure that appropriate patients only are admitted. These patients are made up of a high percentage of stroke, orthopedic, and spinal cord and head injury patients. Memorial's program is a program accredited by the state and the unit is accredited by CARF, a national certifying organization dealing with quality of care. The average length of stay on Memorial's unit is presently just under 25 days which constitutes an increase over time due to the more complicated types of cases taken in. In 1991 the occupancy rate was between 98 and 99%. Memorial gets referrals from both in-house and other facilities. The patients are evaluated by the medical director for the potential to go through the rehab process. If inpatients at Memorial, they are evaluated by the therapy staff and a meeting is held to decide on admission. If the patient comes from another facility, he/she gets priority behind Memorial's patients. In order to be admitted, a patient must have a rehab diagnosis; be able to withstand the 3 hour sessions; be motivated; and have the potential to improve his/her own independence. The refusal to admit a patient does not necessarily indicate a Memorial was too full to accept that patient. It may just be the patient is not an appropriate candidate for rehab, or the patient may die or recover without rehab before getting through the admission process. Some may be referred to nursing home placement instead. Ms. Hellman's figures reflect that in 1990, approximately 42% of those referred to Memorial's unit were admitted. Approximately 35% of those referred were deemed inappropriate. Only 4% were refused admission due to bed unavailability. Many of the non- admittees went home without treatment, went to home care, or came back as outpatients. This witness examined Memorial's admissions records and determined that in 1990/1991, Dr. Hoche, who testified on behalf of HMC's application, referred 9 patients to Memorial of whom 6 were admitted. One went to another facility by choice, 1 was not appropriate, and 1 was not accounted for. Neither Dr. Klotz nor Dr. Pettie referred any patients during that period. Dr. Moscowitz referred 1 in 1990 who was admitted. One patient was referred in 1991 but was not admitted because the patient was not an appropriate candidate. Dr. Bennett referred 1 in 1990 but the patient was not an appropriate candidate. In 1991 he referred 2 but both went to nursing homes instead. During this period Dr. Mendelsohn was the medical director. Dr. Crastnopol referred 12 patients in 1990. Four were admitted; 2 were referred to other facilities; 2 were not considered appropriate candidates, and 2 were not accounted for. In 1991 he referred 17 patients, 8 of whom were admitted. Two of the remainder went to another facility by choice; 1 was refused due to no room; 1 went home; and the rest were unaccounted for. Dr. Manning referred 1 in 1990 who was admitted. Admittedly, according to Ms. Hellman, there is a waiting period of from 1 to 5 days from referral to admission - on the average, probably 3 days. This has decreased somewhat since the summer of 1991. The situation depicted by Ms. Hellman's figures differs radically from that described in the testimony of the physicians to whom she refers. On balance, the physicians' recollections and impressions of the situation are deemed of greater probative value than the bare statistics. Memorial staff salaries went up 9% last year across the board and are anticipated to go up again this year. The ancillary staff devotes 75% of its time to patient care and the other 25% to administration. This extra non- patient time is considered in assessing staffing to insure there is enough staff to do the full therapy load. There is a great deal of competition in the market for both nurses and therapists. A shortage exists which is nationwide and requires heavy recruitment efforts. At Memorial, no contract labor is used to assist in the unit. Benefits constitute an additional 24 - 25% of the salary cost and is not included in Memorial's determination of the salary and wage costs. Ms. Hellman reviewed HMC's proposed staffing as outlined in its application and feels that after taking out 25% clerical time and weekends, the social worker, for example, will only be able to handle 65% of the beds. Speech therapy would require additional people to take up the extra time on other therapies. Taken together, it is her opinion that the staff proposed by HMC is insufficient to provide a quality program. As to salaries, she feels the amount designated by HMC is low. The salaries proposed would be enough to get only new graduates and would force a high turnover. A CMR unit requires an experienced staff, (at least half of the therapy staff), to provide a quality program. Ms. Hellman is of the opinion this cannot be accomplished at the salaries proposed by HMC. In regard to both salaries and staffing level, however, Ms. Hellman's negative comments are offset by those in support of the application, and there is insufficient evidence to the negative to support a finding by a preponderance of the evidence as required that the proposed staffing levels and salaries are insufficient. HMC's 30 bed unit would compete directly with Memorial's existing unit. They are less than a mile apart and use many of the same physicians. They attract the same patients. In addition, Ms. Hellman does not believe HMC's unit will offer any new service not already offered by Memorial, nor will it operate services not already present or offered by existing providers in District X. It is her confirmed opinion that if HMC's unit is approved, it will be difficult for both facilities to attract and retain an adequate professional staff. The majority of patients that Memorial cannot accommodate are referred to Sunrise Hospital, also located in Broward County, which offers a good CMR program. Total referrals in 1990 exceeded 800 patients, and in 1991, in excess of 600 patients. The referral log maintained by Memorial does not include patients who were not referred because their physician felt there was no room anyway. Memorial's records supposedly indicate that in the last two years, only 80 to 90 referrals to its unit came from other institutions. The records were not introduced into evidence, however. Edward J. Maszak, Director of Financial Planning for Memorial, and an expert in health care financing and third party reimbursement, noted that Memorial is a disproportionate share provider under both Medicaid and Medicare. It is a taxing authority which uses funds received in taxes for the care and treatment of indigent patients. It gets $20 million in tax revenue but gives $23 million worth of indigent care in addition to taking $27 million of bad debt write-off. About $10 million of the indigent care cost is funded out of operations. The Hospital Cost Containment Board, (HCCB), statistics submitted by HMC for 1989- 1991 reflect no deduction for charity care in either the 89-90 or 90-91 time-frame. Mr. King, testifying for HMC, indicated there was no advantage to reporting charity care to the HCCB, and it is for that reason that the statistics show no deduction. Mr. Maszak disagrees with Mr. King on this point, and states that to the extent it provides any charity care at all, a facility can raise the prices it charges to some degree. Mr. Maszak reviewed HMC's application and the "incidental cost analysis" basis for the financial pro forma, and in his opinion, HMC's application does not contain a true feasibility study. The projected statement of revenue and expense in the omissions response reflect incremental costs only and do not include the actual, full costs. In a financial statement one looks at a lot of other revenue factors including operating projections and total margins, cash flows and the like, none of which are included in HMC's financial information. The financial feasibility study done by HMC here is not, in Mr. Maszak's opinion, consistent with generally accepted practices and standards. Memorial's CMR unit has lost money over the last 3 years due to the fact that it provides about 70% of its care to Medicare patients. Under that system reimbursement does not fully meet costs. Therefore, the loss has to be covered by income from other payees, (cost shifting). This is not specific to Memorial only, however. Most hospitals experience the same problem. As a result, it is hard to make up the losses from Medicare, Medicaid, and HMO operations from the 9% of patient mix representing full pay patients. In Mr. Maszak's opinion, if HMC gets its approval, in year 3 it would be subject to the same problems experienced by Memorial. Mr. Maszak asserts that with the new beds, HMC's overhead cost allocation will, under Medicare rules, increase by 19% in the first year and by 25% in the second year. This will add at least $570,000.00 additional costs in year 1 and $800,000.00 additional costs in year 2 to expenses. In year 2 the cost will be shifted to Medicare so the expense item in that year will be more by slightly more or less than $200,000.00. With regard to specific defects in HMC's proposal, Mr. Maszak points, with regard to managed care plans, to the HCCB documents which show that the HMC writes off about 65% of its revenue from HMO's. This was for 1991. Pinecrest, for example, wrote off somewhere around 38.5% that year. He believes, therefore, that HMC's figures are inaccurate. Regarding charges for CMR services in District X, HMC's 1993 charges, using its own projections, would be $1,077.00 per day. Sunrise would charge $1,765.00 per day, and Pinecrest, $1,683.00 per day. Memorial will charge $557.00 per day; Holy Cross, $747.00; and North Broward, $564.00 per day. Based on these figures, Mr. Maszak concludes that HMC's HMO estimated income is unreasonable. He contends it will be much less than estimated and more comparable to that of the other providers starting at a discount from $557.00, plus or minus, per day. Mr. Maszak is of the opinion that the insurance estimate indicated by HMC also is unreasonable. The 4% estimated by Mr. King is too low by far, and there are no national HMOs for HMC to contract with for rehab services in District X, he contends. He also believes that as to the salaries and benefits, in 1991 Memorial showed 57.8 full time employees, (FTEs), with an average nursing salary of $27.4 thousand per year. In that regard, benefits as a percent of salary was 32.2%. Sunrise showed an average nursing salary of $29.4 thousand with benefits at 27%. Pinecrest reflected $27.7 thousand and 41% respectively. Based on this, Mr. Maszak believes that the HMC projection of $22.5 thousand for salaries and benefits of 20% are far below current salaries at other NME facilities. It is unreasonable to assume, he asserts, that a provider can start up a competing unit in an open area and attract staff at those figure. Taken together, he considers that the difference between Memorial and HMC's salary figures is a $4 thousand difference for a total of $125 thousand low for HMC without considering inflation for 2 years to 1993. Turning to the issue of payor mix, according to Mr. Maszak, Medicare is reflected at 65% by HMC, but the HCCB data shows only 58% for 1991. The County reports for Memorial showed a rate of 60%. Mr. Maszak believes that HMC's estimate overstates a patient days percentage by 5% which could result in an overstatement of income revenue. Therefore, he believes the entire rehabilitative program, as suggested by HMC, is not feasible in the short term because of a number of expenses which are not figured in. He admits that HMC's current financial position is fair. It is reported to be slow in paying its bills and lost $1 million last year alone. In addition, the interest due NME has not been paid and is increasing. These claims were not supported by actual evidence, however. In addition, 65% of the population in the service area is under Medicare which limits increases to 3.2 % per year. Notwithstanding that, expenses are going up at a higher rate, (5%), and, therefore, he contends, HMC's program is not feasible as well over the long run. According to Mr. Maszak, the opening of HMC's facility would also affect Memorial's status. The staff is much the same for both facilities and many of the physician's on staff at Memorial are also investors in the HMC facility. If HMC gets its unit, Maszak feels many patients will be referred to that facility by its investors instead of to Memorial where they would now go. Based on the number of projected patients, however, this really should not result in a reduction in Memorial's numbers. The rehab service is not the only consideration, however. In addition, the admitting services , (neurology, neurosurgery and orthopedics), would also be impacted. Considering various potential scenarios, from a loss of all HMC business in all services, and no reduction of expense, through others including loss of all services with some expense reduction, loss of rehab only with some expense reduction, to a loss of 50% of all services with some expense reduction, the loss impact on Memorial would extend from a low of $264.5 thousand to $3.1 million. The most likely loss figure, he estimates, would be somewhere around $800 thousand. Therefore, approval of HMC's project, he contends, would have a large impact on Memorial's, operation because of its ongoing expansion plans and their attendant expenses, plus the recent sale of $40 million in revenue bonds. As to the latter, the underwriters of that issue are already unhappy with Memorial's financial picture. Any loss of income might likely result in a need to raise prices, but Memorial is constrained in that regard by the dictates of the HCCB. A second option is to raise taxes in the District, but there the District only has .4 of a mill leeway before reaching its limit of 2.5 mills. A third option is to cut services, but with the economy as it is, and the high level of charity care already being provided, that would be hard to do. Thomas R. Bayless, President of Future Health, Incorporated, a health care consultant and an expert in health care finance, also reviewed HMC's application and omissions response, its audited financial reports, the HCCB reports for HMC and others, and other documents. He believes the cost projections outlined in HMC's omissions response do not account for all contract costs. Thirty new beds would have a greater impact on costs than is estimated. The amount shown on the HCCB cost report for the whole hospital is more than the estimated costs for the whole hospital including the rehab unit in year 1. Mr. Bayless believes that the $366,308.00 figure for the unit in year 1 should be more than $1 million. In year 2 he sees it as $1.3 or $1.4 million as opposed to the $512,602.00 projected. By the same token, the general and administration costs reported at over $6 thousand for the whole hospital in 1991, with the 19% increase for the year, would be over $1 million and a great increase in year 2 over the $394,941.00 projected. Therefore, since all costs were not included to the appropriate degree, he contends in reality there would be a significant increase in the cost of operation of the rehab unit which would result in a much larger net loss than was projected, (plus or minus $2 million) in year 1. In year 2, due to the commencement of reimbursement from Medicare, the impact would be less. Nonetheless, the net income profit would not be as great as projected and might instead result in a loss of some $300 thousand to $400 thousand. Taken together, he concludes that expenses and some allowances are significantly understated. For example, the "other deductions" figure of $477,108.00 should be higher due to the percent of HMO discount which, in Bayless' estimate, should be 60% rather than the 20% utilized. This nearly doubles the amount of the deduction. He also disagrees with HMC's indicated deduction for rent, corporate overhead, salaries and wages, and other expense items, all of which, he believes, should be increased. The "benefits" aspect of salaries should be increased as well since the 20% projected is, in his opinion, insufficient. Memorial's figure, at 24.8%, is the standard for the area, he contends. Making those changes, the year 1 net loss for HMC's operation would be almost $3 million rather than $485,739.00. By the same token, year 2, even with Medicare cost reimbursement would result in a loss of almost $700 thousand rather than a profit of almost $1.4 million as projected. In further years out, ( years 3 - 5 ), due to the limits imposed by TEFRA and projected cost increases of 5%, the loss would be compounded somewhat. This would constitute a continuing loss and Mr. Bayless believes the project is not feasible in either the short or the long term, especially considering the fact that the hospital has been losing money without this unit and, it appears, will continue to do so. The hospital has been living on an infusion of money from the parent corporation, and this does not, to him, appear to be an appropriate use of capital. Mr. Bayless contends that most of what he said about the unit projections applies as well to the consolidated hospital rehabilitative unit projections. The losses from the operation of the rehab unit and the other defects show a loss of $7 million in year 1 and almost $6 million in year 2. Year 3 would also show a loss of almost $6 million. As another problem, Mr. Bayless opines that the statute requirement to provide information on costs during construction and the effect of the project on the applicant's and others' operations was not met. Considering the parties' respective positions, however, it is found that though subject to some debate, HMC's projections as to patient revenue, expenses, and its ability to attract a quality work force without seriously damaging Memorial's ability to provide quality care have not been shown to be unsupportable. They are, therefore, accepted. Morgan Gibson, a review consultant with the Department's Office of Community Medical Facilities, and an expert in health planning, reviewed the instant application in early 1991. When the application was deemed complete, he initiated the formal comparative review of this application and of Memorial's request for 4 beds; did an analysis; and completed the required State Agency Action Report, (SAAR), for each. A fixed need pool was published for this cycle, (January, 1996), showing a "0" numerical need. Gibson's review indicated the project was consistent with the 1990 District X Comprehensive Health Plan which establishes various priorities for the award of CONs. Priority 1 relates to an applicant who demonstrates a willingness to publish information. Both applicants met this priority. Priority 2 relates to applicants who agree to construct additional facilities to provide service to the unserved public. Here, neither application involved new construction, but both applicants were willing to provide charity care with HMC's to be at 1%. Priority 3 applies to those applicants who have a history of operating at greater than 85% utilization. HMC's hospital alone could not meet this level, but the proposed unit was projected to meet it by year 2. Priority 1 of the 1989 Florida State Health Plan relates to facilities which will convert excess beds to comprehensive beds. HMC proposes to do this which is cost effective and gets more beds to the patients. Priority 2 of this plan relates to those who propose specialty services not currently offered. HMC's answer was vague but it agreed to provide a wide range of rehab services, and the fact that it does not focus on a single specialty does not make it less desirable. Priority 3 relates to teaching hospitals. HMC is not a teaching hospital but it has agreed to affiliate with a school of osteopathic medicine in the area. Priority 4 relates to those facilities with a history of providing a disproportionate share of charity and Medicaid. HMC does not now do this but has agreed to provide 1% charity care. Priority 5 relates to those facilities showing a willingness to provide outpatient follow-up rehabilitation services, and HMC has agreed to do this. Mr. Gibson concluded that the HMC project would increase availability and access to services and would improve quality of care. He also reviewed the application against the Rule 10-5 criteria. Existing rehabilitation beds in the area are highly utilized, (Memorial is at a figure close to 100% and is the only provider in the service area). Because of this, he considered the establishment of new beds in South Broward to be better than forcing patients to go to existing beds in the North Broward area. He found that the 30 beds proposed by HMC met the unit size minimum of 20 beds and the projected utilization met the standard of 65% for the first year and 85% for the second year. He concluded that the utilization rates in the district support the program. All but one provider are operating at above 90%. In that regard, since there are only 22 beds currently existing in the south portion of the county, and all providers but one are utilized at over 90%, the new unit could not help but improve the availability to the service in the District. It is so found. The local health council data revealed to Mr. Gibson that while admissions generally decreased by 4.5% from 1985 to 1989, rehab admissions went up 189.4% in the same period. This indicated to him a potential need and increasing utilization. He also concluded that the information provided by HMC was reasonable and not fairly disputable. In that regard, Mr. Gibson concluded that HMC presented information to justify the beds regardless of the rule methodology showing "0" need. The supporting factors for this conclusion were: (1) the high current utilization; (2) the relationship of rehab admissions to discharges; (3) the service pattern; (4) the existing waiting period; (5) the elderly population in the service area; (6) the potential rehabilitation discharges; (7) the conversion of underutilized acute care beds; and (8) the maldistribution of beds between the north and south part of the county. Taken together, Mr. Gibson concluded that the addition of 30 new beds by HMC would have a positive effect, not an adverse one, on the provision of service in the community. HMC indicated its intention to seek CARF accreditation, and it appeared to meet the other quality of care standards. CARF accreditation is important. All the facilities operated by the proposed management corporation are accredited by CARF. In addition, Mr. Gibson saw no adequate alternative to the program. Maintaining the status quo was obviously not effective. Neither was building a new facility. As a result, the conversion of underutilized beds appeared to be the most appropriate resolution of the problem. He also concluded that the proposed plan was reasonable. There was a demonstrated need for additional beds and it appeared this project would meet that need without the necessity to expend millions of dollars to create a new facility. The project did not involve cooperative services or shared facilities, but this is not a disqualifier. By the same token, there is no teaching facility currently available. Neither factor really applies to this project, however. Mr. Gibson determined that HMC had the financial resources to accomplish the proposed project. Its financial statement showed that it and its parent company both were in good financial health. The project cost could easily be met by existing resources. The applicant indicated that staffing levels would be met and the retaining of a management company to operate the facility was a plus factor. Before rendering his opinion, Mr. Gibson consulted with the Department's financial consultants, and based on the applicant's projections and assumptions, if the utilization levels of 65% and 85% for years 1 and 2 respectively were met, the project would be financially feasible in both the short and the long term. Mr. Gibson concluded that the utilization projections were reasonable based on current utilization of existing beds. As to fostering competition and cost effectiveness, Mr. Gibson determined that based on the current high utilization rate, the new beds should have no impact on existing services provided by Memorial in the south and the other existing providers in the north. With regard to charity care, HMC admitted that up until this time it had reported little or no charity care provided. Because HMC admitted that, however, Mr. Gibson was willing to accept its assertion as to what it proposed to do in the area in the future. Turning to the criteria outlined in Section 381.705(2), Florida Statutes, Mr. Gibson found: (1) there was, practically, no less costly or more appropriate alternative to the proposed service; (2) the existing service was being utilized efficiently; (3) there were no reasonable alternatives to conversion; and (4) there was some showing of a shortage of available service and no showing of serious problems existing in providing those services. Based on all the above, Mr. Gibson recommended both this application and Memorial's application be approved conditioned on the provision of a certain percentage of charity care. Mr. Gibson admits there is, on balance, a general shortage of rehabilitation personnel, but cannot say whether or not there is a shortage in Broward County. His conclusion that staff was available to HMC was based on several other factors such as the management contract and the proposed recruitment - all representations by the applicant and not based on his own experience. By the same token, he did not test any of the tables for revenues, costs, salaries, etc. Here again he relied on representations by the applicant. In addition to those aforementioned statutory criteria Mr. Gibson evaluated this application against the Section 381.707 criteria as well, and determined it was complete. It is clear, however, that his evaluation was not done in great detail, nor did he attempt to verify much of the other information submitted in support of the 381.705 criteria. The financial aspects of the project were analyzed by an in-house departmental CPA, Mr. Bell. Gibson's involvement was limited to examining the projected admissions, utilization, charges and the like, and based on those, he relied on Mr. Bell's determination they are reasonable and his opinion on feasibility. Nonetheless, Gibson drew his own positive conclusion of feasibility which was cited above. There appears to be no legitimate reason to reject any of the findings of conclusions drawn by Mr. Gibson. Therefore, they are accepted. Elizabeth Dudek, the Chief of the Department's Office of Community Medical Facilities, met with Mr. Gibson, Mr. Bell, and the architect after reading both the applications and the SAAR and, thereafter recommended the project be approved. After considering the application, the projected utilization, the existing inventory, the state and local health plans, the area where the facility was to be located, and at the provisions of the pertinent statutes and rule, she believed the project proposed was justified. She concluded both HMC and Memorial should be awarded the beds requested. Her reasons therefore conform to the findings of Mr. Gibson regarding existing providers and the high utilization rate. The trade patterns support a division of service between the north and the south. She determined that because this application did not meet all preferences and priorities as outlined in the various health plans did not necessarily mean it should be denied. By the same token, the fact that comprehensive rehab services are considered by the Department to be a tertiary service does not mean that the service must be provided only in teaching hospitals. Ms. Dudek recognizes that Section 381.707(2)(d) requires a detailed statement of income and revenue which includes the two year pro forma assumptions, Table 25, and the list of capital projects. Her review of the matters provided by the applicant and the audit and source of funds referenced led her to the conclusion that requirement was met. There is no basis shown upon which to reject that conclusion or to conclude otherwise.
Recommendation Based on the foregoing Findings of fact and Conclusions of Law, it is, therefore recommended that NME Hospitals, Inc.'s application for a Certificate of Need, Number 6643, for a 30 bed inpatient comprehensive medical rehabilitation unit at Hollywood Medical Center be approved, but that its Motion For Attorney's Fees and Costs be denied. RECOMMENDED this 2nd day of June, 1992, in Tallahassee, Florida. ARNOLD H. POLLOCK, 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 2nd day of June, 1992. APPENDIX TO RECOMMENDED ORDER, CASE NO. 91-5698 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. FOR THE PETITIONER: 1. Accepted and incorporated herein. 2. - 4. Accepted and incorporated herein. 5. Accepted and incorporated herein. 6. Accepted. 7. & 8. Accepted and incorporated herein 9. Accepted and incorporated herein except for last sentence of first paragraph which is rejected as contra to the evidence. The second paragraph is accepted but is considered irrelevant to the issues. & 11. Accepted and incorporated herein. Accepted. Not a Finding of Fact but a restatement of testimony. First and third sentences are restatements of terstimony. Second and fourth sentences are accepted. Accepted. Accepted. Accepted and incorporated herein. Accepted and incorporated herein. Accepted and incorporated herein. Rejected. Not a Finding of Fact but argument. Accepted as to witness' testimony but not as to an an evaluation of its worth. All but the last sentence is a restatement of the witness' testimony. Last sentence is accepted as Petitioner's position. First two sentences accepted and incorporated herein. Balance, though a restatement of testimony is fundamentally accurate and consistent with the evidence. Though consistent with Petitioner's position, and perhaps factually accurate,this ppoposed Findings is rejected as overlooking the "other basis" provisions of the need rule. Accepted as an accurate statement of the factors involved, but this position was rejected in the Findings of Fact portion of the Recommended Order. - 28. Rejected as contra to the weight of the evidence. All but last sentence accepted and incorporated herein. Last sentence rejected. Accepted and incorporated herein. Rejected as argument and contra to the weight of the evidence. Rejected as argument. - 37. Accepted as an accurate restatement of the evidence, but rejected as to the ultimate factual conclusions drawn. 38. - 40. See next above which is reiterated here. & 42. Accepted as to the testimony presented but rejected as to the efficacy of the analysis. Accepted as to content but not as to analysis. & 45. Contents accepted as an accurate restatement of the testimony but conclusions drawn are rejected. Rejected. First paragraph accepted. Second paragraph rejected as speculation. Accepted and incorporated herein. Accepted. First sentence accepted. Remainder rejected as speculative with no historical basis. FOR THE RESPONDENT, NME: - 8. Accepted and incorporated herein. Accepted and incorporated herein. - 14. Accepted and incorporated herein. - 19. Accepted and incorporated herein. Accepted and incorporated herein. Accepted and incorporated herein. & 23. Accepted and incorporated herein. Accepted. Accepted and incorporated herein. Not a finding of fact but a comment on the evidence. 27. - 29. Accepted and incorporated herein. 30. Accepted and incorporated herein. 31. Accepted. 32. - 34. Accepted and incorporated herein. 35. - 37. Accepted. 38. - 40. Accepted. 41. & 42. Accepted and incorporated herein. 43. Accepted. 44. - 46. Accepted and incorporated herein. 47. & 48. Accepted and incorporated herein. 49. Accepted. 50. - 52. Accepted. 53. & 54. Accepted and incorporater herein. 55. Accepted. 56. - 58. Accepted and incorporated herein. 59. Accepted. 60. Accepted and incorporated herein. 61. - 63. Accepted. 64. - 68. Accepted and incorporated herein. 69. - 75. Accepted and incorporated herein. 76. Accepted and incorporated herein. 77. Accepted. 78. Accepted. 79. Accepted. 80. Accepted and incorporated herein. 81. & 82. Accepted. 83. - 86. Accepted and incorporated herein. 87. Accepted and incorporated herein. 88. Accepted. 89. Accepted and incorporated herein. 90. Accepted. 91. Accepted and incorporated herein. 92. Accepted and incorporated herein. 93. Accepted and incorporated herein. 94. - 97. Accepted and incorporated herein. 98. - 100. Accepted and incorporated herein. 101. & 102. Accepted. 103. - 106. Accepted and incorporated herein. 107. Accepted and incorporated herein. 108. Accepted and incorporated herein. 109. Accepted. 110. Accepted. 111. - 114. Accepted. 115. Accepted and incorporated herein. 116. Accepted. 117. & 118. Accepted but more a comment on evidence than finding of fact. 119. & 120. Not a finding of fact but a comment on evidence. 121. Accepted. 122. - 125. Not findings of fact but comments on the evidence. 126. Accepted. 127. Not a finding of fact. 128. Accepted. 129. Not a finding of fact but more an argument. 130. Accepted. 131. Accepted. 132. - 133. Accepted and incorporated herein. 134. & 135. Accepted. Not a finding of fact but argument. Accepted. Not a finding of fact. Accepted. - 148. Not findings of fact but argument. 149. & 150. Accepted. 151. Not a finding of fact but argument. FOR THE RESPONDENT, DHRS: 1. Accepted and incorporated herein. 2. - 4. Accepted and incorporated herein. 5. - 11. Accepted and incorporated herein. 12. - 15. Accepted and incorporated herein. 16. - 19. Accepted and incorporated herein. 20. Accepted. 21. - 23. Accepted and incorporated herein. 24. Accepted and incorporated herein. 25. - 28. Accepted and incorporated herein. 29. - 35. Accepted and incorporated herein. 36. - 40. Accepted and incorporated herein. 41. Accepted. 42. Accepted and incorporated herein. 43. Accepted. 44. - 46. Accepted and incorporated herein. 47. & 48. Accepted and incorporated herein. 49. Accepted. 50. - 52. Accepted and incorporated herein 53. - 61. Accepted and incorporated herein. 62. & 63. Accepted. 64. Accepted and incorporated herein. 65. Accepted. 66. Accepted and incorporated herein. 67. Accepted. 68. - 75. Accepted and incorporated herein. 76. & 77. Accepted and incorporated herein. Not a finding of fact but a restatement of evidence. Accepted. - 84. Accepted and incorporated herein. Accepted. Accepted and incorporated herein. Accepted and incorporated herein. & 89. Accepted and incorporated herein. Accepted. Accepted and incorporated herein. Accepted and incorporated herein. Accepted and incorporated herein. COPIES FURNISHED: R. Terry Rigsby, Esquire F. Philip Blank, Esquire Blank, Rigsby & Meenan, P.A. 204-B South Monroe Street Tallahassee, Florida 32301 Thomas R. Cooper, Esquire Department of Health and Rehabilitative Services 2727 Mahan Drive - Suite 103 Tallahassee, Florida 32308 C. Gary Williams, Esquire Michael Glazer, Esquire Ausley, McMullen, McGehee, Carothers & Proctor 227 South Calhoun Street Tallahassee, Florida 32302 John Slye General Counsel DHRS 1323 Winewood Blvd. Tallahassee, Florida 32399-0700 Sam Power Agency Clerk DHRS 1323 Winewood Blvd. Tallahassee, Florida 32399-0700
Findings Of Fact The Parties The Applicant, LMHS The applicant, LMHS, is a public, not-for-profit health care system, created in 1968 by special act of the Legislature. A ten-member publicly elected board of directors is responsible for overseeing LMHS on behalf of the citizens of Lee County. LMHS does not have taxing power. LMHS is the dominant provider of hospital services in Lee County. LMHS operates four hospital facilities under three separate hospital licenses. The four hospital campuses are dispersed throughout Lee County: borrowing the sub-county area descriptors adopted by LMHS’s health planning expert, LMHS operates one hospital in northwest Lee County, one hospital in central Lee County, and two hospitals in south Lee County.1/ At present, the four hospital campuses are licensed to operate a total of 1,423 hospital beds. The only non-LMHS hospital in Lee County is 88-bed Lehigh Regional Medical Center (Lehigh Regional) in northeast Lee County, owned and operated by a for-profit hospital corporation, Health Management Associates, Inc. (HMA). LMHS has a best-practice strategy of increasing and concentrating clinical specialties at each of its existing hospitals. The LMHS board has already approved which specialty service lines will be the focus at each of its four hospitals. Although there is still some duplication of specialty areas, LMHS has tried to move more to clinical specialization concentrated at a specific hospital to lower costs, better utilize resources, and also to concentrate talent and repetitions, leading to improved clinical outcomes. Currently licensed to operate 415 hospital beds, Lee Memorial Hospital (Lee Memorial) is located in downtown Fort Myers in central Lee County. The hospital was initially founded in 1916 and established at its current location in the 1930s. In the 1960s, a five-story clinical tower was constructed on the campus, to which three more stories were added in the 1970s. The original 1930s building was demolished and its site became surface parking. Today, Lee Memorial provides a full array of acute care services, plus clinical specialties in such areas as orthopedics, neurology, oncology, and infectious diseases. Lee Memorial’s licensed bed complement includes 15 adult inpatient psychiatric beds (not in operation), and 60 beds for comprehensive medical rehabilitation (CMR), a tertiary health service.2/ Lee Memorial is a designated stroke center, meaning it is a destination to which EMS providers generally seek to transport stroke patients, bypassing any closer hospital that lacks stroke center designation. Lee Memorial operates the only verified level II adult trauma center in the seven-county region designated AHCA district 8. Lee Memorial also is home to a new residency program for medical school graduates. At its peak, Lee Memorial operated as many as 600 licensed beds at the single downtown Fort Myers location. In 1990, when hospital beds were still regulated under the CON program, Lee Memorial transferred its right to operate 220 beds to establish a new hospital facility to the south, HealthPark Medical Center (HealthPark). One reason to shift some of its regulated hospital beds to the south was because of the growing population in the southern half of Lee County. Another reason was to ensure a paying patient population by moving beds away from Lee Memorial to a more affluent area. That way, LMHS would have better system balance, and be better able to bear the financial burden of caring for disproportionately high numbers of Medicaid and charity care patients at the downtown safety-net hospital. That was a reasonable and appropriate objective. HealthPark, located in south Lee County ZIP code 33908, to the south and a little to the west of Lee Memorial, now operates 368 licensed beds--320 general acute care and 48 neonatal intensive care beds. HealthPark’s specialty programs and services include cardiac care, open heart surgery, and urology. HealthPark is a designated STEMI3/ (heart attack) center, a destination to which EMS providers generally seek to transport heart attack patients, bypassing any closer hospital lacking STEMI center designation. HealthPark also concentrates in specialty women’s and children’s services, offering obstetrics, neonatal intensive care, perinatal intensive care, and pediatrics. HealthPark is a state-designated children’s cancer center. HealthPark’s open heart surgery, neonatal and perinatal intensive care, and pediatric oncology services are all tertiary health services. In 1996, LMHS acquired its third hospital, Cape Coral Medical Center (Cape Coral), from another entity.4/ The acquisition of Cape Coral was another step in furtherance of the strategy to improve LMHS’s overall payer mix by establishing hospitals in affluent areas. Cape Coral is located in northwest Lee County, and is licensed to operate 291 general acute care beds. Cape Coral’s specialty concentrations include obstetrics, orthopedics, gastroenterology, urology, and stroke treatment. Cape Coral recently achieved primary stroke center designation, making it an appropriate destination for EMS transport of stroke patients, according to Lee County EMS transport guidelines. The newest LMHS hospital, built in 2007-2008 and opened in 2009, is Gulf Coast Medical Center (Gulf Coast) in south Lee County ZIP code 33912.5/ With 349 licensed beds, Gulf Coast offers tertiary services including kidney transplantation and open heart surgery, and specialty services including obstetrics, stroke treatment, surgical oncology, and neurology. Gulf Coast is both a designated primary stroke center and a STEMI center. NCH NCH is a not-for-profit system operating two hospital facilities with a combined 715 licensed beds in Collier County, directly to the south of Lee County. Naples Community Hospital (Naples Community) is in downtown Naples. NCH North Naples Hospital Campus (North Naples) is located in the northernmost part of Collier County, near the Collier-Lee County line.6/ The Petitioner in this case is NCH doing business as North Naples. North Naples is licensed to operate 262 acute care beds. It provides an array of acute care hospital services, specialty services including obstetrics and pediatrics, and tertiary health services including neonatal intensive care and CMR. AHCA AHCA is the state health planning agency charged with administering the CON program pursuant to the Health Facility and Services Development Act, sections 408.031-408.0455, Florida Statutes (2013).7/ AHCA is responsible for the coordinated planning of health care services in the state. To carry out its responsibilities for health planning and CON determinations, AHCA maintains a comprehensive health care database, with information that health care facilities are required to submit, such as utilization data. See § 408.033(3), Fla. Stat. AHCA conducts its health planning and CON review based on “health planning service district[s]” defined by statute. See § 408.032(5), Fla. Stat. Relevant in this case is district 8, which includes Sarasota, DeSoto, Charlotte, Lee, Glades, Hendry, and Collier Counties. Additionally, by rule, AHCA has adopted acute care sub-districts, originally utilized in conjunction with an acute care bed need methodology codified as Florida Administrative Code Rule 59C-1.038. The acute care bed need rule was repealed in 2005, following the deregulation of acute care beds from CON review. However, AHCA has maintained its acute care sub-district rule, in which Lee County is designated sub-district 8-5. Fla. Admin. Code R. 59C-2.100(3)(h)5. The Proposed Project LMHS proposes to establish a new 80-bed general hospital on the southeast corner of U.S. Highway 41 and Coconut Road in Bonita Springs (ZIP code 34135),8/ in south Lee County. The CON application described the hospital services to be offered at the proposed new hospital in only the most general fashion--medical- surgical services, emergency services, intensive care, and telemetry services. Also planned for the proposed hospital are outpatient care, community education, and chronic care management --all non-hospital, non-CON-regulated services. At hearing, LMHS did not elaborate on the planned hospital services for the proposed new facility. Instead, no firm decisions have been made by the health system regarding what types of services will be offered at the new hospital. The proposed site consists of three contiguous parcels, totaling approximately 31 acres. LMHS purchased a 21-acre parcel in 2004, with a view to building a hospital there someday. LMHS later added to its holdings when additional parcels became available. At present, the site’s development of regional impact (DRI) development order does not permit a hospital, but would allow the establishment of a freestanding emergency department. The proposed hospital site is adjacent to the Bonita Community Health Center (BCHC). Jointly owned by LMHS and NCH, BCHC is a substantial health care complex described by LMHS President James Nathan as a “hospital without walls.” This 100,000 square-foot complex includes an urgent care center, ambulatory surgery center, and physicians’ offices. A wide variety of outpatient health care services are provided within the BCHC complex, including radiology/diagnostic imaging, endoscopy, rehabilitation, pain management, and lab services. Although LMHS purchased the adjacent parcels with the intent of establishing a hospital there someday, representatives of LMHS expressed their doubt that “someday” has arrived; they have candidly admitted that this application may be premature. CON Application Filing LMHS did not intend to file a CON application when it did, in the first hospital-project review cycle of 2013. LMHS did not file a letter of intent (LOI) by the initial LOI deadline to signify its intent to file a CON application. However, LMHS’s only Lee County hospital competitor, HMA, filed an LOI on the deadline day. LMHS learned that the project planned by HMA was to replace Lehigh Regional with a new hospital, which would be relocated to south Lee County, a little to the north of the Estero/Bonita Springs area. LMHS was concerned that if the HMA application went forward and was approved, that project would block LMHS’s ability to pursue a hospital in Bonita Springs for many years to come. Therefore, in reaction to HMA’s LOI, LMHS filed a “grace period” LOI, authorized under AHCA’s rules, to submit a competing proposal for a new hospital in south Lee County. But for the HMA LOI, there would have been no grace period for a competing proposal, and LMHS would not have been able to apply when it did. Two weeks later, on the initial application filing deadline, LMHS submitted a “shell” application. LMHS proceeded to quickly prepare the bulk of its application to file five weeks later by the omissions response deadline of April 10, 2013. Shortly before the omissions response deadline, Mr. Nathan met with Jeffrey Gregg, who is in charge of the CON program as director of AHCA’s Florida Center for Health Information and Policy Analysis, and Elizabeth Dudek, AHCA Secretary, to discuss the LMHS application. Mr. Nathan told the AHCA representatives that LMHS was not really ready to file a CON application, but felt cornered and forced into it to respond to the HMA proposal. Mr. Nathan also discussed with AHCA representatives the plan to transfer 80 beds from Lee Memorial, but AHCA told Mr. Nathan not to make such a proposal. Since beds are no longer subject to CON regulation, hospitals are free to add or delicense beds as they deem appropriate, and therefore, an offer to delicense beds adds nothing to a CON proposal. LMHS’s CON application was timely filed on the omissions deadline. A major focus of the application was on why LMHS’s proposal was better than the expected competing HMA proposal. However, HMA did not follow through on its LOI by filing a competing CON application. The LMHS CON application met the technical content requirements for a general hospital CON application, including an assessment of need for the proposed project. LMHS highlighted the following themes to show need for its proposed new hospital: South Lee County “should have its own acute care hospital” because it is a fast-growing area with an older population; by 2018, the southern ZIP codes of Lee County will contain nearly a third of the county’s total population. The Estero/Bonita Springs community strongly supports the proposed new hospital. Approval of the proposed new hospital “will significantly reduce travel times for the service area’s residents and will thereby significantly improve access to acute care services,” as shown by estimated travel times to local hospitals for residents in the proposed primary service area and by Lee County EMS transport logs. LMHS will agree to a CON condition to delicense 80 beds at Lee Memorial, which are underutilized, so that there will be no net addition of acute care beds to the sub-district’s licensed bed complement. AHCA’s Preliminary Review and Denial AHCA conducted its preliminary review of the CON application in accordance with its standard procedures. As part of the preliminary review process for general hospital applications, the CON law now permits existing health care facilities whose established programs may be substantially affected by a proposed project to submit a detailed statement in opposition. Indeed, such a detailed statement is a condition precedent to the existing provider being allowed to participate as a party in any subsequent administrative proceedings conducted with respect to the CON application. See § 408.037(2), Fla. Stat. North Naples timely filed a detailed statement in opposition to LMHS’s proposed new hospital. LMHS timely filed a response to North Naples’ opposition submittal, pursuant to the same law. After considering the CON application, the North Naples opposition submittal, and the LMHS response, AHCA prepared its SAAR in accordance with its standard procedures. A first draft of the SAAR was prepared by the CON reviewer; the primary editor of the SAAR was AHCA CON unit manager James McLemore; and then a second edit was done by Mr. Gregg. Before the SAAR was finalized, Mr. Gregg met with the AHCA Secretary to discuss the proposed decision. The SAAR sets forth AHCA’s preliminary findings and preliminary decision to deny the LMHS application. Mr. Gregg testified at hearing as AHCA’s representative, as well as in his capacity as an expert in health planning and CON review. Through Mr. Gregg’s testimony, AHCA reaffirmed its position in opposition to the LMHS application, and Mr. Gregg offered his opinions to support that position. Statutory and Rule Review Criteria The framework for consideration of LMHS’s proposed project is dictated by the statutory and rule criteria that apply to general hospital CON applications. The applicable statutory review criteria, as amended in 2008 for general hospital CON applications, are as follows: The need for the health care facilities and health services being proposed. The availability, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant. * * * (e) The extent to which the proposed services will enhance access to health care for residents of the service district. * * * (g) The extent to which the proposal will foster competition that promotes quality and cost-effectiveness. * * * (i) The applicant’s past and proposed provision of health care services to Medicaid patients and the medically indigent. § 408.035(1), Fla. Stat.; § 408.035(2), Fla. Stat. (identifying review criteria that apply to general hospital applications). AHCA has not promulgated a numeric need methodology to calculate need for new hospital facilities. In the absence of a numeric need methodology promulgated by AHCA for the project at issue, Florida Administrative Code Rule 59C-1.008(2)(e) applies. This rule provides that the applicant is 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 and 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. Florida Administrative Code Rule 59C-1.030 also applies. This rule elaborates on “health care access criteria” to be considered in reviewing CON applications, with a focus on the needs of medically underserved groups such as low income persons. LMHS’s Needs Assessment LMHS set forth its assessment of need for the proposed new hospital, highlighting the population demographics of the area proposed to be served. Theme: South Lee County’s substantial population The main theme of LMHS’s need argument is that south Lee County “should have its own acute care hospital” because it is a fast-growing area with a substantial and older population. (LMHS Exh. 3, p. 37). LMHS asserts that south Lee County’s population is sufficient to demonstrate the need for a new hospital because “by 2018, the southern ZIP codes of Lee County will contain nearly a third of the county’s total population.” Id. LMHS identified eight ZIP codes--33908, 33912, 33913, 33928, 33931, 33967, 34134, and 34135--that constitute “south Lee County.” (LMHS Exh. 3, Table 4). Claritas population projections, reasonably relied on by the applicant, project that by 2018 these eight ZIP codes will have a total population of 200,492 persons, approximately 29 percent of the projected population of 687,795 for all of Lee County. The age 65-and-older population in south Lee County is projected to be 75,150, approximately 40 percent of the projected 65+ population of 185,655 for all of Lee County. A glaring flaw in LMHS’s primary need theme is that the eight-ZIP-code “south Lee County” identified by LMHS is not without its own hospital. That area already has two of the county’s five existing hospitals: Gulf Coast and HealthPark. In advancing its need argument, LMHS selectively uses different meanings of “south Lee County.” When describing the “south Lee County” that deserves a hospital of its own, LMHS means the local Estero/Bonita Springs community in and immediately surrounding the proposed hospital site in the southernmost part of south Lee County. However, when offering up a sufficient population to demonstrate need for a new hospital, “south Lee County” expands to encompass an area that appears to be half, if not more, of the entire county. The total population of the Estero/Bonita Springs community is 76,753, projected to grow to 83,517 by 2018--much more modest population numbers compared to those highlighted by the applicant for the expanded version of south Lee County. While the rate of growth for Estero/Bonita Springs is indeed fast compared to the state and county growth rates, this observation is misleading because the actual numbers are not large. LMHS also emphasizes the larger proportion of elderly in the Estero/Bonita Springs community, which is also expected to continue to grow at a fast clip. Although no specifics were offered, it is accepted as a generic proposition that elderly persons are more frequent consumers of acute care hospital services. By the same token, elderly persons who require hospitalization tend to be sicker, and to present greater risks of potential complications from comorbidities, than non-elderly patients. As a result, for example, as discussed below, Lee County EMS’s emergency transport guidelines steer certain elderly patients to hospitals with greater breadth of services than the very basic hospital planned by LMHS, “as a reasonable precaution.” Projections of a Well-Utilized Proposed Hospital Mr. Davidson, LMHS’s health planning consultant, was provided with the proposed hospital’s location and number of beds, and was asked to develop the need assessment and projections. No evidence was offered regarding who determined that the proposed hospital should have 80 beds, or how that determination was made. Mr. Davidson set about to define the proposed primary and secondary service areas, keeping in mind that section 408.037(2) now requires a general hospital CON application to specifically identify, by ZIP codes, the primary service area from which the proposed hospital is expected to receive 75 percent of its patients, and the secondary service area from which 25 percent of the hospital’s patients are expected. Mr. Davidson selected six ZIP codes for the primary service area. He included the three ZIP codes comprising the Estero/Bonita Springs community. He also included two ZIP codes that are closer to existing hospitals than to the proposed site, according to the drive-time information he compiled. In addition, he included one ZIP code in which there is already a hospital (Gulf Coast, in 33912). Mr. Davidson’s opinion that this was a reasonable, and not overly aggressive, primary service area was not persuasive;9/ the criticisms by the other expert health planning witnesses were more persuasive and are credited. Mr. Davidson selected six more ZIP codes for the secondary service area. These include: two south Lee County ZIP codes that are HealthPark’s home ZIP code (33908) and a ZIP code to the west of HealthPark (33931); three central Lee County ZIP codes to the north of HealthPark and Gulf Coast; and one Collier County ZIP code that is North Naples’ home ZIP code. Mr. Davidson’s opinion that this was a reasonable, and not overly aggressive, secondary service area was not persuasive; the criticisms by the other expert health planning witnesses were more persuasive and are credited. As noted above, the existing LMHS hospitals provide tertiary-level care and a number of specialty service lines and designations that have not been planned for the proposed new hospital. Conversely, there are no services proposed for the new hospital that are not already provided by the existing LMHS hospitals. In the absence of evidence that the proposed new hospital will offer services not available at closer hospitals, it is not reasonable to project that any appreciable numbers of patients will travel farther, and in some instances, bypass one or more larger existing hospitals with greater breadth of services, to obtain the same services at the substantially smaller proposed new hospital. As aptly observed by AHCA’s representative, Mr. Gregg, the evidence to justify such an ambitious service area for a small hospital providing basic services was lacking: So if we were to have been given more detail[:] here’s the way we’re going to fit this into our system, here’s -- you know, here’s why we can design this service area as big as we did, even though it would require a lot of people to drive right by HealthPark or right by Gulf Coast to go to this tiny basic hospital for some reason. I mean, there are fundamental basics about this that just make us scratch our head. (Tr. 1457). The next step after defining the service area was to develop utilization projections, based on historic utilization data for service area residents who obtained the types of services to be offered by the proposed hospital. In this case, the utilization projections suffer from a planning void. Mr. Nathan testified that no decisions have been made regarding what types of services, other than general medical- surgical services, will be provided at the proposed new hospital. In lieu of information regarding the service lines actually planned for the proposed hospital, Mr. Davidson used a subtractive process, eliminating “15 or so” service lines that the proposed hospital either “absolutely wasn’t going to provide,” or that, in his judgment, a small hospital of this type would not provide. The service lines he excluded were: open heart surgery; trauma; neonatal intensive care; inpatient psychiatric, rehabilitation, and substance abuse; and unnamed “others.” His objective was to “narrow the scope of available admissions down to those that a smaller hospital could reasonably aspire to care for.” (Tr. 671-672). That objective is different from identifying the types of services expected because they have been planned for this particular proposed hospital. The testimony of NCH’s health planner, as well as Mr. Gregg, was persuasive on the point that Mr. Davidson’s approach was over-inclusive. The historic data he used included a number of service lines that are not planned for the proposed hospital and, thus, should have been subtracted from the historic utilization base. These include clinical specialties that are the focus of other LMHS hospitals, such as infectious diseases, neurology, neurosurgery, orthopedics, and urology; cardiac care, such as cardiac catheterization and angioplasty that are not planned for the proposed hospital; emergency stroke cases that will be directed to designated stroke centers; pediatric cases that will be referred to HealthPark; and obstetrics, which is not contemplated for the proposed hospital according to the more credible evidence.10/ Mr. Davidson’s market share projections suffer from some of the same flaws as the service area projections: there is no credible evidence to support the assumption that the small proposed new hospital, which has planned to offer only the most basic hospital services, will garner substantial market shares in ZIP codes that are closer to larger existing hospitals providing a greater breadth of services. In addition, variations in market share projections by ZIP code raise questions that were not adequately explained.11/ Overall, the “high-level” theme offered by LMHS’s health planner--that it is unnecessary to know what types of services will be provided at the new hospital in order to reasonably project utilization and market share--was not persuasive. While it is possible that utilization of the proposed new hospital would be sufficient to suggest it is filling a need, LMHS did not offer credible evidence that that is so. Bed Need Methodology for Proposed Service Area Mr. Davidson projected bed need for the proposed service area based on the historic utilization by residents of the 12 ZIP codes in the service lines remaining after his subtractive process, described above. Other than using an over-inclusive base (as described above), Mr. Davidson followed a reasonable approach to determine the average daily census generated by the proposed service area residents, and then applying a 75 percent occupancy standard to convert the average daily census into the number of beds supported by that population. The results of this methodology show that utilization generated by residents of the six-ZIP code primary service area would support 163 hospital beds; and utilization generated by residents of the six-ZIP code secondary service area would support 225 beds in the secondary service area. The total gross bed need for the proposed service area adds up to 388 beds. However, the critical next step was missing: subtract from the gross number of needed beds the number of existing beds, to arrive at the net bed need (or surplus). In the primary service area, 163 beds are needed, but there are already 349 beds at Gulf Coast. Thus, in the primary service area, there is a surplus of 186 beds, according to the applicant’s methodology. In the secondary service area, 225 beds are needed, but there are already 320 acute care beds at HealthPark and 262 acute care beds at North Naples. Thus, in the secondary service area, there is a surplus of 357 beds, according to the applicant’s methodology. While it is true that Gulf Coast and HealthPark use some of their beds to provide some tertiary and specialty services that were subtracted out of this methodology, and all three hospitals presumably provide services to residents outside the proposed service area, Mr. Davidson made no attempt to measure these components. Instead, the LMHS bed need methodology ignores completely the fact that there is substantial existing bed capacity--931 acute care beds--within the proposed service area. Availability and Utilization of Existing Hospitals LMHS offered utilization data for the 12-month period ending June 30, 2012, for Lee County hospitals. Cape Coral’s average annual occupancy rate was 57.6 percent; HealthPark’s was 77.5 percent; Lee Memorial’s was 55.9 percent; Lehigh Regional’s was 44 percent; and Gulf Coast’s was 79.8 percent. Mr. Davidson acknowledged that a reasonable occupancy standard to plan for a small hospital the size of the proposed hospital is 75 percent. For a larger operational hospital, 80 percent is a good standard to use, indicating it is well-utilized. Judged by these standards, only HealthPark and Gulf Coast come near the standard for a well-utilized hospital. As noted in the CON application, these annual averages do not reflect the higher utilization during peak season. According to the application, HealthPark’s occupancy was 88.2 percent and Gulf Coast’s was 86.8 percent for the peak quarter of January-March 2012. LMHS did not present utilization information for North Naples, even though that hospital is closest to the proposed hospital site and is within the proposed service area targeted by the applicant. For the same 12-month period used for the LMHS hospitals, North Naples’ average annual occupancy rate was 50.97 percent and for the January-March 2012 “peak season” quarter, North Naples’ occupancy was 60.68 percent. At the final hearing, LMHS did not present more recent utilization data, choosing instead to rely on the older information in the application. Based on the record evidence, need is not demonstrated by reference to the availability and utilization of existing hospitals in the proposed service area or in the sub-district. Community Support LMHS argued that the strong support by the Estero/Bonita Springs community should be viewed as evidence of need for the proposed new hospital. As summarized in the SAAR, approximately 2,200 letters of support were submitted by local government entities and elected officials, community groups, and area residents, voicing their support for the proposed hospital. LMHS chose not to submit these voluminous support letters in the record. The AHCA reviewer noted in the SAAR that none of the support letters documented instances in which residents of the proposed service area needed acute care hospital services but were unable to obtain them, or suffered poor or undesirable health outcomes due to the current availability of hospital services. Two community members testified at the final hearing to repeat the theme of support by Estero/Bonita Springs community residents and groups. These witnesses offered anecdotal testimony about traffic congestion during season, population growth, and development activity they have seen or heard about. They acknowledged the role their community organization has played in advocating for a neighborhood hospital, including developing and disseminating form letters for persons to express their support. Consistent with the AHCA reviewer’s characterization of the support letters, neither witness attested to any experiences needing acute care hospital services that they were unable to obtain, or any experiences in which they had poor or undesirable outcomes due to the currently available hospital services. There was no such evidence offered by any witness at the final hearing. Mr. Gregg characterized the expression of community support by the Estero/Bonita Springs community as typical “for an upper income, kind of retiree-oriented community where, number one, people anticipate needing to use hospitals, and number two, people have more time on their hands to get involved with things like this.” (Tr. 1433). Mr. Gregg described an extreme example of community support for a prior new hospital CON application, in which AHCA received 21,000 letters of support delivered in two chartered buses that were filled with community residents who wanted to meet with AHCA representatives. Mr. Gregg identified the project as the proposed hospital for North Port, which was ultimately denied following an administrative hearing. In the North Port case, the Administrative Law Judge made this apt observation with regard to the probative value of the overwhelming community support offered there: “A community’s desire for a new hospital does not mean there is a ‘need’ for a new hospital. Under the CON program, the determination of need for a new hospital must be based upon sound health planning principles, not the desires of a particular local government or its citizens.” Manatee Memorial Hospital, L.P. v. Ag. for Health Care Admin., et al., Case Nos. 04-2723CON, 04-3027CON, and 04- 3147CON (Fla. DOAH Dec. 15, 2005; Fla. AHCA April 11, 2006), RO at 26, ¶ 104, adopted in FO. That finding, which was adopted by AHCA in its final order, remains true today, and is adopted herein. Access The statutory review criteria consider access issues from two opposing perspectives: from the perspective of the proposed project, consideration is given to the extent to which the proposal will enhance access to health care services for the applicant’s service district; without the proposed project, consideration is given to the accessibility of existing providers of the health care services proposed by the applicant. Addressing this two-part access inquiry, LMHS contends that the proposed hospital would significantly reduce travel times and significantly enhance access to acute care services. Three kinds of access are routinely considered in CON cases: geographic access, in this case the drive times by individuals to hospitals; emergency access, i.e., the time it takes for emergency ground transport (ambulances) to deliver patients to hospitals; and economic access, i.e., the extent to which hospital services are provided to Medicaid and charity care patients. Geographic Access (drive times to hospitals) For nearly all residents of the applicable service district, district 8, the proposed new hospital was not shown to enhance access to health care at all. The same is true for nearly all residents of sub-district 8-5, Lee County. LMHS was substantially less ambitious in its effort to show access enhancement, limiting its focus on attempting to prove that access to acute care services would be enhanced for residents of the primary service area. LMHS did not attempt to prove that there would be any access enhancement to acute care services for residents of the six-ZIP code secondary service area. As set forth in the CON application, Mr. Davidson used online mapping software to estimate the drive time from each ZIP code in the primary service area to the four existing LMHS hospitals, the two NCH hospitals, and another hospital in north Collier County, Physicians Regional-Pine Ridge. The drive-time information offered by the applicant showed the following: the drive time from ZIP code 33912 was less to three different existing LMHS hospitals than to the proposed new hospital; the drive time from ZIP code 33913 was less to two different existing LMHS hospitals than to the proposed new hospital; and the drive time from ZIP code 33967 was less to one existing LMHS hospital than to the proposed hospital site. Thus, according to LMHS’s own information, drive times would not be reduced at all for three of the six ZIP codes in the primary service area. Not surprisingly, according to LMHS’s information, the three Estero/Bonita Springs ZIP codes are shown to have slightly shorter drive times to the proposed neighborhood hospital than to any existing hospital. However, the same information also suggests that those residents already enjoy very reasonable access of 20-minutes’ drive time or less to one or more existing hospitals: the drive time from ZIP code 33928 is between 14 and 20 minutes to three different existing hospitals; the drive time from ZIP code 34134 is between 18 and 20 minutes to two different existing hospitals; and the drive time from ZIP code 34135 is 19 minutes to one existing hospital. In terms of the extent of drive time enhancement, the LMHS information shows that drive time would be shortened from 14 minutes to seven minutes for ZIP code 33928; from 18 minutes to 12 minutes for ZIP code 34134; and from 19 minutes to 17 minutes for ZIP code 34135. There used to be an access standard codified in the (now-repealed) acute care bed need rule, providing that acute care services should be accessible within a 30-minute drive time under normal conditions to 90 percent of the service area’s population. Mr. Davidson’s opinion is that the former rule’s 30-minute drive time standard remains a reasonable access standard for acute care services. Here, LMHS’s drive time information shows very reasonable access now, meeting an even more rigorous drive-time standard of 20 minutes. The establishment of a new hospital facility will always enhance geographic access by shortening drive times for some residents. For example, if LMHS’s proposed hospital were established, another proposed hospital could demonstrate enhanced access by reducing drive times from seven minutes to four minutes for residents of Estero’s ZIP code 33928. But the question is not whether there is any enhanced access, no matter how insignificant. Instead, the appropriate consideration is the “extent” of enhanced access for residents of the service district or sub-district. Here, the only travel time information offered by LMHS shows nothing more than insignificant reductions of already reasonable travel times for residents of only three of six ZIP codes in the primary service area. The drive-time information offered in the application and at hearing was far from precise, but it was the only evidence offered by the applicant in an attempt to prove its claim that there would be a significant reduction in drive times for residents of the primary service area ZIP codes. No travel time expert or traffic engineer offered his or her expertise to the subject of geographic accessibility in this case. No evidence was presented regarding measured traffic conditions or planned roadway improvements. Anecdotal testimony regarding “congested” roads during “season” was general in nature and insufficient to prove that there is not reasonable access now to basic acute care hospital services for all residents of the proposed service area. The proposed new hospital is not needed to address a geographic access problem. Consideration of the extent of access enhancement does not weigh in favor of the proposed new hospital. Emergency Access LMHS also sought to establish that emergency access via EMS ambulance transport was becoming problematic during the season because of traffic congestion. In its CON application, LMHS offered Lee County EMS transport logs as evidence that ambulance transport times from the Estero/Bonita Springs community to an existing hospital were higher during season than in the off-season months. LMHS represented in its CON application that the voluminous Lee County EMS transport logs show average transport times of over 22 minutes from Bonita Springs to a hospital in March 2012 compared to 15 minutes for June 2012, and average transport times of just under 22 minutes from Estero to a hospital in March 2012 compared to over 17 minutes for June 2012. LMHS suggested that these times were not reasonable because these were all emergency transports at high speeds with flashing lights and sirens. LMHS did not prove the accuracy of this statement. The Lee County EMS ordinance limits the use of sirens and flashing lights to emergency transports, defined to mean transports of patients with life- or limb-threatening conditions. According to Lee County EMS Deputy Chief Panem, 90 to 95 percent of ambulance transports do not involve such conditions. Contrary to the conclusion that LMHS urges should be drawn from the EMS transport logs, the ambulance transport times summarized by LMHS in its application do not demonstrate unreasonable emergency access for residents of Estero/Bonita Springs. The logs do not demonstrate an emergency access problem for the local residents during the season, as contended by LMHS; nor did LMHS offer sufficient evidence to prove that the proposed new hospital would materially improve ambulance transport times. LMHS’s opinion that the ambulance logs show a seasonal emergency access problem for Estero/Bonita Springs residents cannot be credited unless the travel times on the logs reflect patient transports to the nearest hospital, such that establishing a new hospital in Bonita Springs would result in faster ambulance transports for Estero/Bonita Springs residents. Deputy Chief Panem testified that ambulance transport destination is dictated in the first instance by patient choice. In addition, for the “most serious calls,” the destination is dictated by emergency transport guidelines with a matrix identifying the most “appropriate” hospitals to direct patients. For example, as Deputy Chief Panem explained: In the case of a stroke or heart attack, we want them to go to a stroke facility or a heart attack facility[;] or trauma, we have a trauma center in Lee County as well . . . Lee Memorial Hospital downtown is a level II trauma center. (Tr. 378). The emergency transport matrix identifies the hospitals qualified to handle emergency heart attack, stroke, or trauma patients. In addition, the matrix identifies the “most appropriate facility” for emergency pediatrics, obstetrics, pediatric orthopedic emergencies, and other categories involving the “most serious calls.” Of comparable size to the proposed new hospital, 88-bed Lehigh Regional is not identified as an “appropriate facility” to transport patients with any of the serious conditions shown in the matrix. Similar to Lehigh Regional, the slightly smaller proposed new hospital is not expected to be identified as an appropriate facility destination for patients with any of the conditions designated in the Lee County EMS emergency transport matrix. The Lee County EMS transport guidelines clarify that all trauma alert patients “will be” transported to Lee Memorial as the Level II Trauma Center. In addition, the guidelines provide as follows: “Non-trauma alert patients with a high index of suspicion (elderly, etc.) should preferentially be transported to the Trauma Center as a reasonable precaution.” (emphasis added). For the elderly, then, a condition that would not normally be considered one of the most serious cases to be steered to the most appropriate hospital may be reclassified as such, as a reasonable precaution because the patient is elderly. The Lee County EMS transport logs do not reflect the reason for the chosen destination. The patients may have requested transport to distant facilities instead of to the nearest facilities. Patients with the most serious conditions may have accepted the advice of ambulance crews that they should be transported to the “most appropriate facility” with special resources to treat their serious conditions; or those patients may have been unable to express their choice due to the seriousness of their condition, in which case the patients would be taken to the most appropriate facility, bypassing closer facilities. Elderly patients may have been convinced to take the reasonable precaution to go to an appropriate facility even if their condition did not fall into the most serious categories. Since the transport times on the EMS logs do not necessarily reflect transport times to the closest hospital, it is not reasonable to conclude that the transport times would be shorter if there were an even closer hospital, particularly where the closer hospital is not likely to be designated as an appropriate destination in the transport guidelines matrix. The most serious cases, categorized in the EMS transport matrix, are the ones for which minutes matter. For those cases, a new hospital in Estero/Bonita Springs, which has not planned to be a STEMI receiving center, a stroke center, or a trauma center, is not going to enhance access to emergency care, even for the neighborhood residents. The evidence at hearing did not establish that ambulance transport times are excessive or cause an emergency access problem now.12/ In fact, Deputy Chief Panem did not offer the opinion, or offer any evidence to prove, that the drive time for ambulances transporting patients to area hospitals is unreasonable or contrary to any standard for reasonable emergency access. Instead, Lee County EMS recently opposed an application for a certificate of public convenience and necessity by the Bonita Springs Fire District to provide emergency ground transportation to hospitals, because Lee County EMS believed then, and believes now, that it is providing efficient and effective emergency transport services to the Bonita Springs area residents. At hearing, LMHS tried a different approach by attempting to prove an emergency access problem during season, not because of the ambulance drive times, but because of delays at the emergency departments themselves after patients are transported there. The new focus at hearing was on EMS “offload” times, described as the time between ambulance arrival at the hospital and the time the ambulance crews hand over responsibility for a patient to the emergency department staff. According to Deputy Chief Panem, Lee County hospitals rarely go on “bypass,” a status that informs EMS providers not to transport patients to a hospital because additional emergency patients cannot be accommodated. No “bypass” evidence was offered, suggesting that “bypass” status is not a problem in Lee County and that Lee County emergency departments are available to EMS providers. Deputy Chief Panem also confirmed that North Naples does not go on bypass. The North Naples emergency department consistently has been available to receive patients transported by Lee County EMS ambulances, during seasonal and off- season months. Offload times are a function of a variety of factors. Reasons for delays in offloading patients can include inadequate capacity or functionality of the emergency department, or inadequate staffing in the emergency department such that there may be empty treatment bays, but the bays cannot be filled with patients because there is no staff to tend to the patients. Individual instances of offload delays can occur when emergency department personnel prioritize incoming cases, and less-emergent cases might have to wait while more-emergent cases are taken first, even if they arrived later. Offload times are also a function of “throughput” issues. Approximately 20 to 25 percent of emergency department patients require admission to the hospital, but there can be delays in the admission process, causing the patient to be held in a treatment bay that could otherwise be filled by the next emergency patient. There can be many reasons for throughput delays, including the lack of an available acute care bed, or inadequate staffing that prevents available acute care beds from being filled. No evidence was offered to prove the actual causes of any offload delays. Moreover, the evidence failed to establish that offload times were unreasonable or excessive. Deputy Chief Panem offered offload time data summaries that reflect very good performance by LMHS hospitals and by North Naples. Deputy Chief Panem understandably advocates the shortest possible offload time, so that Lee County EMS ambulances are back in service more quickly. Lee County EMS persuaded the LMHS emergency departments to agree to a goal for offload times of 30 minutes or less 90 percent of the time, and that is the goal he tracks. Both Lee Memorial and North Naples have consistently met or exceeded that goal in almost every month over the last five years, including during peak seasonal months. Cape Coral and Gulf Coast sometimes fall below the goal in peak seasonal months, but the evidence did not establish offload times that are excessive or unreasonable during peak months. HealthPark is the one LMHS hospital that appears to consistently fall below Lee County EMS’s offload time goal; in peak seasonal months, HealthPark’s offload times were less than 30 minutes in approximately 70 percent of the cases. No evidence was offered to prove the extent of offload delays at HealthPark for the other 30 percent of emergency cases, nor was evidence offered to prove the extent of offload delays at any other hospital. Deputy Chief Panem referred anecdotally to offload times that can sometimes reach as high as two to three hours during season, but he did not provide specifics. Without documentation of the extent and magnitude of offload delays, it is impossible to conclude that they are unreasonable or excessive. There is no persuasive evidence suggesting that this facet of emergency care would be helped by approval of the proposed new hospital, especially given the complicated array of possible reasons for each case in which there was a delayed offload.13/ Staffing/professional coverage issues likely would be exacerbated by approving another hospital venue for LMHS. Pure physical plant issues, such as emergency department capacity and acute care bed availability, might be helped to some degree, at least in theory, by a new hospital, but to a lesser degree than directly addressing any capacity issues at the existing hospitals. For example, HealthPark’s emergency department has served as a combined destination for a wide array of adult and pediatric emergencies. However, HealthPark is about to break ground on a new on-campus children’s hospital with its own dedicated emergency department. There will be substantially expanded capacity both within the new dedicated pediatric emergency department, and in the existing emergency department, where vacated space used for pediatric patients will be freed up for adults. Beyond the emergency departments themselves, there will be substantial additional acute care bed capacity, with space built to accommodate 160 dedicated pediatric beds in the new children’s hospital. The existing hospital will have the ability to add more than the 80 acute care beds proposed for the new hospital. This additional bed capacity could be in place within roughly the same timeframe projected for opening the proposed new hospital. To the extent additional capacity would improve emergency department performance, Cape Coral is completing an expansion project that increases its treatment bays from 24 to 42, and Lee Memorial is adding nine observation beds to its emergency department. No current expansion projects were identified for Gulf Coast, which just began operations in 2009, but LMHS has already invested in design and construction features to enable that facility to expand by an additional 252 beds. In Mr. Kistel’s words, Gulf Coast has a “tremendous platform for growth[.]” (Tr. 259). Mr. Gregg summarized AHCA’s perspective in considering the applicant’s arguments of geographic and emergency access enhancement, as follows: [I]n our view, this community is already well served by existing hospitals, either within the applicant’s system or from the competing Naples system, and we don’t think that the situation would be improved by adding another very small, extremely basic hospital. And to the extent that that would mislead people into thinking that it’s a full-service hospital that handles time-sensitive emergencies in the way that the larger hospitals do, that’s another concern. (Tr. 1425). * * * The fact that this hospital does not plan to offer those most time-sensitive services means that any – on the surface, as I said earlier, the possible improvement in emergency access offered by any new hospital is at least partially negated in this case because it has been proposed as such a basic hospital, when the more sophisticated services are located not far away. (Tr. 1431). Mr. Gregg’s opinion is reasonable and is credited. Economic Access The Estero/Bonita Springs community is a very affluent area, known for its golf courses and gated communities. As a result of the demographics of the proposed hospital’s projected service area, LMHS’s application offers to accept as a CON condition a commitment to provide 10 percent of the total annual patient days to a combination of Medicaid, charity, and self-pay patients. This commitment is less than the 2011-2012 experience for the primary service area, where patient days attributable to residents in these three payer classes was a combined 16.3 percent; and the commitment is less than the 2011- 2012 experience for the total proposed service area, where patient days in these three categories was a combined 14.4 percent. Nonetheless, LMHS’s experts reasonably explained that the commitment was established on the low side, taking into account the uncertainties of changes in the health care environment, to ensure that the commitment could be achieved. In contrast with the 10 percent commitment and the historic level of Medicaid/charity/self-pay patient days in the proposed service area, Lee Memorial historically has provided the highest combined level of Medicaid and charity patient days in district 8. According to LMHS’s financial expert, in 2012, Lee Memorial downtown and HealthPark, combined for reporting purposes under the same license, provided 31.5 percent of their patient days to Medicaid and charity patients--a percentage that would be even higher, it is safe to assume, if patient days in the “self- pay/other” payer category were added. At hearing, Mr. Gregg reasonably expressed concern with LMHS shifting its resources from the low-income downtown area where there is great need for economic access to a very affluent area where comparable levels of service to the medically needy would be impossible to achieve. Mr. Gregg acknowledged that AHCA has approved proposals in the past that help systems with safety-net hospitals achieve balance by moving some of the safety net’s resources to an affluent area. As previously noted, that sort of rationale was at play in the LMHS project to establish HealthPark, and again in the acquisitions of Cape Coral and Gulf Coast. However, LMHS now has three of its four hospitals thriving in relatively affluent areas. To move more LMHS resources from the downtown safety-net hospital to another affluent area would not be a move towards system balance, but rather, system imbalance, and would be contrary to the economic access CON review criteria in statute and rule. Missing Needs Assessment Factor: Medical Treatment Trends The consistent testimony of all witnesses with expertise to address this subject was that the trend in medical treatment continues to be in the direction of outpatient care in lieu of inpatient hospital care. The expected result will be that inpatient hospital usage will narrow to the most highly specialized services provided to patients with more serious conditions requiring more complex, specialized treatments. Mr. Gregg described this trend as follows: “[O]nly those services that are very expensive, operated by very extensive personnel” will be offered to inpatients in the future. (Tr. 1412). A basic acute care hospital without planned specialty or tertiary services is inconsistent with the type of hospital dictated by this medical treatment trend. Mr. Gregg reasonably opined that “the ability of a hospital system to sprinkle about small little satellite facilities is drawing to a close.” (Tr. 1413). Small hospitals will no longer be able to add specialized and tertiary services, because these will be concentrated in fewer hospitals. LMHS’s move to clinical specialization at its hospitals bears this out. Another trend expected to impact services within the timeframe at issue is the development of telemedicine as an alternative to inpatient hospital care. For patients who cannot be treated in an outpatient setting and released, an option will be for patients to recover at home in their own beds, with close monitoring options such as visual monitoring by video linking the patient with medical professionals, and use of devices to constantly measure and report vital signs monitored by a practitioner at a remote location. Telemedicine offers advantages over inpatient hospitalization with regard to infection control and patient comfort, as well as overall health care cost control by reducing the need for capital-intensive traditional bricks-and- mortar hospitals. A medical treatment trend being actively pursued by both LMHS and NCH is for better, more efficient management of inpatient care so as to reduce the average length of patient stays. A ten-year master planning process recently undertaken by LMHS included a goal to further reduce average lengths of stay by 0.65 days by 2021, and thereby reduce the number of hospital beds needed system-wide by 128 beds. LMHS did not address the subject of medical treatment trends as part of its needs assessment. The persuasive evidence demonstrated that medical treatment trends do not support the need for the proposed new facility; consideration of these trends weighs against approval. Competition; Market Conditions The proposed new hospital will not foster competition; it will diminish competition by expanding LMHS’s market dominance of acute care services in Lee County. AHCA voiced its reasonable concerns about Lee Memorial’s “unprecedented” market dominance of acute care services in a county as large as Lee, which recently ranked as the eighth most populous county in Florida. LMHS already provides a majority of hospital care being obtained by residents of the primary service area. LMHS will increase its market share if the proposed new hospital is approved. This increase will come both directly, via basic medical-surgical services provided to patients at the new hospital, and indirectly, via LMHS’s plan for the proposed new hospital to serve as a feeder system to direct patients to other LMHS hospitals for more specialized care.14/ The evidence did not establish that LMHS historically has used its market power as leverage to demand higher charges from private insurers. However, as LMHS’s financial expert acknowledged, the health care environment is undergoing changes, making the past less predictive of the future. The changing environment was cited as the reason for LMHS’s low commitment to Medicaid and charity care for the proposed project. There is evidence of LMHS’s market power in its high operating margin, more than six percent higher than NCH’s operating margin between 2009 and 2012. LMHS’s financial expert’s opinion that total margin should be considered instead of operating margin when looking at market power was not persuasive. Of concern is the market power in the field of hospital operations, making operating margin the appropriate measure. Overall, Mr. Gregg reasonably explained the lack of competitive benefit from the proposed project: I think that this proposal does less for competition than virtually any acute care hospital proposal that we’ve seen. As I said, it led the Agency to somewhat scratch [its] head in disbelief. There is no other situation like it. . . . This is the most basic of satellites. This hospital will be referring patients to the rest of the Lee Memorial system in diverse abundance because they are not going to be able to offer specialized services. And economies of scale are not going to allow it in the future. People will not be able to duplicate the expensive services that hospitals offer. So we do not see this as enhancing competition in any way at all. (Tr. 1416-1417). The proposed hospital’s inclusion of outpatient services, community education, and chronic care management presents an awkward dimension of direct competition with adjacent BCHC, the joint venture between LMHS and NCH. BCHC has been a money-losing proposition in a direct sense, but both systems remain committed to the venture, in part because of the indirect benefit they now share in the form of referrals of patients to both systems’ hospitals. Duplication of BCHC’s services, which are already struggling financially, would not appear to be beneficial competition. While this is not a significant factor, to the extent LMHS makes a point of the non-hospital outpatient services that will be available at the proposed new hospital, it must be noted that that dimension of the project does nothing to enhance beneficial competition. Adverse Impact NCH would suffer a substantial adverse financial impact caused by the establishment of the proposed hospital, if approved. A large part of the adverse financial impact would be attributable to lost patient volume at North Naples, an established hospital which is not well-utilized now, without a new hospital targeting residents of North Naples’ home zip code. The expected adverse financial impact of the proposed new hospital was reasonably estimated to be $6.4 million annually. Just as LMHS cited concerns about the unpredictability of the health care environment as a reason to lower its Medicaid/charity commitment for the proposed project, NCH has concerns with whether the substantial adverse impact from the proposed hospital will do serious harm to NCH’s viability, when added to the uncertain impacts of the Affordable Care Act, sequestration, Medicaid reimbursement, and other changes. LMHS counters with the view that if the proposed hospital is approved, in time population growth will offset the proposed hospital’s adverse impact. While consideration of medical treatment trends may dictate that an increasing amount of future population growth will be treated in settings other than a traditional hospital, Mr. Gregg opined that over time, the area’s population growth will still tend to drive hospital usage up. However, future hospital usage will be by a narrower class of more complex patients. Considering all of the competing factors established in this record, the likely adverse impact that NCH would experience if the proposed hospital is established, though substantial enough to support the standing of Petitioner North Naples, is not viewed as extreme enough to pose a threat to NCH’s viability. Institution/System-Specific Interests LMHS’s proposed condition to transfer 80 beds from Lee Memorial downtown is not a factor weighing in favor of approval of its proposed hospital. At hearing, LMHS defended the proposed CON condition as a helpful way to allow LMHS to address facility challenges at Lee Memorial. The evidence showed that to some extent, this issue is overstated in that, by all accounts, Lee Memorial provides excellent, award-winning care that meets all credentialing requirements for full accreditation. The evidence also suggested that to some extent, there are serious system issues facing LMHS that will need to be confronted at some point to answer the unanswered question posed by Mr. Gregg: What will become of Lee Memorial? Recognizing this, LMHS began a ten-year master planning process in 2011, to take a look at LMHS’s four hospitals in the context of the needs of Lee County over a ten-year horizon, and determine how LMHS could meet those needs. A team of outside and in-house experts were involved in the ten-year master planning process. LMHS’s strategic planning team looked at projected volumes and population information for all of Lee County over the next ten years and determined the number of beds needed to address projected needs. Recommendations were then developed regarding how LMHS would meet the needs identified for Lee County through 2021 by rearranging, adding, and subtracting beds among the four existing hospital campuses. A cornerstone of the master plan assessment by numerous outside experts and LMHS experts was that Lee Memorial’s existing physical plant was approaching the end of its useful life. Options considered were: replace the hospital building on the existing campus; downsize the hospital and relocate some of the beds and services to Gulf Coast; and the favored option, discontinue operations of Lee Memorial as an acute care hospital, removing all acute care beds and reestablishing those beds and services primarily at the Gulf Coast campus, with some beds possibly placed at Cape Coral. All of these options addressed the projected needs for Lee County through 2021 within the existing expansion capabilities of Gulf Coast and Cape Coral, and the expansion capabilities that HealthPark will have with the addition of its new on-campus children’s hospital. Somewhat confusingly, the CON application referred several times to LMHS’s “ten-year master plan for our long-term facility needs, which considers the changing geographic population trends of our region, the need for additional capacity during the seasonal months, and facility challenges at Lee Memorial[.]” (LMHS Exh. 3, pp. 12, 57). The implication given by these references was that the new hospital project was being proposed in furtherance of the ten-year master plan, as the product of careful, studied consideration in a long-range planning process to address the future needs of Lee County. To the contrary, although the referenced ten-year master plan process was, indeed, a long- range deliberative planning process to assess and plan for the future needs of Lee County, the ten-year master plan did not contemplate the proposed new hospital as a way to meet the needs in Lee County identified through 2021.15/ The ten-year master planning process was halted because of concerns about the options identified for Lee Memorial. Further investigation was to be undertaken for Lee Memorial and what services needed to be maintained there. No evidence was presented to suggest that this investigation had taken place as of the final hearing. The proposed CON condition to transfer 80 beds from Lee Memorial does nothing to address the big picture issues that LMHS faces regarding the Lee Memorial campus. According to different LMHS witnesses, either some or nearly all of those licensed beds are not operational or available to be put in service, so the license is meaningless and delicensing them would accomplish nothing. To the extent any of those beds are operational, delicensing them might cause Lee Memorial to suddenly have throughput problems and drop below the EMS offload time goal, when it has been one of the system’s best performers. The proposed piecemeal dismantling of Lee Memorial, without a plan to address the bigger picture, reasonably causes AHCA great concern. As Mr. Gregg explained, “[I]t raises a fundamental concern for us, in that the area around Lee Memorial, the area of downtown Fort Myers is the lower income area of Lee County. The area around the proposed facility, Estero, Bonita, is one of the upper income areas of Lee County.” (Tr. 1410). The plan to shift resources away from downtown caused Mr. Gregg to pose the unanswered question: “[W]hat is to become of Lee Memorial?” Id. Recognizing the physical plant challenges faced there, nonetheless AHCA was left to ask, “[W]hat about that population and how does [the proposed new hospital] relate? How does this proposed facility fit into the multihospital system that might exist in the future?” (Tr. 1410-1411). These are not only reasonable, unanswered questions, they are the same questions left hanging when LMHS interrupted the ten-year master planning process to react to HMA’s LOI with the CON application at issue here. Balanced Review of Pertinent Criteria In AHCA’s initial review, when it came time to weigh and balance the pertinent criteria, “It was difficult for us to come up with the positive about this proposal.” (Tr. 1432). In this case, AHCA’s initial review assessment was borne out by the evidence at hearing. The undersigned must agree with AHCA that the balance of factors weighs heavily, if not entirely, against approval of the application.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration issue a Final Order denying CON application no. 10185. DONE AND ENTERED this 28th day of March, 2014, in Tallahassee, Leon County, Florida. S ELIZABETH W. MCARTHUR 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 28th day of March, 2014.
