The Issue The issue is whether Windmoor has standing to challenge AHCA's award of Certificate of Need No. 10074 to Community to establish a Class III Specialty Psychiatric Hospital in New Port Richey, Florida.
Findings Of Fact AHCA is the state agency responsible for administering the CON program, and is authorized to evaluate and make final determinations on CON applications pursuant to the Health Facilities and Services Development Act, sections 408.031-.045, Florida Statutes. Community Community Hospital owns and operates a 389-bed Class I general acute care hospital, comprised of 343 acute care beds and 46 adult psychiatric beds, currently located at 5637 Marine Parkway, New Port Richey, Pasco County, Florida, AHCA Health Planning District 5. AHCA previously awarded CON No. 9539 to Community authorizing construction of a replacement facility in an area known as Trinity, approximately 5.5 miles southeast of Community's current location. The Trinity replacement hospital facility is currently under construction and scheduled for occupancy in November 2011. The route between the Trinity and Community campuses is a drive of approximately one mile on a two-lane road leading into State Road 54, a six-lane divided highway. Trinity Medical Center campus is located on State Road 54. Windmoor Windmoor is a licensed Class III Specialty Hospital with 78 adult psychiatric beds and 22 adult substance abuse beds, located in Clearwater, Pinellas County, Florida. Windmoor is an existing provider of adult psychiatric services located within the same Health Planning District 5 as Community. Windmoor's facility has remained in its current location since its inception in 1987. That year, Windmoor had 200 adult psychiatric beds, which were reduced in 1996 to 163. In 2001, the number of adult psychiatric beds was reduced to its current 100. Windmoor has the capability of adding 40 to 60 additional beds. Windmoor's parent corporation is Psychiatric Solutions, Inc. (PSI), a publicly traded company based in Franklin, Tennessee, that also owns psychiatric hospitals in other states. PSI also owns at least seven other psychiatric hospitals in Florida, as well as other treatment facilities. PSI acquired all of its Florida facilities within the past five years, including Windmoor in 2006. On November 15, 2010, PSI was acquired by Universal Health Systems, which owns and operates psychiatric hospitals and general acute care hospitals throughout the United States, including Florida. This is the first CON proceeding in which Windmoor has participated. District 5 Providers District 5 consists of Pasco and Pinellas Counties. At the time the CON application was filed, Pasco County had two adult inpatient psychiatric providers: Community and Florida Hospital Zephyrhills with 15 beds. The Pinellas County providers were Morton Plant Hospital (Clearwater), St. Anthony's Hospital, Sun Coast Hospital (now known as Largo Medical Center- Indian Rocks) (Largo), and Windmoor. Windmoor was the only Class III specialty psychiatric hospital in District 5. Additionally, new CON-approved adult psychiatric beds included 17 at Largo, and approval for Ten Broeck Tampa, Inc., to construct a new 35-bed Class III adult psychiatric hospital in Pasco County. Also, Morton Plant North Bay Recovery Center (NB Recovery Center) had received CON exemptions to establish 56 adult psychiatric beds at its new Class III facility in Pasco County which had already been approved for 10 child/adolescent psychiatric beds. NB Recovery Center is a new entrant into the market, having opened its Class III psychiatric hospital in August 2010. This Class III psychiatric hospital is on the same license as North Bay Hospitals' Class I general acute care hospital (North Bay). North Bay is located about one mile north of Community. The approximate distances of the District 5 providers from Community are: NB Recovery Center, 19 miles; Florida Hospital Zephyrhills, 40 miles; Morton Plant Hospital, 24 miles; and Windmoor, 26 miles. Also, Largo, like Community, is an HCA affiliated hospital located approximately nine miles north-northwest of Windmoor, and two to four miles south of Morton Plant. St. Anthony's Hospital is located in downtown St. Petersburg. CON approvals and exemptions are no longer reliable predictors of bed inventory since existing psychiatric facilities can add beds through CON exemptions at will. Service Areas No overlap exists between Community and Windmoor's service areas. Community's primary service area (PSA) is a nine zip code area located in western Pasco County. Community's secondary service area (SSA) consists of four zip codes in Hernando County to the north, a few zip codes in eastern Pasco County, and a single zip code in the far northwestern corner of Pinellas County - 34689. Community's PSA accounts for 79.4% of its psychiatric discharges. An additional 9.1% of its discharges are from its SSA, defined as any non-PSA zip code from which it receives at least 1% of its discharges. The remaining 11% of Community's discharges are scattered among other areas. All of Community's PSA zip codes are within Pasco County. The only SSA zip code in Pinellas County is in the northwestern corner of the county – 34689, from which Community received only 2% of its discharges. Community derives 84.4% of its discharges from Pasco County, while only 6.9% of discharges originate from Pinellas County residents. Another 5.6% of Community's discharges originate in Hernando County which is outside District 5. Community's psychiatric service area is not expected to change with the implementation of the CON. While Community received 1367 discharges from its PSA, Windmoor received only 97 of its discharges from that PSA. On a percentage basis this is 79.4% versus 4.7% of discharges, respectively. Windmoor did not derive even 1% of its discharges from any single zip code within Community's PSA. When a provider receives less than 1% of its discharges from a particular zip code, that zip code is not appropriately considered part of the provider's PSA or SSA. Further, Windmoor has no significant market share in Community's SSA. On a county basis, while Community derived 84.4% of its psychiatric discharges from Pasco County residents, Windmoor received only 5.9% of its discharges from Pasco County. Conversely, Community derived only 6.9% of its discharges from Pinellas County compared with 73.6% for Windmoor. During the year ending June 2009, among all providers of inpatient psychiatric services to Community's PSA, Community had a 70% market share compared with Windmoor's 4% market share. For Pasco County as a whole, Community had a 52% market share compared with Windmoor's 4% market share. Like Windmoor, Morton Plant had only a 4% market share for both Pasco County and Community's PSA. The conclusion from this analysis is that Community is predominantly a Pasco County provider while Windmoor is predominantly a Pinellas County provider. Windmoor is not a significant provider in either Community's PSA or in Pasco County. Further, there is no physician overlap between the psychiatrists on the respective medical staffs of Community and Windmoor. Community's CON Proposal In its State Agency Action Report concerning Community's CON application, AHCA summarized the proposal: "[t]his project is to keep 46 existing adult inpatient psychiatric beds at their present location following completion of the replacement facility authorized by CON #9539." The proposal is to allow Community's psychiatric facility to remain in the same location with the same bed complement, which will remain unchanged in terms of its historical operations. The psychiatric unit at Community has been located at its current site since at least 1981. A CON is required only because, upon occupancy of the Trinity replacement facility, the continued use of the existing site for its inpatient psychiatric activity would fall within the statutory criteria for projects subject to CON review as an "establishment of additional healthcare facilities." With respect to both hospital campuses, Community will own, operate, and be the licensee of both facilities. All components of patient care will be controlled by a single governing body, and will have a single medical staff, chief medical officer, and CEO. Florida is home to other similarly situated hospitals that own and operate a Class I general acute care hospital and an affiliated Class III licensed specialty hospital on separate campuses. In each case, the Class I and Class III facilities share the same license and license number, owner, and CEO. These facilities include Westchester General Hospital and its affiliated Class III Southern Winds Hospital; Halifax Health Medical Center and its affiliated Halifax Psychiatric Center North; Shands Hospital at the University of Florida and Shands at Vista; and Morton Plant North Bay Hospital and NB Recovery Center. AHCA issues an actual license certificate for each facility for general display at each campus. The approximate distances between the two campuses of these Class I and Class III single license facilities are: Westchester General Hospital and Southern Winds Hospital – nine miles; Halifax Health Medical Center and Halifax Psychiatric Center – 1.5 miles; Shands at the University of Florida and Shands at Vista – 10 miles; and Morton Plant North Bay and NB Recovery Center – 20 miles. The scenario of a Class I hospital with an affiliated Class III hospital with a single license number is considered one licensee with two premises. Psychiatric Services at Community Will Remain Unchanged Implementation of the CON will result in no changes in the current level of health care services provided to patients for both psychiatric and non-psychiatric medical conditions. Those patients who might currently be transported internally to the psychiatric unit behavioral health unit or (BHU) upon discharge from non-psychiatric medical units of the hospital will now be transported by vehicle to the BHU campus if the patient requires transport assistance. The transport of psychiatric patients is not material to the discussion of whether the two campuses are, in fact, one hospital. Patients cannot be admitted to the BHU until they have been medically cleared of any non-psychiatric medical conditions that would require inpatient medical care. "Medically cleared" means the patient no longer requires medical/surgical inpatient care. Those processes and requirements will not change as a result of implementation of the CON. Community currently provides transport services for all types of patients. Those services will continue for patients between the two campuses, including any psychiatric patients who may need transport assistance. AHCA has never had a regulatory issue involving the movement of patients among different facilities that are operated by one licensee. AHCA has no concern about the ability of hospitals to transport patients among their various facilities, including any hospital provider-based services. Under federal regulations such services may be provided at locations up to 35 miles from the main hospital campus. A psychiatric patient presenting to a hospital's emergency department (ED) is handled the same initially as any patient. The patient undergoes triage and is seen by an ED physician. If the patient exhibits both psychiatric and non- psychiatric medical conditions, the ED physician calls a psychiatrist and together they will determine the primary diagnosis. If an ED patient has achieved medical stability, and is ready to be medically discharged from the ED, yet still suffers from a psychiatric condition, the ED physician will call in a psychiatrist to participate in the disposition of the patient. If the primary diagnosis for a patient is medical or emergent, but with a secondary or co-morbid psychiatric condition, the patient receives medical/surgical care with a psychiatrist serving as a consulting physician. If deemed appropriate, the patient would be admitted to the medical/surgical unit for care until reaching medical stability. While on the medical/surgical unit, the patient needing psychiatric care would receive it from a psychiatrist while on the medical/surgical unit. Once medically cleared for discharge, the patient requiring further inpatient psychiatric care would be transferred to the BHU. Once in the BHU, the patient would still receive any necessary care for any non- psychiatric conditions from the appropriate physicians. This system will not change with the implementation of the CON. Coverage of the BHU by hospitalists and other members of the medical staff who do rounds will not change as a result of implementation of the CON. Some patients will achieve medical stability for both the psychiatric and non-psychiatric conditions from which they suffer, and will therefore not be admitted to the BHU upon discharge from the ED or medical/surgical unit. As reflected in Community's policies and procedures, all BHU patients must be admitted under the care of a psychiatrist, and can only be discharged by a psychiatrist. Every BHU patient also receives a general medical history and physical examination performed by a consulting medical physician. Non-psychiatrist medical staff physicians are always available for consultation to the psychiatrist and other clinical staff while the patient stays in the BHU. Community's current practices with respect to psychiatric patient services and physician coverage will not change due to implementation of the CON. AHCA's Review of Community's CON Application AHCA gave notice of its intent to approve CON No. 10074 in the June 25, 2010, Florida Administrative Weekly. In AHCA's view, the status quo will be maintained by the issuance of the CON. Nothing will be different in the way Community delivers its health care services in District 5. This is a case where the applicant has to go through the CON process to arrive at the same place it already was. AHCA expects no change at all. AHCA concluded that "this project is not likely to change the current competitive structure of the existing market." By that conclusion, AHCA intended to convey a lack of adverse impact on existing providers based upon CON approval. Particularly due to deregulation, AHCA believes there have already been significant changes to the competitive structure of the District 5 market, such as psychiatric bed additions through CON exemption, CON approval of a new Ten Broeck psychiatric hospital, and upcoming shifts toward greater Medicaid HMO reimbursement and associated federal health care reform legislation. Conversely, the Agency projects no impact from Community's CON. Lack of Adverse Impact Adverse impact analyses typically arise from a new entrant to the market. Community's proposal does not present a new entrant to the market for inpatient psychiatric services. Adverse impact will occur when a new provider enters a service area or an existing provider increases its capacity to offer services. Neither of those will occur as a result of Community's CON. None of the conditions that could lead to an adverse impact is present. Implementation of the Community CON will have no adverse impact or effect on existing providers because Community will continue to have the same historic PSA and its market shares will remain the same, except for potential market changes unrelated to the CON, such as entrance of new providers. This case is unique. For example, Ms. Patricia Greenberg, Windmoor's highly qualified and experienced expert in health care planning, has never been involved in a case such as this where the applicant sought approval to remain at its current location. The typical CON application seeks permission for a new provider, facility, for beds, or services to enter a particular market for the first time. In the typical case, health care planners will agree that some shift in market share will occur among existing providers as the result of the new entrant to the market. Ms. Greenberg's adverse impact analysis did not take into account the new market entrants such as Ten Broeck and NB Recovery Center, even though she expects them to have a greater impact on Community, due in part to geography. Health care planners develop adverse impact analyses that attempt to estimate the future shift in market shares. From there, the planner will attempt to project a number of lost patients per provider, and then apply a financial impact. Regarding Community's proposal, since there will be no new entrant into the market, the typical adverse analysis cannot be performed. Windmoor, through Ms. Greenberg, creatively developed four theories of adverse impact that could result from the status quo. Each of Windmoor's theories is premised on assumptions that Community will cease providing certain clinical services that will result in Community losing the capability to serve some of its psychiatric patients. However, Windmoor provided no clinical evidence to support its alleged changes to Community's clinical services. Indeed, all clinical evidence in the record confirms that Community can and will continue its current clinical services to all patients, including its BHU patients. The four impact theories offered by Windmoor are each based upon the unproven assumption that CON implementation will transform Community into two separate unaffiliated hospitals as opposed to a single hospital with two campuses. From that assumption, Ms. Greenberg contended there are two, and only two, categories of psychiatric facilities, which she labeled as either a "hospital based unit" or a "freestanding" facility. Ms. Greenberg defined "hospital based unit" (HBU) as either located inside a hospital or on the campus of a general hospital. She defined "freestanding" as any facility that is not co-located with a general hospital on the same campus. Ms. Greenberg did not consider or address a category of commonly owned and operated Class I general acute care hospitals affiliated with Class III psychiatric hospitals. Ms. Greenberg did not recognize the existence in Florida of several general hospital affiliated Class III psychiatric hospitals. The fact that two hospital campuses of Class I and Class III facilities exist is irrelevant, so long as in reasonable proximity to one another. The relevant factors are whether the two campuses share the same: 1) license number, 2) ownership, 3) hospital administration, and 4) medical staff. If these factors are present, it is incorrect to characterize one of the two facilities or campuses as "freestanding" because that implies no connection to a general acute care hospital. Community is a general acute care hospital with an affiliated psychiatric facility which is in no sense "freestanding." Ms. Greenberg's attempt to compare statewide data for various patient characteristics between facilities that she defines as "freestanding" versus HBUs is not persuasive, primarily because it is built upon the incorrect assumption that Community and other Florida hospitals cannot operate a Class I general acute care hospital and a Class III specialty psychiatric hospital under the same license. Characteristics such as payor source or patient mix are influenced by a number of factors other than simply whether an inpatient program is "freestanding" or "hospital based," as defined by Ms. Greenberg, including influences such as age composition of the service area, income distribution, and whether the hospital is located in an urban or rural area, to cite but a few. Attempts to draw generalizations from such data and then conclude that Community will be more like a HBU than a freestanding or vice versa, is without merit. Ms. Greenberg's data indicates that Community falls into her defined HBU categories in some respects while, in other respects, falls into her freestanding categories. This type of analysis is not sound. Community will not transform into a "freestanding" facility as defined by Ms. Greenberg, as a result of this CON. Moreover, many people with a primary diagnosis of psychosis are treated in hospitals that do not have inpatient psychiatric beds. In 2008, psychosis was the number one discharge diagnosis for all males in Florida hospitals, and was the number three diagnosis for all females behind conditions associated with pregnancy. Simply looking at discharge data by diagnosis between freestanding and HBUs as defined by Ms. Greenberg is not a meaningful analysis. Every adverse impact scenario presented by Windmoor is based upon the incorrect premise that implementation of Community's CON will result in Community becoming a "freestanding" facility as defined by Ms. Greenberg. For this reason alone, none of Ms. Greenberg's adverse impact theories is valid and each must be rejected. Another common thread running through Windmoor's impact theories is the assertion that, based again upon the false "freestanding" presumption, Community's patient mix will change due to changes in clinical services available to patients, such as ED services, no medical environment for comprehensive treatment, and certain patients allegedly no longer clinically appropriate for Community's HBU. There is no evidence in the record to support such claims, either operationally or clinically. All of Ms. Greenberg's impact theories lead to the contention that CON implementation will result in Community being adversely affected by its own CON through the loss of psychiatric patients. Ms. Greenberg further speculates that because of her asserted loss of patients, Community would need to replace those patients ("backfill") with patients who might otherwise be admitted to a competing hospital. As explained previously, however, there is virtually no overlap of service area or competition between Windmoor and Community as reflected by their respective service areas. Community does not contact health care providers in Windmoor's service area regarding the availability of Community's psychiatric services. In fact, Largo, a sister facility of Community, is an inpatient provider located between Community and Windmoor. Community would not actively seek patients in those areas of Pinellas County. It is neither reasonable to expect, nor was any credible evidence presented, that to make up for lost patients, Community would go outside its current PSA into the Windmoor area to seek patients when it has its sister Largo facility near Windmoor. As stated above, Windmoor, through Ms. Greenberg, offered four adverse impact scenarios. All four scenarios are premised upon the assumption that CON implementation will transform Community's BHU into a "freestanding" facility. The premise is not correct for the reasons stated above, primarily that AHCA recognizes the ability of hospitals in Florida to have Class I general acute care facilities along with Class III specialty psychiatric hospitals under the same license, ownership, management, etc. Further, all four scenarios are based upon Ms. Greenberg's theory of "backfill" under which Community will have to make up lost patients by intruding into Windmoor's service area. The evidence supports the assertion that Community expects no lost admissions because its PSA and SSA will not change, nor will the type and extent of services it provides, including ED, medical/surgical, and a unified medical staff, change upon implementation of the CON. Medicaid Windmoor asserted that Community would lose its eligibility to receive reimbursement for services under the Medicaid program if the CON were implemented. This assertion was not supported by the evidence presented by Windmoor. Moreover, the evidence presented by Community and AHCA negated Windmoor's assertion. Prior to the filing of the CON application omissions response, Community representatives met with AHCA personnel and confirmed its continued Medicaid reimbursement eligibility, which to Community was never an issue. Community's CON application proposed a Medicaid CON condition, and contained numerous statements of expected continued ability to serve Medicaid fee-for-service patients. AHCA accepted the proposed CON condition when recommending approval of the application. Community expects to satisfy the Medicaid CON conditions. AHCA's Deputy Secretary for Medicaid, Roberta Bradford, subsequently confirmed by letter to Community that, based upon Community's representations of satisfaction of certain applicable criteria, Community's proposed 46-bed inpatient psychiatric hospital would continue to be eligible for Medicaid participation. The determination of a facility's Medicaid reimbursement is a state determination, rather than a federal CMS decision. In Florida, that determination is ultimately made by AHCA's Deputy Secretary for Medicaid, Ms. Bradford. Windmoor elicited testimony from Community to show that each of the following services would not be physically present on the campus of the Class III psychiatric hospital portion of Community following CON implementation: ED, emergency cardiac catheterization and angioplasty services, surgical and operating suites, stroke center designation, CT equipment, and the full range of medical services currently available on site at Community. Community will, however, continue to operate all of these services in the Class I acute care hospital campus, which will be under the unified license with the psychiatric campus. Satisfaction of the Medicaid letter criteria from AHCA was confirmed at hearing. The criteria include: Community will own and operate both locations and be the licensee of both facilities; all components of patient care at the facilities will be controlled by a single governing body; one Chief Medical Officer will be responsible for all medical staff activities at both facilities; one Chief Executive Officer will control both facilities' administrative activities; and the two facilities are situated closely enough geographically that it is feasible to operate them as a single entity. Mr. Jeffrey N. Gregg, AHCA's head of CON review, is satisfied that the Class III licensed Community facility will maintain its Medicaid eligibility. Southern Winds, Halifax Psychiatric Center, and Shands at Vista receive Medicaid fee-for-service reimbursement, and are similarly situated to Community. Mr. Gregg also expects NB Recovery Center to receive this type of Medicaid reimbursement when it initiates its service. Ms. Greenberg has been aware for at least 10 years that Class III psychiatric facilities affiliated with general hospitals in Florida receive fee-for-service reimbursement. She testified that if AHCA determines that Community is Medicaid eligible, her scenario related to Community losing its Medicaid eligibility "would go away." Moreover, due to recent legislative changes that will expand the use of Medicaid HMOs, the majority of Medicaid reimbursement is soon going to be under Medicaid HMOs. Class III psychiatric hospitals that are not affiliated with or on the same campus as a general acute care hospital, such as Windmoor, are eligible for Medicaid HMO reimbursement versus Medicaid fee- for-service reimbursement. Summary of Impact Analysis Conclusions All of Windmoor's adverse impact claims are based on a series of false and erroneous assumptions, none of which is supported by the evidence of record. In fact, most of the claims in the form of four scenarios are based upon ignoring the fact that what Community proposes here is not so unique in Florida. Many Florida health care facilities currently operate both Class I general acute care hospitals and Class III specialty psychiatric hospitals under the same license, management, and receive Medicaid fee-for-service reimbursement, while maintaining two physically separate campuses. This should have been common knowledge for an existing provider such as Windmoor, which based its entire case, adverse impact scenario, and decision to go forward with the hearing in this case on a series of erroneous assumptions. Windmoor offered several theories about how it would suffer a substantial and adverse impact in the event Community's CON application is approved, yet offered no competent evidence to support its claims. Windmoor failed to demonstrate that Community would lose any psychiatric patient admissions and be forced to seek admissions from Windmoor's PSA or SSA to keep its beds full. Windmoor failed to provide competent evidence that it will be adversely affected by the approval of Community's CON. Community's CON will have no impact on Windmoor.
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration issue a final order dismissing Windmoor's Petition for Formal Administrative Hearing due to lack of standing to challenge the award of CON No. 10074. DONE AND ENTERED this 6th day of July, 2011, in Tallahassee, Leon County, Florida. S ROBERT S. COHEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 6th day of July, 2011. COPIES FURNISHED: Timothy Bruce Elliott, Esquire Smith & Associates 2873 Remington Green Circle Tallahassee, Florida 32308 Richard Joseph Saliba, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3, Mail Station 3 Tallahassee, Florida 32308 Stephen A. Ecenia, Esquire Rutledge, Ecenia & Purnell, P.A. 119 South Monroe Street, Suite 202 Tallahassee, Florida 32301 Richard J. Shoop, Agency Clerk Agency for Healthcare Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Justin Senior, General Counsel Agency for Healthcare Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Elizabeth Dudek, Secretary Agency for Healthcare Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308-5403
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
Findings Of Fact The Parties FRTC is a wholly-owned subsidiary of Charter Medical Corporation (Charter) which proposes to construct and operate a freestanding, 60 bed, 24- hour-a-day, Intensive Residential Treatment Program for children between the ages of 6 and 18 in Palm Beach County within HRS District IX, pursuant to Rule 10-28.152(8), F.A.C. and Chapter 395, F.S. Although FRTC represents it will construct its proposed facility with or without CON licensure, which it is entitled to do, given the peculiarities of this type of health care entity, it is clear that a prime motivator in FRTC's CON application is that with CON licensure, FRTC potentially will have greater access to insurance reimbursement because it may then call itself a "hospital." FRTC will seek JCAH accreditation. HRS is the state agency with the authority and responsibility to consider CON applications, pursuant to Chapter 10-5.011, F.A.C. and Sections 381.701-381.715, F.S. (1987). HRS preliminarily approved FRTC's application, and supported it through formal hearing and post-hearing proposals. RTCPB is an existing 40 bed residential treatment center for adolescents between the ages of 12 and 18, located in Palm Beach County, on the campus of Lake Hospital of the Palm Beaches. It provides services similar or identical to those services proposed to be offered by FRTC. It is JCAH accredited through an extension of Lake Hospital's accreditation and is close to JCAH accreditation in its own right. RTCPB is a subsidiary of Psychiatric Hospitals, Inc. (PIA) . PIA operates two residential treatment centers in Florida. RTCPB is not CON licensed as an IRTP, under Chapters 381 and 395, F.S., but is licensed as a child care facility under Chapter 395, F.S., as a provider of services to HRS under Chapters 10M-9 and 10E-10, F.A.C. RTCPB accepts substance abusers in residency. RTCPB has also applied for CON licensure as an IRTP in a batching cycle subsequent to the present one. That application has been preliminarily denied by HRS and RTCPB is awaiting a Section 120.57(1), F.S., formal administrative hearing thereon. RTCPB now estimates its current patients' average length of stay (ALOS) as 106 days but projects a 315 day (10 1/2 months) ALOS in its subsequent CON application. RTCPB is charging $185 per day or HRS patients and $255 with $23-26 ancillaries [sic] per day for private pay patients. Like FRTC, it uses a "levels" system of behavior modification and patient control. Humana is a 250 bed JCAH accredited hospital located in Palm Beach County, Florida. Of Humana's 250 beds, 162 are traditional acute care beds and 88 are psychiatric beds. The 88 psychiatric beds are administratively divided into different units, one of which is a 27 bed adolescent psychiatric unit; this unit opened January 20, 1987, and has an average length of stay of nine months. Humana's existing CONs are for short-term adult psychiatric beds and do not authorize an adolescent unit with an average length of stay of over 30 days. Ninety days is the demarcation, by rule, between short- and long-term psychiatric beds. Humana recently applied for a CON for more psychiatric beds and also applied for an IRTP CON in a subsequent batch to the present one. Humana's present 27 bed adolescent psychiatric unit provides grossly similar services to those proposed to be offered by FRTC, but its emphasis is more medical-psychiatric than emotional-behavioral. Like FRTC, Humana does not accept in residency adolescents with a primary diagnosis of substance abuse. Like FRTC and RTCPB, Humana uses a "levels" system. Eighty percent of Humana's patient mix are commercial pay, and the unit is running at a 15 to 20 percent profit margin. Humana usually charges $325 per day on their adolescent unit plus ancillaries [sic] amounting to 10 percent of the patient's bill, but HRS contract patients pay only $225 per day. Humana has lost a number of adolescent unit referrals to RTCPB since RTCPB opened June 1, 1987, but the unit continues to be almost fully occupied. Humana's main referral asset, as well as the source of the confusion of referring entities, appears to be the reputation of its director, Dr. Kelly. Dr. Kelly previously directed a program at Lake Hospital which was identical to the program that he now directs at Humana. Lake Hospital currently has RTCPB operating under its auspices, but not Dr. Kelly. Nature of the FRTC Program FRTC's proposed program is designed to serve those persons in the designated age group who have psychiatric diagnoses of a severity requiring a long-term approach in a multidisciplinary structured living setting to facilitate recovery. It will not, however, treat adolescents with an active diagnosis of chemical dependency or substance abuse. It also only commits to 1.5 percent indigent care. The proposed FRTC program differs from an acute care setting in significant quantitative and qualitative ways, the most visible of which is that acute care psychiatric settings (either long- or short-term) are geared toward dealing with patients actively dangerous to property, themselves, or others, but patients whom it is reasonably assumed will respond primarily to physiologically-oriented physicians and registered nurses administering daily medication, treatment, and monitoring, as opposed to a long-term living arrangement emphasizing behaviorally-oriented group interaction as an alternative to parental care at home. FRTC will, however, accept patients with psychiatric diagnoses of effective disorders, depression, schizophrenia and impulse disorders and those who may be potentially harmful to themselves, others, or property for whom no other less intensive or less restrictive form of treatment would be predictably helpful. FRTC would fall on the continuum of care below an acute psychiatric facility such as Humana. Assessment of such a target group on a patient by patient basis is obviously subject to a wide variation of interpretation by qualified health care professionals, but FRTC anticipates both verifying referral diagnoses and assuring quality of care by insuring that each new patient is seen by a psychiatrist within 24 hours of admission, and by having each case reviewed by an independent utilization review committee. FRTC also plans to complete appropriate patient assessments and develop and update individual, integrated treatment programs. FRTC will provide, where appropriate, for continuity of care from previous acute care institutions through the FRTC program and out into more normal individual or family living arrangements. Parents will have to consent to their child's placement at FRTC. FRTC's program proposes an average length of stay of 365 days (one year) with a range of six months to two years. Based upon all the credible record evidence as a whole, including, but not limited to, the protestants' respective ALOS, this is a reasonable forecast despite contrary evidence as to Charter's experience at its "template" Virginia institution, Charter Colonial. FRTC's program components will include individual therapy, recreational therapy, occupational therapy, and general education. The general education component in FRTC's proposed program is more general and more open than that offered in acute care settings, such as Humana. FRTC's overall program will utilize a "levels" system of behavioral management based upon patients earning privileges, which levels system has a good patient rehabilitation and functional administrative track record in many different kinds of psychiatric health care facilities, including Humana and RTCPB. FRTC intends that each patient's program will be individualized according to age and program component directed to his/her diagnosis and each patient will receive individual, resident group, and family therapies. As to assessment, types of therapy, continuity of care, and general education provisions, FRTC's proposal is grossly consistent with that of its "template." To the extent there is evidence of inconsistencies between the two programs in the record, the FRTC proposal represents either improvements over, or refinements of, its template program which have been developed as Charter/FRTC has learned more about what actually "works" for the IRTP form of health care, or it represents changes to accommodate Florida's perception of what less restrictive but still intensive residential treatment should be, or it anticipates local community needs. Quality of Care The applicant's parent corporation is an experienced provider of many types of accredited psychiatric facilities. The type of quality assurance program proposed and the staff mix provide reasonable quality care assurances. Design, Construction, and Personnel Refinements to FRTC's original schematic take into consideration the influence that physical structure has on an Intensive Residential Treatment Program. Those refinements include modification of a multipurpose room into a half-court gymnasium, addition of a classroom, addition of a mechanical room, modification of the nursing station to decrease the amount of space, and the deletion of one seclusion room and addition of a four to six bed assessment unit. The modifications resulted in the addition of approximately 1,000 square feet to the original design. A minimum of four to six acres would be necessary to accommodate the modified design which totals approximately 32,000 square feet. Public areas, such as administration and support services, dining room, and housekeeping areas, are to the front; private areas, such as the nursing units, are to the back. The facility's middle area houses gym, classrooms, and occupational therapy areas. The location encourages residential community involvement. Each of three, 20-bed units is made up of a group of two consultation rooms, a galley, a laundry, a day room and core living space located directly across from the nursing station for maximum observation and efficiency. Each unit comprises a separate wing. Six handicapped accessible patient beds are contemplated; the building will be handicapped-accessible. The staffing projections have increased and the pattern has been minimally altered in the updates. The updated pro forma also modified the initial financial projections so as to increase salary expense and employee benefits based on this change in staffing. An increase in the total project cost impacted on depreciation, and interest expense changed with time. All these changes are reasonable and insubstantial. FRTC's design is adequate for providing a suitable environment for intensive residential treatment for children and adolescents even though it is not identical to Charter's "template" for residential treatment and even though Charter's extensive experience with acute care facilities has focused these changes in its residential treatment concepts. The parties stipulated to the adequacy of FRTC's proposed equipment list and costs. Total construction cost was demonstrated to be reasonably estimated at $2,078,000. The square footage costs of $64.86 per square foot represet an increase from the square footage costs contained in the original CON application. The original budget was updated based upon a three percent inflation factor and the addition of the approximately 1,000 square feet. The additional space is not a significant construction change. The total project costs of $4,728,000 are reasonable. The testimony of HRS Deputy Assistant Secretary for Regulation and Health Facilities, John Griffin, who testified by deposition, (RTCPB's Exhibit 8, pp. 21-22) revealed no firm policy on what the agency, within its expertise, views as substantial and impermissible amendments to a CON application; HRS did not move at hearing to remand for further review; and the undersigned concludes that the changes in facility design, costs, and staffing do not represent significant changes which would be excludable as evidence and that they do represent permissible minor modifications and refinements of the original FRTC application. Site Availability No party contended that FRTC's application was a "site specific" application, that a residential treatment program is otherwise required to be "site specific," or that an IRTP CON is governed by a "site specific" rule or by "site specific" statutory criteria. Therefore, it was only necessary for FRTC in this noncomparative proceeding to establish that several suitable sites were available within the required geographic parameters at the financial amount allotted in FRTC's projections. FRTC did establish financially and geographically available and suitable sites through the testimony of Robert H. Ellzey, a qualified expert in commercial real estate values. The Non-Rule Need Policy There are no hospital licensed Intensive Residential Treatment Programs in Palm Beach County or in District IX. IRTPs are in a separate licensure category by law from psychiatric beds, acute care beds, and rehabilitation beds. There is a separate need methodology for long-term psychiatric beds and there are no CON licensed long-term psychiatric programs for children and adolescents in District IX, unless one considers Humana which is treating adolescents well beyond 30 or 90 days residency. HRS has no promulgated rule predicting need for IRTPs seeking specialty hospital licensure under Chapter 395, F.S. Subsequent to advice of its counsel that a CON must be obtained as a condition of IRTP licensure pursuant to Chapter 395, F.S., HRS elected to evaluate all IRTP CON applications in the context of the statutory criteria of Chapter 381, F.S., and in the context of HRS' non-rule policy establishing a rebuttable presumption of need for one "reasonably sized" IRTP in each HRS planning district. The May 5, 1988 Final Order in Florida Psychiatric Centers v. HRS, et al., DOAH Case No. 88- 0008R, held this non-rule policy invalid as a rule due to HRS' failure to promulgate it pursuant to Section 120.54, F.S., but that order also held the policy not to be invalid as contrary to Chapter 381, F.S. That Final Order intervened between the close of final hearing in the instant case and entry of the instant Recommended Order, however, it does not alter the need for the agency to explicate and demonstrate the reasonableness of its non-rule policy on a case by case basis. HRS was unable to do so in the formal hearing in the instant case. Notwithstanding the oral testimony of Robert May and Elizabeth Dudek, and the deposition testimony of John Griffin, it appears that the non- rule policy is not based upon generally recognized health planning considerations, but solely on the agency's statutory interpretation of recent amendments to Chapter 395 and some vague perception, after internal agency discussions, that the policy is consistent with certain promulgated need rules and with certain other non-rule policies for other types of health care entities, which other non-rule policies were never fully enunciated or proved up in this formal hearing. The HRS non-rule policy was also not affirmatively demonstrated to be rational because it does not take into account the reasonableness of a proposed facility's average length of stay, referral sources, geographic access, or other factors common to duly promulgated CON rules. Numerical Need and Conformity to Applicable Health Plans FRTC sought to support HRS' non-rule policy on numerical need for, and definition of, a "reasonably sized" IRTP through the testimony of Dr. Ronald Luke, who was qualified as an expert in health planning, development of need methodologies, health economies, survey research, and development of mental health programs. In the absence of a finding of a rational non-rule policy on numerical need, Dr. Luke's evidence forms the cornerstone of FRTC's demonstration of numerical need. Through the report and testimony of Dr. Luke, and despite contrary expert health planning testimony, FRTC established the numerical need for, and reasonableness of, its 60 licensed IRTP beds in District IX with projected 60 percent occupancy in the first year and 50 percent in the second year of operation using two bed need methodologies. Dr. Luke ultimately relied on a utilization methodology based upon 1991 population projections. Dr. Luke used a census rate per 100,000 population of 21.58. This is appropriately and reasonably derived from national data for residential treatment patients aged 0-17, regardless of the fact that the types of residential treatment considered by the NIMH data base employed by Dr. Luke greatly vary in concept and despite HRS having not yet clearly defined the nature of the programs and services it expects to be offered by a Florida specialty hospital licensed IRTP. Therefrom, Dr. Luke derived an average daily census of 52 in 1991. That figure yields a bed sizing of between 58 and 61 beds, depending on whether an 85 percent or 90 percent occupancy factor is plugged in. Either 58 or 61 beds is within the range of ratios calculated by Dr. Luke's other methodology for currently licensed Florida IRTPs in other districts. Assuming a target occupancy rate of 85 percent and an ALOS of one year, Dr. Luke considered the gross District IX IRTP bed need to be 60. In the absence of any like program to assess occupancy for and in the presence of similar programs such as Humana operating at nearly full occupancy now and RTCPB forecasting its occupancy at 88 percent in 1990 if it were IRTP-licensed, it is found that 60 beds are justified. Since there are no IRTP beds licensed as specialty hospitals in the current district bed inventory, no adjustment of this figure must be made to account for existing licensed IRTP beds. Simply stated, this is a CON application for an IRTP, nothing more and nothing less, and the subtrahend to be subtracted from gross district bed need is zero when there is a zero specialty hospital licensed IRTP bed inventory. Luke's calculated gross need of 60 bed is also his net need and is accepted. Fifty beds is generally the minimum size HRS will approve to be feasible for any free standing facility to be eonomically efficient and to be able to benefit from economies of scale. This 50 bed concept is within the wide range of bed ratios that HRS implicitly has found reasonable in, previously- licensed IRTP CON approvals. Conformity With Applicable Health Plans Section 38l.705(1)(a), F.S., requires HRS to consider CON applications against criteria contained in the applicable State and District Health Plans. In this regard, neither the applicable State Health Plan nor the applicable District IX Local Health Plan make any reference to a need for intensive residential treatment facilities. The District IX Health Plan addresses the need for psychiatric and substance abuse services to be available to all individuals in District IX. FRTC's project addresses this goal only in part. The District Health Plan states that priority should be given to CON applicants who make a commitment to providing indigent care. FRTC proposes only 1.5 percent indigent care which works out to only 1/2 of the ALOS of one patient at the proposed facility and is hardly optimum, but in a noncomparative hearing, it stands alone as advancing the given accessibility goal within the plan. Objective 1.3 of the State Health Plan provides: Through 1987, additional long-term inpatient psychiatric beds should not normally be approved unless the average annual occupancy for all existing and approved long-term hospital psychiatric beds in the HRS District is at least 80 percent. FRTC's project is neutral as to this goal. The District Plan also contains a goal for a complete range of health care services for the population of the district. FRTC advances this goal. The State Health Plan further provides: Goal 10: DEVELOP A COMPLETE RANGE OF ESSENTIAL PUBLIC MENTAL HEALTH SERVICES IN EACH HRS DISTRICT OBJECTIVE 10.1: Develop a range of essential mental health services in each HRS district by 1989. OBJECTIVE 10.3: Develop a network of residential treatment settings for Florida's severely emotionally disturbed children by 1990. RECOMMENDED ACTION: 1.03A: Develop residential placements within Florida for all SED children currently receiving ing treatment in out-of-state facilities by 1990. The FRTC project advances these goals in part. To the extent SED patients placed outside the state for residential treatment services are HRS patients whom FRTC as yet has not contracted to treat, the FRTC project does not advance this goal. However, increased insurance reimbursement will advance accessibility for those SED children and adolescents in need of this type of care whose families have insurance coverage. The State Plan also emphasizes a goal for a continuum of care. The FRTC plan advances this goal. Financial Feasibility William S. Love, Senior Director of Hospital Operations for Charter, was accepted as an expert in health care finance. Mr. Love prepared the pro forma financial statement contained in the original CON application and the update of the pro forma in response to HRS' completeness questions. Mr. Love also had input into the updated financial information which increased salary and benefit expense. (See FOF No. 11). The revised pro forma utilized an assumption of gross patient revenues of $300 per day and a 365 day ALOS, both of which are reasonable and both of which support the rest of FRTC's assumptions (See FOF No. 9). Routine revenues are based on the types of routine services patients normally receive on a daily basis. Ancillary revenues are support revenues such as pharmacy charges, X-rays, lab charges, and other charges not generally utilized on a routine basis. The only charges to patients at the proposed FRTC facility are the routine and ancillary charges. The assumptions with regard to contractual adjustments are that there will be no Medicare utilization since the facility is projected for children and adolescents and no Medicaid since freestanding facilities in Florida are not eligible for Medicaid. Two percent of gross patient revenues are estimated to be contractual adjustments which relate to HMOs and PPOs. FRTC addresses indigent care by 1.5 percent of gross revenues which will be dedicated to Charter Care which is free care. The assumptions with regard to bad debt are that 8 percent of gross revenue will be the allowance for bad debt. An assumption of 20 percent of salaries was used for employee benefits which include the FICA tax, health insurance, dental insurance, retirement plans, and other benefits. Supplies and expenses were calculated as a function of patient day with a $90 per day estimate. Included in supplies and expenses are supplies utilized in the delivery of health care services as well as medical professional fees such as the half-time medical director and purchased services such as laundry, linen, speech and hearing services, utilities, telephone, malpractice insurance, repairs and maintenance. The depreciation assumptions are that the building would be depreciated over 40 years, fixed equipment over 20 years and major movable equipment over 10 years. Pre-opening expenses for the first 45 days of operation have been capitalized over 60 months with low amortization costs over 15 years. There is no income tax assumed in the first year but the assumption in subsequent years is that the tax rate will be 38 percent. The failure to assume a hospital tax is inconsequential. The assumptions for the second fiscal year are basically the same. Although staffing remained the same, the FTEs per occupied bed increased, and a 7 percent inflation factor was added. The project will be financially feasible even though the facility is pessimistically projecting a loss of $102,000 for the first year because a facility can suffer a loss in its first year of operation and remain financially feasible. The facility projects a $286,000 profit in its second year of operation. With regard to utilization by class of pay, FRTC has assumed that the insurance category represents 65.5 percent of total revenues projected and includes such things as commercial insurance, Blue Cross and any third party carrier other than Medicare and Medicaid. Assumptions with regard to the private pay are that 25 percent of the total revenues will be generated by private pay patients and would include the self pay portions of an insurance payor's bill, such as deductible and co-insurance. Bad debt was assumed to be 8 percent, and Charter Care or free care, 1.5 percent. FRTC's projected utilization by class of pay is reasonable and is supported by the protestants' current experience with commercial insurance utilization and reimbursement and the predicted recoveries if RTCPB were IRTP-licensed. In the second year of operation, the assumptions with regard to utilization by class of pay demonstrated an increase in the insurance category from 65.5 to 66.5 percent with everything else remaining the same except for a decrease in bad debt to 7 percent. The assumption with regard to a decrease in bad debt is based upon the establishment of referral patterns from acute psychiatric facilities, outpatient programs, mental health therapists, and miscellaneous programs. The assumption is that 65 percent of the patients would be covered by insurance, not that 65 percent of each bill would be paid by insurance. Charter's experience has been that a good portion of the deductible and co-insurance payments are collectible. FRTC did not assume payment from any governmental contracts or HRS reimbursement. FRTC's projected self pay percentages assumption reasonably contemplates the percentage of households in the district which can afford its projections for self pay. For purposes of evaluating the financial feasibility of this proposal, a management fee was not included because in looking at the financial feasibility of a facility the expenses of a corporate home office are incurred whether or not the facility is built. It was not appropriate to allocate a management fee to the hospital because it showed a loss in its first year of operation and a profit in its second. When the facility becomes profitable, FRTC anticipates passing the profit through to the corporation to help reduce the corporate overhead. If a management fee had been allocated to this facility, allocations would have had to have been made to the other Charter facilities to show where their management expense had decreased and their profitability increased. It would have been inappropriate to take these fixed expenses and allocate a portion of them to the proposed FRTC facility. In addition to the fact that the failure to include a management fee in the pro forma should not affect the feasibility of the project, Charter has good cause not to apply a $44 per patient day management fee in its IRTP. FRTC's categories of payor class are generally reasonable based in part on the results of a survey performed in Florida. FRTC's assumptions and calculations are reasonable, based upon the testimony of William S. Love and Dr. Ronald Luke, notwithstanding the testimony of Dan Sullivan, Donald Wilson, and Christopher Knepper, also qualified as experts. Specifically, it is found that Dr. Luke's assessment that the designation of a facility as a licensed specialty hospital has a beneficial effect on its ability to obtain insurance reimbursement for services, that reimbursement impacts to increase ALOS, and that the breakdown of sources of payment that FRTC has used is reasonable, is a credible assessment, supported elsewhere in the record. It is also found that Mr. Knepper's assessment for bad debt is inadequately supported and inconsistent with other evidence, and therefore not credible. Mr. Sullivan's testimony is not persuasive. Staffing and Recruitment Dr. Brett, a Charter regional director for hospital operations, was accepted as an expert in staffing psychiatric facilities including residential treatment centers. His distinctions between the acute care and residential types of facilities are corroborated and explained by other witnesses and evidence. Mr. Joyner was accepted as Charter's expert recruiter. Although the depth of Mr. Joyner's hands-on involvement in active recruitment is not extensive, the Charter network of manpower referrals and "head hunting" will obviously support this project. Upon the combined testimony of Dr. Brett, Mr. Joyner, and Paul Bodner, Charter's senior director of physician relations, there is sufficient evidence that FRTC can recruit a suitable staffing pattern to ensure quality of care (see FOF Nos. 9 and 10) in its proposed program, even if it has to hire from out of state and pay somewhat higher salaries due to some qualified manpower shortages in certain categories in Palm Beach County. In making this finding, the undersigned has considered the testimony of Donald Wilson concerning certain institution-specific recruiting problems of his principal, RTCPB, and the "step down" status of residential treatment as testified by Mary Certo, of Humana. Impact on Costs and Competition The FRTC project can reasonably be expected to attract patients with insurance coverage who would otherwise go to existing facilities for care, however, in light of the relatively consistent occupancy rates at Humana and RTCPB despite both their geographical proximity and the unique confusion of referrals arising over the relocation of Dr. Kelly, this impact is not altogether clear. Dr. Kelly's reputation will not be impacted by granting of a CON to FRTC. It is also not possible upon the basis of the record created in this hearing to factor out reimbursement differences inherent in Humana's current CON classification and RTCPB's circumstance as an unlicensed intensive residential treatment center. In any case, the negative impact upon Humana must be measured against the health planning goals expressed by several witnesses that it is desirable to substitute more suitable, less restrictive facilities for institutionalization of the severely emotionally disturbed child and adolescent whenever possible and that it is also desirable to encourage residential treatment upon a continuum of care basis after acute psychiatric care. The FRTC project will obviously increase the accessibility to this type of treatment for young people who have the appropriate insurance coverage. These goals are in conformity with the applicable health plans. The FRTC project can reasonably be expected to initially increase some costs of health services throughout the district because it will inflate some salary costs due to competition, but the negative impact will probably be short term.
Recommendation Upon a balanced consideration of all relevant criteria it is RECOMMENDED that HRS enter a Final Order approving FRTC's CON application for an IRTP, as updated, for licensure as a specialty hospital. DONE and ORDERED this 28th day of June, 1988, in Tallahassee, Florida. ELLA JANE P. DAVIS Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of June, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 87-2037 & 87-2050 The following constitute specific rulings pursuant to Section 120.59(2), F.S., with regard to the parties' respective Proposed Findings of Fact. Proposed Findings of Fact (PFOF) of FRTC: Covered in "issue" and FOF 1. Covered in FOF 1 and 2. 3-7. Except as subordinate or unnecessary, accepted in "procedural and evidentiary matters" and FOF 11. 8. Accepted in FOF 12. 9-12. Except as subordinate, unnecessary, or cumulative, accepted in FOF 7-9. 13. Accepted in FOF 10. 14-17. Accepted in part and rejected in part in FOF 7-11, 30. Although portions of the underlying data referred to in proposal 16 and by Mr. Joyner in his testimony was excluded from evidence, he was qualified as a recruitment expert and for the reasons set forth in FOF 30, his opinion is accepted. 18-19. Accepted in FOF 21. Accepted in FOF 22, 26, 29. Accepted in FOF 23. Accepted in FOF 24. Accepted in FOF 25 and 29. Accepted in FOF 26 and 29. Except as subordinate or unnecessary, covered in FOF 27. Except as mere argument or statement of position, accepted in FOF 26-27, and 29. 27-29. Accepted in part and rejected in part as unnecessary and cumulative to the facts as found; in part rejected as mere argument or recital of testimony, not distinguishing opinion from fact. To the degree adopted or accepted upon the record as a whole, see FOF 26-29. 30-31. Accepted in FOF 28. 32-40. Accepted in part and rejected in part as unnecessary and cumulative to the facts as found; in part rejected as mere argument or recital of testimony, not distinguishing opinion from fact. To the degree adopted or accepted upon the record as a whole, see FOF 9, 11, 21, 26-29. 41-44. Accepted in part and rejected in part as unnecessary and cumulative to the facts as found in FOF 29-32. 45-47. Rejected, as recital or summation of testimony and as part of preliminary agency review not relevant to this de novo proceeding. 48. Covered in FOF 7, 18-20, 22, and 26. 49-52. dejected as set out in "organic law and legislative background," "procedural and evidentiary matters," FOF 13-15. See also COL. 53. Accepted in FOF 16. 54-58. Rejected in part and accepted in part as set out in FOF 14-15. Rejected where not supported in full by the record as a whole, where subordinate, unnecessary or cumulative to the facts as found and where mere recital of testimony. 59. Accepted in principle and modified to conform to the record in FOF 18-20, 31. 60-61. Accepted in part and rejected in part as stated in "procedural and evidentiary matters" and in FOF 14-16 and the COL. Accepted in FOF 15 and COL. Accepted in FOF 18-20, 31. 64-68. Rejected as unnecessary to the facts as found in FOF 1, 7, 13-15 and 29, also in part as not supported by the record as a whole, and as primarily legal argument and recitation of testimony. Accepted in FOF 3-4 and 30. Accepted in part and rejected in part in FOF 3-4, 7, 26, and 29. 71-74. Except as subordinate or unnecessary, accepted in FOF 5-9 and 30-32. HRS' Proposed Findings of Fact (PFOF): 1-3. Accepted in "organic law and legislative background." 4. (Two paragraphs) Accepted FOF 3-4. Accepted in "issue" and FOF 3-4. Accepted, FOF 29-32. Rejected as unnecessary. Accepted, FOF 1. 10-18 & 20. Except as subordinate or unnecessary, accepted in FOF 5, 6, 15, 26, 31. 19. Rejected as irrelevant. 21-28. Accepted in part as modified to conform to the record as a whole in FOF 6-9, 30-31. The irrelevant, unnecessary or subordinate material has also been rejected. 29-31. Accepted in FOF 4, 9, 21, 26, 29-31. 32-35. Accepted in FOF 7-9. 36-41. Accepted in FOF 7-9 as modified to conform to the record as a whole, to eliminate subordinate and irrelevant matters and to comport with the rulings on the insubstantiality of updates to the CON application, in "procedural and evidentiary matters" and FOF 11. 42-45. Accepted as modified to conform to the record as a whole, to eliminate subordinate and irrelevant matters and to comport with the rulings on the insubstantiality of updates to the CON application in "procedural and evidentiary matters" and FOF 9-11, 21, 23, 30 and 32. Accepted in FOF 22, 26, 29. Accepted in FOF 7, 20, 22, 26. 49-52. Accepted in FOF 3, 4, 21-29. Assuming, based on the transcript reference, that this proposal refers to FRTC's pro forma, this proposal is accepted but unnecessary for the reasons set forth in rulings on HRS' PFOF 36-45. See FOF 11 and 21-29. Accepted in FOF 13-15. 55-58. Rejected as unnecessary. 59. Accepted but not dispositive of any material issue at bar. See FOF 13-15. 60-62. Accepted in part and rejected in part in FOF 13-14, as mere recital of testimony and statements of position. 63. Accepted in FOF 29. 64-65. Accepted in FOF 5-9. Accepted in FOF 7-9. Accepted that HRS made this assumption but it fails to explicate the non-rule policy. See FOF 13-14. Accepted in FOF 16. Rejected as a statement of position or COL. Peripherally, see COL. Accepted in FOF 13-14 but not dispositive of any material issue at bar. Rejected in FOF 13-14. 72-74. Rejected as preliminary agency action, irrelevant to this de novo proceeding. 75-76. Accepted in FOF 17-20. This is a subordinate definition and not a FOF. See FOF 30-31 and COL. Rejected in part and accepted in part in FOF 17-20, 31. Accepted in FOF 10. Accepted in FOF 13-15. Accepted as stated in the "procedural and evidentiary matters," FOF 13-15 and in the COL. 82-85. Covered in FOF 3-6, 13-15. 86. Rejected as preliminary agency action, irrelevant to this de novo proceeding. 87-88. Rejected as subordinate or unnecessary. 89. Accepted in FOF 29. 90-96. Accepted as modified to conform to the record evidence as a whole and FOF 15-16 and to reject subordinate and unnecessary material. Accepted without any connotations of the word "therefore" in FOF 4, 7-9, 21 and 29. Rejected as unnecessary and cumulative. Accepted in "organic and legislative background" and FOF 13-15. Rejected as not established upon the record as a whole; unnecessary. Rejected as a statement of position only. Joint Proposed Findings of Fact of RTCPB and Humana 1-2 Accepted in FOF 1. 3-4. Accepted in FOF 2. 5-6. Accepted in "issue" and FOF 3-4. 7. Accepted in "issue" and FOF 5-6. 8-13. Accepted in part and rejected in part as set out under "procedural and evidentiary matters," FOF 3-6, 13-15, and the COL. 14-18. Except as subordinate or unnecessary, accepted in FOF 1, 7-9, 11, 21-29. 19-27. Rejected as irrelevant preliminary action to this de novo proceeding. 28-36. Rejected in part and accepted in part upon the compelling competent, substantial evidence in the record as a whole as set forth in FOF 13-14. Also as to 33 see FOF 15. 37-52. Accepted in part and rejected in part in FOF 13-16 upon the greater weight of the credible evidence of record as a whole. Irrelevant, unnecessary and subordinate material has been rejected, as has mere argument of counsel. Accepted in FOF 17. Rejected in FOF 20, 31. Accepted as modified in FOF 20, 31. Excepting the mere rhetoric, accepted in FOF 18, 31. Accepted as modified in FOF 7, 18-20, 26, 31. 58-59. Accepted in part and rejected in part in FOF 17-20, 26, Rejected as subordinate. Rejected as recital of testimony and argument 62-63. Rejected as unnecessary. 64-67. Accepted in FOF 3-4, 6-9. The first sentence is rejected as cumulative to the facts as found in FOF 3-4, 6-9. The second sentence is rejected as not supported by the greater weight of the evidence as a whole. Rejected in FOF 4, 21. Accepted in FOF 4 and 21, 29. Rejected as unnecessary Accepted in FOF 26. Rejected in FOF 15-20, 31. Rejected as unnecessary in a noncomparitive hearing. 75-87. Except as irrelevant, unnecessary, or subordinate, accepted in FOF 5-9, 30, 31. Rejected in part as unnecessary and in part as not comporting with the greater weight of the evidence in FOF 7-10 and 30. Accepted in FOF 1, 5-9. 90-92. Accepted in FOF 5-9. Rejected in FOF 5-6. Rejected as subordinate. 95-98. Accepted in FOF 5-9. 99-102. Rejected as unnecessary. 103. Except as subordinate or unnecessary, accepted in FOF 5-9. 104-118. Except as unnecessary, subordinate, or cumulative to the facts as found, these proposals are covered in FOF 5-9, 30-31. Except as Subordinate, covered in FOF 6 and 31. Accepted in part in FOF 5-9, 21-29, otherwise rejected as misleading. Except as subordinate, accepted in FOF 6. Rejected as unnecessary. Accepted in FOF 21. Accepted in FOF 21-29. Rejected in part and accepted in part in FOF 21-29. Rejected as subordinate and unnecessary in part and not supported by the greater weight of the credible evidence in 21-29. 127-128. These proposals primarily recite testimony by Mr. Grono, an administrator of a psychiatric hospital for very severely disturbed persons (Grant Center). This evidence by itself is not persuasive in light of Dr. Luke's study and other admissions of the parties referenced in FOF 21-29. Upon the greater weight of contrary evidence, it is rejected. 129. Rejected as subordinate except partly accepted in FOF 29. 130-133. Rejected upon the greater weight of the evidence in FOF 9, 11 and 21-29. 134, 139. Rejected as legal argument without citation. 135-138. Rejected in FOF 21-29. 140-144. Rejected as stated as not supported by the greater weight of the credible evidence and as partly mere legal argument. See FOF 9, 21-29. 145. The first sentence is rejected upon the reference to PFOF 140-144 for the same reasons given above and the remainder is rejected as subordinate. 146. Rejected in FOF 21-29. 147. Rejected as mere legal argument without citation. 148-149. Rejected in FOF 21-29, particularly 27 upon the greater weight of the credible evidence. The mere legal argument is also rejected. 150-157. Rejected as set out in FOF 28 upon the greater weight of the credible evidence. Uncited argument and statements of position have likewise bean rejected. 158, 160. Rejected as mere argument without citation. 159. Rejected as subordinate and not dispositive of any material issue at bar in FOF 23. 161. Rejected as mere argument. 162-167. Rejected as not supported by the greater weight of the credible evidence in FOF 30-32. Also 167 is rejected as mere argument without citation. 168. Accepted in part and rejected in part in FOF 30-32. 169. Accepted but subordinate. 170. Rejected as unnecessary and cumulative to the facts as found in FOF 31. 171-180. Covered in FOF 30-32. 181-185. Rejected as contrary to the evidence in part and in part unnecessary and cumulative to the ruling in "procedural and evidentiary matters" and FOF 7, 10-11, 21, 23, 30-32. 186-188. Rejected in FOF 7, 10 and 30 upon the greater weight of the credible evidence. 189. Rejected as unnecessary 190. Rejected in FOF 30. 191-392. Accepted but not dispositive of any material issue at bar. See FOF 30-32. 193. Rejected in FOF 30-32. 194-195. Except as subordinate or unnecessary, rejected in the several references to future establishment of referral networks. See FOF 21, 27. 196-197 & 199. Rejected as unnecessary 198. Rejected as irrelevant in part and immaterial in part upon the rulings in "procedural and evidentiary matters" and FOF 11. 200. Rejected as unnecessary 201-202. Accepted in FOF 7, 20, 26-27 and 31, but cumulative. 203. Covered in the COL. Rejected in FOF 21-22. 204. Rejected as mere argument without citation. COPIES FURNISHED: Michael J. Glazer, Esquire AUSLEY, McMULLEN, McGEHEE, CAROTHERS & PROCTOR 227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302 John T. Brennan, Jr., Esquire BONNER & O'CONNEL 900 17th Street, N.W. Washington, D.C. 20006 James C. Hauser, Esquire Joy Heath Thomas, Esquire MESSER, VICKERS, CAPARELLO, FRENCH & MADSEN 215 South Monroe Street Post Office Box 1876 Tallahassee, Florida 32302 Fred W Baggett, Esquire Stephen A. Ecenia, Esquire ROBERTS, BAGGETT, LaFACE & RICHARD 101 East College Avenue Tallahassee, Florida 32301 Lesley Mendelson, Esquire Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Sam Power, Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
Findings Of Fact Introduction Petitioner, Leesburg Regional Medical Center ("Leesburg"), is a 132-bed acute care private, not-for-profit hospital located at 600 East Dixie Highway, Leesburg, Florida. It offers a full range of general medical services. The hospital sits on land owned by the City of Leesburg. It is operated by the Leesburg hospital Association, an organization made up of individuals who reside within the Northwest Taxing District. By application dated August 13, 1982 petitioner sought a certificate of need (CON) from respondent, Department of Health and Rehabilitative Services (HRS), to construct the following described project: This project includes the addition of 36 medical/surgical beds and 7 SICU beds in existing space and the leasing of a CT scanner (replacement). The addition of the medical/surgical beds is a cost effective way to add needed capacity to the hospital. Twenty-four (24) beds on the third floor will be established in space vacated by surgery and ancillary departments moving into newly constructed space in the current renovation project. A significant portion of this area used to be an obstetric unit in the past; and therefore, is already set up for patient care. The 7 bed SICU unit will be set up on the second floor, also in space vacated as a result of the renovation project. Twelve additional beds will be available on the third and fourth floors as a result of changing single rooms into double rooms. No renovation will be necessary to convert these rooms into double rooms. It is also proposed to replace the current TechniCare head scanner with GE8800 body scanner. Based on the high demand for head and body scans and the excessive amount of maintenance problems and downtime associated with the current scanner, Leesburg Regional needs a reliable, state-of-the-art CT scanner. The cost of the project was broken down as follows: The total project cost is $1,535,000. The construction/renovation portion of the project (24 medical/surgical and 7 SICU beds) is $533,000. Equipment costs will be approximately $200,000. Architectural fees and project development costs total $52,000. The CT scanner will be leased at a monthly cost of $16,222 per month for 5 years. The purchase price of the scanner is $750,000 and that amount is included in the total project cost. The receipt of the application was acknowledged by HRS by letter dated August 27, 1982. That letter requested Leesburg to submit additional information no later than October 10, 1982 in order to cure certain omissions. Such additional information was submitted by Leesburg on October 5, 1982. On November 29, 1982, the administrator for HRS's office of health planning and development issued proposed agency action in the form of a letter advising Leesburg its request to replace a head CT scanner (whole body) at a cost of $750,000 had been approved, but that the remainder of the application had been denied. The basis for the denial was as follows: There are currently 493 medical/surgical beds in the Lake/Sumter sub-district of HSA II. Based upon the HSP for HSA II, there was an actual utilization ratio of existing beds equivalent to 2.98/1,000 population. When this utilization ratio is applied to the 1987 projected population of 156,140 for Lake/Sumter counties, there is a need for 465 medical/surgical beds by 1987. Thus, there is an excess of 28 medical/surgical beds in the Lake/Sumter sub-district currently. This action prompted the instant proceeding. At the same time Leesburg's application was being partially denied, an application for a CON by intervenor-respondent, Lake Community Hospital (Lake), was being approved. That proposal involved an outlay of 4.1 million dollars and was generally described in the application as follows: The proposed project includes the renovations and upgrading of patient care areas. This will include improving the hospital's occupancy and staffing efficiencies by reducing Med-Surg Unit-A to 34 beds and eliminating all 3-bed wards. Also reducing Med-Surg Units B and C to 34 beds each and eliminating all 3-bed wards. This will necessitate the construction of a third floor on the A wing to house the present beds in private and semi-private rooms for a total of 34 beds. There is also an immediate need to develop back-to-back six bed ICU and a six-bed CCU for shared support services. This is being done to fulfill JCAH requirements and upgrade patient care by disease entity, patient and M.D. requests. Another need that is presented for consideration is the upgrading of Administrative areas to include a conference room and more Administrative and Business office space. However, the merits of HRS's decision on Lake's application are not at issue in this proceeding. In addition to Lake, there are two other hospitals located in Lake County which provide acute and general hospital service. They are South Lake Memorial Hospital, a 68-bed tax district facility in Clermont, Florida, and Waterman Memorial Hospital, which operates a 154-bed private, not-for-profit facility in Eustis, Florida. There are no hospitals in Sumter County, which lies adjacent to Lake County, and which also shares a subdistrict with that county. The facilities of Lake and Leesburg are less than two miles apart while the Waterman facility is approximately 12 to 14 miles away. South Lake Memorial is around 25 miles from petitioner's facility. Therefore, all three are no more than a 30 minute drive from Leesburg's facility. At the present time, there are 515 acute care beds licensed for Lake County. Of these, 493 are medical/surgical beds and 22 are obstetrical beds. None are designated as pediatric beds. The Proposed Rules Rules 10-16.001 through 10-16.012, Florida Administrative Code, were first noticed by HRS in the Florida Administrative Weekly on August 12, 1983. Notices of changes in these rules were published on September 23, 1983. Thereafter, they were filed with the Department of State on September 26, 1983 and became effective on October 16, 1983. Under new Rule 10-16.004 (1)(a), Florida Administrative Code, subdistrict 7 of district 3 consists of Lake and Sumter Counties. The rule also identifies a total acute care bed need for subdistrict 7 of 523 beds. When the final hearing was held, and evidence heard in this matter, the rules were merely recommendations of the various local health councils forwarded to HRS on June 27, 1983 for its consideration. They had not been adopted or even proposed for adoption at that point in time. Petitioner's Case In health care planning it is appropriate to use five year planning horizons with an overall occupancy rate of 80 percent. In this regard, Leesburg has sought to ascertain the projected acute care bed need in Lake County for the year 1988. Through various witnesses, it has projected this need using three different methodologies. The first methodology used by Leesburg may be characterized as the subdistrict need theory methodology. It employs the "guidelines for hospital care" adopted by the District III Local Health Council on June 27, 1983 and forwarded to HRS for promulgation as formal rules. Such suggestions were ultimately adopted by HRS as a part of Chapter 10-16 effective October 16, 1983. Under this approach, the overall acute care bed need for the entire sixteen county District III was found to be 44 additional beds in the year 1988 while the need within Subdistrict VII (Lake and Sumter Counties) was eight additional beds. 2/ The second approach utilized by Leesburg is the peak occupancy theory methodology. It is based upon the seasonal fluctuation in a hospital's occupancy rates, and used Leesburg's peak season bed need during the months of February and March to project future need. Instead of using the state suggested occupancy rate standard of 80 percent, the sponsoring witness used an 85 percent occupancy rate which produced distorted results. Under this approach, Leesburg calculated a need of 43 additional beds in 1988 in Subdistrict VII. However, this approach is inconsistent with the state-adopted methodology in Rule 10- 5.11(23), Florida Administrative Code, and used assumptions not contained in the rule. It also ignores the fact that HRS's rule already gives appropriate consideration to peak demand in determining bed need. The final methodology employed by Leesburg was characterized by Leesburg as the "alternative need methodology based on state need methodology" and was predicated upon the HRS adopted bed need approach in Rule 10-5.11(23) with certain variations. First, Leesburg made non-rule assumptions as to the inflow and outflow of patients. Secondly, it substituted the population by age group for Lake and Sumter Counties for the District population. With these variations, the methodology produced an acute care bed need of 103 additional beds within Lake and Sumter Counties. However, this calculation is inconsistent with the applicable HRS rule, makes assumptions not authorized under the rule, and is accordingly not recognized by HRS as a proper methodology. Leesburg experienced occupancy rates of 91 percent, 80 percent and 73 percent for the months of January, February and March, 1981, respectively. These rates changed to 86 percent, 95 percent and 98 percent during the same period in 1982, and in 1983 they increased to 101.6 percent, 100.1 percent and 95.1 percent. Leesburg's health service area is primarily Lake and Sumter Counties. This is established by the fact that 94.4 percent and 93.9 percent of its admissions in 1980 and 1981, respectively, were from Lake and Sumter Counties. Although South Lake Memorial and Waterman Memorial are acute care facilities, they do not compete with Leesburg for patients. The staff doctors of the three are not the same, and there is very little crossover, if any, of patients between Leesburg and the other two facilities. However, Lake and Leesburg serve the same patient base, and in 1982 more than 70 percent of their patients came from Lake County. The two compete with one another, and have comparable facilities. Leesburg has an established, well-publicized program for providing medical care to indigents. In this regard, it is a recipient of federal funds for such care, and, unlike Lake, accounts for such care by separate entry on its books. The evidence establishes that Leesburg has the ability to finance the proposed renovation. HRS's Case HRS's testimony was predicated on the assumption that Rule 10-16.004 was not in effect and had no application to this proceeding. Using the bed need methodology enunciated in Rule 10-5.11(23), its expert concluded the overall bed need for the entire District III to be 26 additional beds by the year 1988. This calculation was based upon and is consistent with the formula in the rule. Because there was no existing rule at the time of the final hearing concerning subdistrict need, the witness had no way to determine the bed need, if any, within Subdistrict VII alone. Lake's Case Lake is a 162-bed private for profit acute care facility owned by U.S. Health Corporation. It is located at 700 North Palmetto, Leesburg, Florida. Lake was recently granted a CON which authorized a 4.1 million dollar renovation project. After the renovation is completed all existing three-bed wards will be eliminated. These will be replaced with private and semi-private rooms with no change in overall bed capacity. This will improve the facility's patient utilization rate. The expansion program is currently underway. Like Leesburg, the expert from Lake utilized a methodology different from that adopted for use by HRS. Under this approach, the expert determined total admissions projected for the population, applied an average length of stay to that figure, and arrived at a projected patient day total for each hospital. That figure was then divided by bed complement and 365 days to arrive at a 1988 occupancy percentage. For Subdistrict VII, the 1988 occupancy percentage was 78.2, which, according to the expert, indicated a zero acute care bed need for that year. Lake also presented the testimony of the HRS administrator of the office of community affairs, an expert in health care planning. He corroborated the testimony of HRS's expert witness and concluded that only 26 additional acute care beds would be needed district-wide by the year 1988. This result was arrived at after using the state-adopted formula for determining bed need. During 1981, Lake's actual total dollar write-off for bad debt was around $700,000. This amount includes an undisclosed amount for charity or uncompensated care for indigent patients. Unlike Leesburg, Lake receives no federal funds for charity cases. Therefore, it has no specific accounting entry on its books for charity or indigent care. Although Leesburg rendered $276,484 in charity/uncompensated care during 1981, it is impossible to determine which facility rendered the most services for indigents due to the manner in which Lake maintains its books and records. In any event, there is no evidence that indigents in the Subdistrict have been denied access to hospital care at Lake or any other facility within the county. Lake opines that it will loose 2.6 million dollars in net revenues in the event the application is granted. If true, this in turn would cause an increase in patient charges and a falling behind in technological advances. For the year 1981, the average percent occupancy based on licensed beds for Leesburg, Lake, South Lake Memorial and Waterman Memorial was as follows: 71.5 percent, 58.7 percent, 63.8 percent and 65.7 percent. The highest utilization occurred in January (81 percent) while the low was in August (58 percent). In 1982, the utilization rate during the peak months for all four facilities was 78 percent. This figure dropped to 66.5 percent for the entire year. Therefore, there is ample excess capacity within the County even during the peak demand months.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of Leesburg Regional Medical Center for a certificate of need to add 43 acute care beds, and renovate certain areas of its facility to accommodate this addition, be DENIED. DONE and ENTERED this 15th day of December, 1983, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of December, 1983.
The Issue The issues in these cases are whether Certificate of Need (CON) Application No. 10432 filed by East Florida-DMC, Inc. (DMC), to build an 80-bed acute care hospital in Miami-Dade County, Florida, AHCA District 11, or CON Application No. 10433 filed by The Public Health Trust of Miami-Dade County, Florida d/b/a Jackson Hospital West (JW), to build a 100-bed acute care hospital in Miami-Dade County, Florida, AHCA District 11, on balance, satisfy the applicable criteria; and, if so, whether either or both should be approved.
Findings Of Fact Based upon the parties’ stipulations, the demeanor and credibility of the witnesses, other evidence presented at the final hearing, and on the entire record of this proceeding, the following Findings of Fact are made: The Parties The Public Health Trust of Miami-Dade County d/b/a Jackson Hospital West and Jackson Health System (JHS) JHS is a taxpayer-funded health system located in and owned by Miami-Dade County. It is governed by The Public Health Trust of Miami Dade-County, Florida (PHT), a seven-member board. JHS owns and operates three acute care hospitals in Miami-Dade County--Jackson Memorial Hospital (JMH); Jackson North Medical Center (JN); and Jackson South Medical Center (JS)--as well as three specialty hospitals: Holtz Children’s Hospital (Holtz); Jackson Rehabilitation Hospital; and Jackson Behavioral Health Hospital. JHS also owns and operates numerous other non- hospital healthcare facilities within Miami-Dade County. JHS’s applicant in this proceeding is JW which, if approved, will be another acute care hospital in JHS. JHS is an academic teaching institution, and the University of Miami (UM) is JHS’s affiliated medical school. Over 1,000 UM residents staff JMH pursuant to an operating agreement with JHS. JN and JS are not academic medical centers. JHS annually receives sales tax and ad valorem tax revenues from Miami-Dade County in order to help fund its operations. JS and JN are community hospitals operated as part of JHS. JS was acquired in 2001. JS is licensed for 226 beds and is also home to a verified Level II trauma center. The JN facility was acquired by JHS in 2006. The facility is licensed for 382 beds. East Florida (DMC) DMC is an affiliate of HCA Healthcare, Inc. (HCA), the largest provider of acute care hospital services in the world. DMC will operate within HCA’s East Florida Division (EFD), which is comprised of 15 hospitals, 12 surgery centers, two diagnostic imaging centers, four freestanding emergency departments, nine behavioral health facilities, and one regional laboratory, along with other related services. There are three HCA-affiliated hospitals in Miami-Dade County: KRMC; Aventura Hospital and Medical Center (Aventura); and Mercy Hospital, a campus of Plantation General Hospital (Mercy). Kendall Regional (KRMC) KRMC, which is located at the intersection of the Florida Turnpike and Southwest 40th Street in Miami-Dade County, is a 417-bed tertiary provider comprised of 380 acute care beds, 23 inpatient adult psychiatric beds, eight Level II neonatal intensive care unit (NICU) beds, and five Level III NICU beds. It is a Baker Act receiving facility. KRMC is a verified Level I trauma center. It also has a burn program. KRMC is also an academic teaching facility, receiving freestanding institutional accreditation from the Accrediting Council for Graduate Medical Education (ACGME) in 2013. KRMC currently has six residency programs including, among others, surgery, internal medicine, podiatry, anesthesia, and surgical critical care. Its teaching programs are affiliated with the University of South Florida, Nova Southeastern University, and Florida International University. KRMC also participates in scholarly and clinical research. In 2017, KRMC had over 82,000 Emergency Department (ED) visits. It treated over 115,000 total inpatients and outpatients that year. There are 850 physicians on KRMC’s medical staff. It offers a full range of medical surgery services, interventional procedures, obstetrics (OB), pediatric, and neonatal care, among many other service lines. KRMC primarily serves southern and western portions of Miami-Dade County but also receives referrals from the Florida Keys up through Broward County, Palm Beach County, and the Treasure Coast. Its main competitors include, but are not limited to: Baptist Hospital; Baptist West; South Miami Hospital; PGH; Hialeah; CGH; JS, and Palm Springs General Hospital. The Tenet Hospitals PGH, Hialeah, and CGH are wholly-owned subsidiaries of Tenet South Florida. These are all for-profit hospitals. PGH is a 368-bed tertiary facility that opened in the early 1970s. It has 297 licensed acute care beds, 48 adult psychiatric beds, 52 ICU beds, and 15 Level II NICU beds. It is located at the Palmetto Expressway and Northwest 122nd Street in Hialeah, Florida. The hospital employs about 1,700 people and has over 600 physicians on its medical staff. PGH is a tertiary-level facility offering a variety of specialty services, including adult open heart surgery, a comprehensive stroke center, and robotic surgery. It has inpatient mental health beds and serves the community as a Baker Act receiving facility. It also offers OB and Level II NICU services with approximately 1,500 births a year. It has approximately 70,000 ED visits and between 17,000 and 18,000 inpatient admissions per year. In addition to its licensed inpatient beds, PGH operates 31 observation beds. PGH is ACGME accredited and serves a significant teaching function in the community. It has approximately 89 residents and fellows. The hospital provides fellowships in cardiology, critical care and interventional cardiology, and also has rotations in neurology and gastroenterology. Residents from Larkin General Hospital also rotate through PGH. PGH generally serves the communities of Opa Locka, Hialeah, Miami Lakes, Hialeah Gardens, Doral, and Miami Springs. In reality, all of the hospitals in the county are competitors, but more direct competition comes from Palm Springs Hospital, Memorial in Miramar, Mount Sinai, Kendall, and even its sister hospital, Hialeah. Hialeah first opened in 1951 and is a 378-bed acute care facility. It has 356 acute care beds, 12 adult psychiatric beds, and 10 Level II NICU beds. The ED has 25 beds and about 40,000 visits per year. It has approximately 14,000 inpatient admissions and 1,400 babies delivered annually. It offers services including cardiac, stroke, robotic surgery, colorectal surgery, and OB services. The hospital has a Level II NICU with 12 beds. CGH is located in the City of Coral Gables and is near the border between Coral Gables and the City of Miami on Douglas Road. It first opened in 1926. Portions of the original structure are still in use. CGH has 245 licensed beds, over 725 employees, 367 physicians, and over 100 additional allied providers on its medical staff. The hospital has a full-service ED. Its service lines include general surgery, geriatrics, urology, treatment of cardiovascular and pulmonary disease, and others. The hospital has eight operating rooms and offers robotic surgery. The ED has 28 beds divided into the main area and a geriatric emergency room. It had about 25,000 ED visits last year, which is lower than prior years, due in part to the presence of over a dozen nearby urgent care centers. CGH has over 8,500 inpatient admissions per year and is not at capacity. While patient days have grown slightly, the average occupancy is still just a little over 40%, meaning, on average, it has over 140 empty inpatient beds on any given day. The hospital is licensed for 245 beds, but typically there are only 180 beds immediately available for use. Agency for Healthcare Administration (AHCA) AHCA is the state health-planning agency charged with administration of the CON program as set forth in sections 408.31-408.0455, Florida Statutes. The Proposals Doral Medical Center (DMC) DMC proposes to build an 80-bed community hospital situated within the residential district of Doral. The hospital will be located in southwestern Doral in zip code 33126 and will serve the growing population of Doral, along with residential areas to the north and south of Doral. The hospital will be located in the City of Doral’s residential district on Northwest 41st Street between Northwest 109th Avenue to the east, and Northwest 112th Avenue to the west. Doral has seen significant growth in the past 15 years and has been consistently included on the list of the fastest growing cities in Florida. The new facility will have a bed complement of 80 licensed acute care beds, including 72 medical/surgical and eight OB beds. The proposed acute care hospital will be fully accredited by the Joint Commission for the Accreditation of Healthcare Facilities and licensed by the State of Florida. No public funds will be utilized in construction of the hospital and it will contribute to the state, county, and municipal tax base as a proprietary corporation. DMC will offer a full range of non-tertiary services, including emergency services, imaging, surgery, intensive care, cardiac catheterization, and women's services, including an OB unit, and pediatric care. DMC will be a general medical facility that will include a general medical component and a surgery component. Although DMC will operate an OB unit, NICU services will not be offered at DMC. If DMC’s patients need more advanced services, including NICU, the EFD hopes they will receive them from KRMC. The open medical staff will be largely community-based, but University of Miami physicians would be welcome at DMC. Before the hospital is built, KRMC will construct and operate a freestanding emergency department (FSED) at the location that will eventually become the ED of DMC. Construction of the FSED is now underway, and Brandon Haushalter, chief executive officer (CEO) of KRMC, estimated that it will open in March or April of 2019. Jackson West JHS proposes to build a community hospital to be known as “Jackson West” near the eastern edge of Doral. The proposed 100-bed general acute care hospital would have medical surgical and obstetrical beds and offer basic acute care services. JHS is a public health system owned by Miami-Dade County. All of JHS’s assets, as well as its debts, belong to the county. JHS is a not-for-profit entity, and therefore does not pay taxes, though it receives hundreds of millions of dollars from property taxes and sales taxes in Miami-Dade County. JHS’s main campus is a large health campus located near the Midtown Miami area in between Allapattah (to the north) and Little Havana (to the south). In addition to JMH, the campus includes Holtz Children’s Hospital, a behavioral health hospital, an inpatient rehabilitation hospital, and several specialty clinics. Bascom-Palmer Eye Institute, a Veterans Administration hospital, and University of Miami Hospital are also located adjacent to Jackson West’s main campus. JMH is a 1,500-bed hospital with a wide array of programs and services, including tertiary and quaternary care, and a Level I trauma program, the Ryder Trauma Center. JMH receives patients from throughout Miami-Dade County, elsewhere in Florida, and internationally. JMH is a teaching hospital and has a large number of residents, as well as professors from the University of Miami, on staff. UM and JMH have had a relationship for many years, and in addition to research and teaching, UM provides physician staffing to JMH. JN is a 342-bed community hospital located in between Miami Gardens and North Miami Beach, just off of I-95 and the Turnpike. JS is a 252-bed community hospital located in the Palmetto Bay area just south of Kendall. It has stroke certification and interventional cardiology, and was recently approved for a trauma program, which began in May 2016. Both JN and JS were existing hospitals that were acquired by JHS. JHS has never built a hospital from the ground up. In 2014, JHS leadership directed its internal planning team to review the healthcare needs of county residents. JHS’s analysis identified a need for outpatient services in western Miami-Dade, the only remaining quadrant of the county in which JHS did not have a hospital or healthcare program at the time. As part of its due diligence, JHS then consulted healthcare firm Kurt Salmon & Associates (KSA) to independently evaluate the data. KSA’s investigation validated a need in the west county for adult and pediatric outpatient services, including need for an FSED. This prompted JHS to explore opportunities for expansion of outpatient services where needed: in the western corridor of Miami-Dade. This was also the genesis of JHS’s long-range plan to first build an FSED in the Doral area, to be followed ultimately by the addition of a general acute care hospital at the site. The JW site is a 27-acre parcel of land located just west of the Palmetto Expressway and north of 25th Street. The site is in an industrial area only a short distance from the western end of the runways at Miami International Airport. The site is located in zip code 33122, which is very sparsely populated. JW proposed a primary service area (PSA) consisting of zip codes 33126, 33144, 33166, 33172/33122, 33174, 33178, and 33182, and a secondary service area (SSA) of zip codes 33155, 33165, 33175, and 33184. JW intends to serve general, acute care non-tertiary patients and OB patients. Detailed below, trends in the JW service area do not demonstrate need for its proposed hospital. The location of the JW site will not contribute to the viability of the proposed hospital. According to 2010 census data, only 328 people live within a one-mile radius of the JW site. Since 2000, only 32 total people have moved into that same area around the JW site--an average of three per year. There are virtually no residences within a one-mile radius of the JW site. From 2000 to 2010, the population within a two- mile radius of the JW site decreased by a rate of 9.4%. The JW health planner projects JW’s home zip code of 33122 will have a total population of only eight (8) people in 2022. From 2012 to 2014, the use rate in the JW service area for non-tertiary patients decreased by 3.9%. That decline continued at a steeper pace of 4.2% from 2014 to 2017. This was largely due to the 65+ age cohort, the demographic of patients that utilize inpatient services the most. The 65+ age cohort is growing at a slower pace in the JW service area than in Miami- Dade or Florida as a whole. Non-tertiary discharges in the JW service area are declining at a greater pace than that of Miami- Dade County--negative 4.2% compared to negative 1.9%. The rate of projected population growth in the JW PSA is decreasing. The projected rate of growth for the JW service area is lower than that of Miami-Dade County and Florida as a whole. The OB patient base JW intends to rely on is projected to remain flat. The inpatient discharges for all ages in the JW service area have declined from 2014 to 2017. For ages 0-17, discharges in the JW service area declined 21.4% during that time period. The discharges for ages 18-44 declined by 4.8%, and the discharges for ages 45-64 declined by 8.9%. The discharges for the important 65+ age cohort declined by 0.1%. Specifically, the discharges for ages 65-74 declined by 6.5%, and the discharges for ages 75-84 declined by 3.3%. The discharges for ages 85+ are the only age cohort that has not declined from 2012 to 2017. Overall, the non-tertiary discharges per 1,000 population (i.e., use rate) for all ages in the JW service area declined from 2012 to 2014 by 6%, and from 2014 to 2017 by 7.8%. Despite these declines in discharges in the JW service area, the health planners who crafted the JW projections used a constant use rate for the 0-17, 18-44, and 45-64 age cohorts. The JW health planners used a declining use rate for the 65+ age cohort. These use rates were applied uniformly across all zip codes, despite wide variance in actual use rates in each zip code. Applying the zip code specific use rates in conjunction with the other assumptions used by the JW health planner demonstrates that the JW projections are unreasonable. For instance, JW’s reliance on a uniform use rate over-projects the number of discharges in JW PSA zip code 33178 by nearly 1,000 patients. This occurs because the population is only growing at a 2% rate in the zip code, but JW’s reliance on service area-wide projections cause the discharges to grow at an extraordinary rate of 8.9% per year. Applying actual use rates across all zip codes causes a drastic change in the JW PSA and SSA definition. Section 408.037(2) requires a CON applicant to identify its PSA and SSA by listing zip codes in which it will receive discharges in descending order, beginning with the zip code with the highest amount of discharges, then proceeding in diminishing order to the zip code with the lowest amount of discharges. The zip codes, which comprise 75% of discharges, constitute the PSA; and the remaining zip codes, which consist of the remaining 25% of discharges, makes up the SSA. However, JW did not project its utilization in this manner. In its application, JW did not define its service area, PSA, and SSA zip codes in descending order by number or percentage of discharges. When this correct adjustment is made, its PSA consists of zip codes 33126, 33172, 33178, 33174, 33144, and 33165; and its SSA consists of zip codes 33175, 33166, 33155, 33182, and 33184. Zip codes 33166 and 33182 were in the original JW PSA, and zip code 33165 was in the original JW SSA. As such, JW’s home zip code should actually be in its SSA. JW health planners call this illogical, but it demonstrates that the JW site is located within a zip code that has almost no population of potential patients. JHS is developing an FSED and outpatient/ambulatory facilities on the JW site regardless of whether its CON application for a hospital is approved. Construction has begun on the JW site, and JHS is actually building a “shelled in” structure intended to house a future hospital, notwithstanding lack of CON approval for the hospital. There is no contingency plan for use of the shelled-in hospital space if CON approval is not obtained. JHS executives unequivocally stated that they intend to continue pursuing CON approval for the JW hospital, even if the proposed DMC hospital is approved. Indeed, JHS has filed third and fourth CON applications for its proposed JW hospital. The budget for the JW campus is $252 million. Sixty to $70 million is being funded from a bond issuance approved by voters in Miami-Dade County. Notably, the bond referendum approved by voters made no mention of a new hospital. The remaining $180 to $190 million is being funded by JHS, which has chosen to only keep 50 days cash-on-hand, and put any surplus toward capital projects. This is well below the number of days cash-on-hand ws advisable for a system like JHS. The specific programs and services to be offered at JW have not been finalized, but it is clear that JW will be a small community hospital that will not offer anything unique or different from any of the existing hospitals in the area, nor will it operate NICU beds. Patients presenting to JW in need of specialized or tertiary services will need to be transferred to another hospital with the capability of serving them, most likely JMH. The Applicants’ Arguments Doral Medical Center (DMC) DMC’s arguments in support of its proposed hospital may be summarized as follows: Geographic features surrounding Doral create transportation access barriers for the residents of the area; Doral is a densely-populated community that is growing quickly and lacks a readily accessible hospital; KRMC, which is the provider of choice for Doral residents, is a growing tertiary facility that cannot sufficiently expand to meet its future demands. DMC will serve much of the same patient population currently served by KRMC and help decompress KRMC’s acute care load so KRMC can focus on its tertiary service lines; From a geographic standpoint, the Doral community and its patients are isolated from much of Miami-Dade County to the north, west, and east, and the nearest hospitals. East Florida-DMC is a subsidiary of HCA and would be a part of the HCA EFD. Michael Joseph is the president of the EFD, which includes 15 hospitals and other facilities from Miami north through the Treasure Coast. Mr. Joseph authorized the filing of the DMC CON application, which proposes an 80-bed basic acute care hospital that includes 72 medical surgical and eight OB beds. As noted, there will be neither unique services at DMC nor any tertiary services, such as a NICU. HCA anticipates that DMC patients needing tertiary services would be referred and treated at KRMC. The proposed hospital would be built on 41st Street, between Northwest 109th Avenue and Northwest 112th Avenue. This site is located on the western edge of Doral, just east of the Everglades. When the consultants were retained to write the first DMC CON application, HCA had already made the decision to go forward with the project. Mr. Joseph described Miami-Dade County as one of the most competitive markets in the country for hospital services. There is robust competition in the Miami-Dade market from the standpoints of payors, physicians, and the many hospitals located in the county, including Jackson, HCA, Tenet, Baptist and others. HCA is not proposing this project because any of the existing hospitals in the area do not provide good quality care. HCA is currently building an FSED on the DMC site that will open regardless of whether the DMC hospital is approved. Mr. Joseph acknowledged that there is a trend toward outpatient rather than inpatient care. Inpatient occupancy of acute care hospitals in Miami-Dade County has been declining in recent years. Managed care has added further pressure on reducing inpatient admissions. Surgical advances have also resulted in fewer inpatient admissions. Surgeries that formerly required an inpatient stay are now often done on an outpatient basis. Mr. Joseph agreed that 30 minutes is a reasonable travel time to access an acute care hospital. The home zip code for the proposed DMC hospital is 33178. KRMC’s market share for that zip code is 20%. Individuals in that zip code are currently accessing a wide variety of hospitals. PGH is only 6.7 miles away and has the fourth highest market share in that zip code. HCA’s healthcare planning expert, Dan Sullivan, acknowledged that, if approved, DMC would likely have an adverse financial impact on KRMC and other area hospitals. Several witnesses testified that the travel time from the DMC site to KRMC is about 10 minutes, and that an ambulance could do it in as little as five minutes. As to the argument that the residents of Doral face geographic access barriers, the evidence did not indicate that there is anything unique about Doral from a traffic standpoint compared to other parts of Miami-Dade County. People come in and out of Doral on a daily basis in significant numbers for work and other reasons via various access points. Witnesses agreed that 25 to 30 minutes is a reasonable drive time for non-tertiary acute care services, and the evidence showed that residents of Doral, and the DMC service area, are well within 30 minutes of multiple hospitals providing more intensive services than are proposed by DMC. Indeed, many residents of DMC’s service area are closer to other hospitals than to the DMC site. None of the DMC witnesses were able to identify any patient in Doral who had been unable to access acute care services, or had suffered a bad outcome because of travel from Doral to an area hospital. The evidence did not establish that there currently exists either geographic or financial access barriers within the service area proposed to be served by DMC. Jackson West As in its Batch One application, JW advances six arguments as to why its proposed hospital should be approved. They are: It will serve a significant amount of indigent and Medicaid patients. JHS already serves residents of the proposed service area, which JW characterizes as “fragmented,” in that residents go to a number of different hospitals to receive services. Development of the freestanding ED and ambulatory center is under way. JW would provide an additional opportunity to partner with UM and FIU. There is physician and community support for the project. JW will add to the financial viability of JHS and its ability to continue its mission. JW presented very little analysis of the types of factors typically considered in evaluating need for a new hospital. JW did not discuss existing providers and their programs and services, the utilization of existing hospitals, and whether they have excess capacity, or other important considerations. Instead, JW advanced the six arguments noted above, for approval of its proposed hospital, none of which truly relate to the issue of need. First, JW states that its proposed hospital will serve a significant level of Medicaid and indigent patients. While it is true that JHS serves a significant amount of Medicaid and indigent patients, there are a number of reasons why this is not a basis to approve its proposed hospital. As an initial matter, JW treads a fine line in touting its service to Medicaid and indigent patients, while also targeting Doral for its better payer mix and financial benefit to JHS. JHS also receives an enormous amount of tax dollars to provide care to indigent and underserved patients. While other hospitals in Miami-Dade County provide care to such patients, they do not receive taxpayer dollars, as does JHS, although they pay taxes, unlike JHS. Also, Medicaid is a good payer for JHS. With its substantial supplement, JHS actually makes money from Medicaid patients, and it costs the system more for a Medicaid patient to be treated at a JHS hospital than elsewhere. More significantly, there is not a large Medicaid or indigent population in Doral, nor evidence of financial access issues in Doral. Second, JW argues that its CON application should be approved because JHS already serves patients from the Doral area, which JW characterizes as “fragmented” because area residents go to several different hospitals for care. This so- called “fragmentation” is not unique to Doral, and is not unusual in a densely-populated urban market with several existing hospitals. The same phenomenon occurs in other areas of Miami-Dade County, some of which actually have a hospital in the localized area. The fact that Doral residents are accessing several different hospitals demonstrates that there are a number of existing providers that are accessible to them. As discussed in greater detail below, residents of the Doral area have choices in every direction (other than to the west, which is the Everglades). JHS itself already serves patients from the Doral area. If anything, this tells us that patients from Doral currently have access to the JHS hospitals. Third, JW argues that its CON application should be approved because development of the JW campus is under way. This is irrelevant to the determination of need, and is simply a statement of JHS’s intent to build an FSED and outpatient facilities on a piece of land that was acquired for that purpose, regardless of CON approval. Fourth, JW argues for approval of its proposed hospital because it would provide an additional opportunity to partner with UM and Florida International University (FIU). However, the statutory criteria no longer addresses research and teaching concerns, and JHS’s relationship with UM or FIU has no bearing on whether there is a need for a new hospital in the Doral area. Moreover, JW did not present any evidence of how it would partner with UM or FIU at JW, and there does not seem to be any set plans in this regard. Fifth, JW claims that there is physician and community support for its proposed hospital, but it is very common for CON applicants to obtain letters in support for applications. Indeed, the DMC application was also accompanied by letters of support. Sixth and finally, JW argues that its proposed hospital will add to the financial viability of HSA and allow it to continue its mission. However, JW provided no analysis of the projected financial performance of its proposed hospital to substantiate this. The only financial analysis in the record is from KSA, a consulting firm that JHS hired to analyze the programs and services to be developed at JW. The KSA analysis posits that the JW FSED project will lose millions of dollars and not achieve break-even unless there is an inpatient hospital co-located there so that JW can take advantage of the more lucrative hospital-based billing and reimbursement. The sixth “need” argument relates to the issue of JHS’s historical financial struggles, which bear discussion. Only a handful of years ago, the entire JHS was in dire financial trouble, so much so that selling all or parts of it was considered. Days cash-on-hand was in the single digits, and JHS fell out of compliance with bond covenants. JHS’s financial difficulties prompted the appointment of an outside monitor to oversee JHS’s finances. Price Waterhouse served in that role, and made several recommendations for JHS to improve its revenue cycle, make accounting adjustments, and improve its staffing and efficiency. As a result of these recommendations, JHS went through a large reduction in force, and began to more closely screen the income and residency of its patients. As a result of these measures, overall financial performance has since improved. Despite its improved financial position, JHS still consistently loses money on operations, including a $362,000,915 loss as of June 30, 2018. JHS clearly depends upon the hundreds of millions of non-operating tax-based revenues it receives annually. JHS’s CEO expressed concerns over decreases in the system’s non-operating revenue sources, and claimed that JHS needs to find ways to increase its operating revenue to offset this. JW is being proposed as part of this strategy. However, JHS’s chief financial officer testified that “the non-operating revenues are a fairly stable source of income.” In fact, JHS’s tax revenues have gone up in the last few years. JHS sees the more affluent Doral area as a source of better paying patients that will enhance the profitability of its new hospital. Beyond this aspiration however, there is no meaningful analysis of the anticipated financial performance of its proposed hospital. This is a glaring omission given that a significant impetus for spending millions of public dollars on a new hospital is to improve JHS’s overall financial position. The KSA analysis referenced above determined that changes to the Hospital Outpatient Prospective Payment System rule would result in the JW campus losing hundreds of millions of dollars and never reaching “break even,” absent an inpatient hospital on the campus for “hospital based” billing and reimbursement. Though a financial benefit to the system, the increased reimbursement JHS would receive by having an inpatient hospital on the JW campus would be a financial burden on the healthcare delivery system since it would cost more for the same patient to receive the same outpatient services in a hospital- based facility. Reports by KSA also state that a strategic purpose of JW is to attract patients that would otherwise go to nearby facilities like PGH and Hialeah, and to capture tertiary or higher complexity cases which would then be sent to JMH. JW’s witnesses and healthcare planning experts fully expect this to happen. In 2015, and again in 2017, JHS conducted a “Community Health Needs Assessment,” which is required by law to be performed by public safety net hospitals. The assessments were conducted by gathering responses to various questions from a wide array of community leaders and stakeholders, including the CEOs of JHS’s hospitals, about the healthcare needs of the community. The final Community Health Needs Assessment documents are lengthy and cover a variety of health-related topics, but most notable for this case is that: (1) nowhere in either the 2015 or 2017 assessment is the development of a new hospital recommended; and (2) expansion into western Miami-Dade County scored by far the lowest on a list of priorities for JHS. In its application and at hearing, JW took the position that JW can enter the Doral area market without impacting existing providers to any meaningful extent. While JW acknowledges that its proposed hospital would impact the Tenet Hospitals, it argues that the impact is not significant. The evidence established that the financial impact to the Tenet Hospitals (calculated based upon lost contribution margin) would total roughly $3 million for lost inpatients, and $5.2 million including lost outpatients. While these losses will not put the Tenet Hospitals in financial peril, they are nonetheless significant and material. The Existing Healthcare Delivery System Miami-Dade County is home to 18 freestanding acute care hospitals, comprising a total of 7,585 licensed and approved acute care beds. With an average annual occupancy of 53.8% in calendar year 2017, there were, on average, approximately 3,500 unoccupied acute care beds in the county on any given day. While the countywide occupancy rate fluctuates from year to year, it has been on a downward trend in the past several years. As pointed out by several witnesses, the lack of a hospital in Doral is not itself an indication of need. In addition, population growth, and the demands of the population for inpatient hospital beds, cannot be considered in a vacuum. Sound healthcare planning requires an analysis of existing area hospitals, including the services they offer and their respective locations; how area residents travel to existing hospitals and any barriers to access; the utilization of existing hospitals and amount of capacity they have; and other factors which may be relevant in a given case. The population of Doral currently is only about 59,000 people. It is not as densely populated as many areas of Miami-Dade County, has a number of golf course communities, and is generally a more affluent area with a higher average household income than much of Miami-Dade County. As set forth in JW’s CON application, the better payer mix in Doral was a significant factor behind its decision to file its CON application. Although there is not a hospital within the Doral city limits, there are a number of healthcare providers in Doral and several hospitals nearby. PGH and Palm Springs Hospital are just north of Doral. KRMC is just south of Doral. Hialeah is northeast of Doral. CGH, Westchester General, and NCH are southeast of Doral. JMH and all of its facilities are east of Doral. And there are others within reasonable distance. KRMC is only six miles due south of the proposed DMC site, and PGH is just eight miles north of the DMC site. As to the JW site, PGH is 6.9 miles distant, CGH is 8.6 miles distant, and Hialeah is 7.4 miles distant. Residents of the Doral area have many choices in hospitals with a wide array of services, and they are accessing them. The parties to this case, as well as other existing hospitals, all have a share of the Doral area market. JW calls this “fragmentation” of the market and casts it in a negative light, but the evidence showed this to be a normal phenomenon in an urban area like Miami, with several hospitals in healthy competition with each other. Among the experts testifying at the hearing, it was undisputed that inpatient acute care hospital use rates are on the decline. There are different reasons for this, but it was uniformly recognized that decreasing use rates for inpatient services, and a shift toward outpatient services, are ongoing trends in the market. Recognizing the need for outpatient services in the Doral area, both JW and DMC (or, more accurately, their related entities) have proposed outpatient facilities and services to be located in Doral. Kendall Regional Medical Center KRMC is currently the dominant hospital provider in the Doral area. Regarding his motivation for filing the DMC application, Mr. Joseph readily admitted “it’s as much about protecting what I already currently provide, number one.” KRMC treats Medicaid and indigent patients. KRMC has never turned away a patient because it did not have a contract with a Medicaid-managed care company. The CEO agreed that there is no access problem for Medicaid or charity patients justifying a new hospital. It was argued that KRMC is crowded, and the DMC hospital would help “decompress” KRMC, but the evidence showed that KRMC has a number of licensed beds that are not being used for inpatients. In addition, its ED has never gone on diversion, and no patient has ever been turned away due to the lack of a bed. Moreover, the census at KRMC has been declining. It had 25,324 inpatient admissions in 2015, 24,649 admissions in 2016, and 23,301 in 2017. The most recent data available at the time of hearing reflected that KRMC has been running at a little less than 75% occupancy, before its planned bed additions. KRMC is between an eight to 10 minute drive from Doral, and currently has the largest market share within the applicants’ defined service areas. KRMC is readily available and accessible to the residents of Doral. KRMC currently has a $90 million dollar expansion project under way. It involves adding beds and two new floors to the West Tower--a new fifth floor which will add 24 ICU beds and 24 step-down beds, and a new sixth floor which will house the relocated pediatric unit and 12 new medical-surgical beds. KRMC is also adding a new nine-story, 765 parking space garage and other ancillary space. This expansion will reduce the occupancy rate of KRMC’s inpatient units, and in particular its ICUs. These bed additions, in conjunction with increasing emphasis on outpatient services and the resultant declining inpatient admissions, will alleviate any historical capacity constraints KRMC may have had. There are also a number of ways KRMC could be further expanded in the future if needed. The West Tower is designed so it could accommodate a seventh floor, and the East Tower is also designed so that an additional floor could also be added to it. In addition, KRMC recently completed construction of a new OR area that is built on pillars. The new construction includes a third floor of shelled-in space that could house an additional 12 acute care beds. Moreover, this new OR tower was designed to go up an additional two to three floors beyond the existing shelled-in third floor. It is clear that KRMC has implemented reasonable strategies for addressing any bed capacity issues it may have experienced in the past. Decompression of KRMC is not a reason to approve DMC. Palmetto General Hospital Evidence regarding PGH was provided by its CEO Ana Mederos. Ms. Mederos is a registered nurse and has lived in Miami-Dade County for many years. She has a master of business education from Nova University and has worked in several different hospitals in the county. Specifically, she was the chief operating officer (COO) at Cedars Medical Center, the CEO at North Shore Medical Center, the CEO at Hialeah Hospital, and has been the CEO at PGH since August of 2006. Ms. Mederos is one of the few witnesses that actually lives in Doral. She travels in and out of the area on a daily basis. Her average commute is only about 15 minutes, and she has multiple convenient options in and out of Doral. PGH is located just off the Palmetto Expressway at 68th Street. It opened in the early 1970s and has 368 licensed beds, including 52 ICU beds. The hospital employs about 1,800 people and has over 600 physicians on its medical staff. PGH’s occupancy has declined from 79.8% in 2015 to 64% in 2016, and even further to 56.7% in 2017. There are many reasons for this decline, including pressure from managed care organizations, the continued increase in the use of outpatient procedures, improvements in technology, and increased competition in the Miami-Dade County market. Ms. Mederos expects that inpatient demand will continue to decline into the foreseeable future. PGH recently activated 31 observation beds to help improve throughput and better accommodate the increasing number of observation patients. PGH offers high-quality care and uses various metrics and indicators to measure and monitor what is going on in the hospital. The hospital has also been recognized with numerous awards. Through its parent, Tenet, PGH has contracts with just about every insurance and managed care company that serves the community. The hospital treats Medicaid and indigent patients. PGH’s Medicaid rate of $3,580 per patient is significantly lower than the rate paid to JMH. PGH has an office dedicated to helping patients get qualified for Medicaid or other financial resources, which not only helps the hospital get paid for its services, it also assists patients and families to make sure that they have benefits on an ongoing basis. Roughly 9-10% of PGH’s patients annually are completely unfunded. PGH only transfers patients if there is a need for a service not provided at the hospital, or upon the patient’s request. PGH does not transfer patients just because they cannot pay. PGH pays physicians to take calls in the ED which also obligates those physicians to provide care to patients that are seen at the hospital. PGH is a for-profit hospital that pays income taxes and property taxes, and does not receive any taxpayer subsidies like those received by JHS. Ms. Mederos reviewed the applications of JW and DMC, and articulated a number of reasons why, in her opinion, neither application should be approved. She sees no delays in providing care to anyone in the area, as there are hospitals serving Doral in every direction. There are a multitude of FSEDs available and additional FSEDs are being built in Doral by both applicants. There is another FSED being built close to PGH by Mount Sinai Medical Center. NCH has also opened an FSED that has negatively affected the volume of pediatric patients seen at PGH. There are also multiple urgent care centers. It was Ms. Mederos’ firm belief that persons living in Doral have reasonable geographic access to both inpatient and outpatient medical services. Ms. Mederos’ testimony in this regard is credited. There are no programs or services being proposed by either applicant that are not already available in the area. Ms. Mederos also noted that there is currently no problem with access to OB services in the area. However, she has a particular concern in that both applicants propose to offer OB services, but neither is proposing to offer NICU services. The evidence showed that most all of the hospitals that provide OB services to the Doral area offer at least Level II and some Level III NICU services. Thus, in terms of OB care, both proposed hospitals would be a step below what has developed as the standard of care for OB patients in the county. Ms. Mederos acknowledged that PGH does not have a huge market share in the zip codes that the applicants are proposing to serve, but that does not mean that the impact from either would not be real and significant. If a hospital is built by either applicant, it will need physicians, with some specialists in short supply. There are tremendous shortages in certain medical fields, such as orthopedics and neurology. In addition, there will be additional competition for nurses and other staff, which will increase the cost of healthcare. The loss of $1.3 to $2 million in contribution margin, as projected by Tenet’s healthcare planner, is a negative impact on PGH as hospital margins become thinner, and those numbers do not include costs like those needed to recruit and retain staff. PGH is again experiencing a nursing shortage, and losing nurses, incurring the higher cost for contract labor, paying overtime, and essentially not having the staff to provide the required services is a serious potential adverse impact from either proposed new hospital. JHS also tends to provide more lucrative benefits than PGH, and a nearby JW hospital is a threat in that regard. As a final note, Ms. Mederos stated that her conviction that there is no need for either proposed hospital in Doral is even more resolute than when she testified in the Batch One Case. With continued declines in admissions, length of stay and patient days, the development of more services for the residents of Doral, the shortages of doctors and nurses, the ever increasing role of managed care that depresses the demand for inpatient hospital services and other factors, she persuasively explained why no new hospitals are needed in the Doral area. Coral Gables Hospital (CGH) Maria Cristina Jimenez testified on behalf of CGH, where she has worked in a variety of different capacities since 1985. She was promoted to CEO in March 2017. She has lived in Miami her entire life. Ms. Jimenez has been involved in initiatives to make her hospital more efficient. She is supportive of efforts to reduce inpatient hospitalizations and length of stay, as this is what is best for patients. Overall, the hospital length of stay is dropping, which adds to the decreasing demand for inpatient services. CGH is accredited by the Joint Commission, has received multiple awards, and provides high-quality care to its patients. It also has contracts with a broad array of managed care companies as do the other Tenet hospitals. CGH treats Medicaid patients, and its total Medicaid rate is less than $3,500 per inpatient. The hospital has a program similar to PGH to help patients get qualified for Medicaid and other resources. CGH also provides services to indigent patients, and self-pay/charity is about 6% of the hospital’s total admissions. The hospital does not transfer patients just because they are indigent. Physicians are compensated to provide care in the emergency room and are expected to continue with that care if the patients are admitted to the hospital, even if they do not have financial resources. CGH also pays income and property taxes, but does not receive any taxpayer support. CGH generally serves the Little Havana, Flagami, Miami, and Coral Gables communities, and its service area overlaps with those of the applicants. In order to better serve its patients and to help it compete in the highly competitive Miami-Dade County marketplace, CGH is developing a freestanding ED at the corner of Bird Road and Southwest 87th Avenue, which is scheduled to open in January 2020. This will provide another resource for patients in the proposed service areas. Ms. Jimenez had reviewed the CON applications at issue in this case. She does not believe that either hospital should be approved because it will drain resources from CGH, not only from a financial standpoint, but also physician and nurse staffing. CGH experiences physician shortages. Urologists are in short supply, as are gastrointestinal physicians that perform certain procedures. Hematology, oncology, and endocrinology are also specialty areas with shortages. The addition of another hospital will exacerbate those shortages at CGH. While CGH does not have a large market share in the proposed PSA of either applicant, anticipated impact from approval of either is real and substantial. A contribution margin loss of $1.2 to $2.2 million per year, as projected by Tenet’s healthcare planner, would be significant. The drain on resources, including staff and physicians, is also of significant concern. Hialeah Hospital Dr. Jorge Perez testified on behalf of Hialeah. Dr. Perez is a pathologist and medical director of laboratory at the hospital. More significantly, Dr. Perez has been on the hospital’s staff since 2001 and has served in multiple leadership roles, including chair of the Performance Improvement Council, chief of staff; and since 2015, chair of the Hialeah Hospital Governing Board. Hialeah offers obstetrics services and a Level II NICU with 12 beds. Approximately 1,400 babies a year are born there. Hialeah’s occupancy has been essentially flat for the past three years, at below 40%, and it clearly has ample excess capacity. On an average day, over 200 of Hialeah’s beds are unoccupied. Like other hospitals in the county, Hialeah has a number of competitors. The growth of managed care has affected the demand for inpatient beds and services at Hialeah. Hialeah treats Medicaid and indigent patients. Approximately 15% of Hialeah’s admissions are unfunded. As with its sister Tenet hospitals, Hialeah is a for- profit hospital that pays taxes and does not receive tax dollars for providing care to the indigent. Dr. Perez succinctly and persuasively identified a variety of reasons why no new hospital is needed in Doral. First and foremost, there is plenty of capacity at the existing hospitals in the area, including Hialeah. Second, both inpatient admissions and length of stay continue trending downward. Care continues to shift toward outpatient services, thereby reducing the demand for inpatient care. According to Dr. Perez, if a new hospital is approved in Doral it will bring with it adverse impacts on existing hospitals, including Hialeah. A new hospital in Doral will attract patients, some of which would have otherwise gone to Hialeah. Moreover, Doral has more insured patients, meaning the patients that would be lost would be good payors. There would also be a significant risk of loss of staff to a new hospital. Dr. Perez’s testimony in this regard is credible. Statutory and Rule Review Criteria In 2008, the Florida Legislature streamlined the review criteria applicable for evaluating new hospital applications. Mem’l Healthcare Grp. v. AHCA, Case No. 12- 0429CON, RO at 32 (Fla. DOAH Dec. 7, 2012). The criteria specifically eliminated included quality of care, availability of resources, financial feasibility, and the costs and methods of proposed construction. Lee Mem’l Health System v. AHCA, Case No. 13-2508CON, RO at 135 (Fla. DOAH Mar. 28, 2014). The remaining criteria applicable to new hospital projects are set forth at section 408.035(1), Florida Statutes. Section 408.035(1)(a): The need for the healthcare facilities and health services being proposed. Generally, CON applicants are responsible for demonstrating need for new acute care hospitals, typically in the context of a numeric need methodology adopted by AHCA. However, AHCA has not promulgated a numeric need methodology to calculate need for new hospital facilities. Florida Administrative Code Rule 59C-1.008(2)(e) provides that if no agency need methodology exists, 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. Both applicants propose to build small community hospitals providing basic acute care and OB services in the Doral area of western Miami-Dade County. Both applicants point to the increasing population and the lack of an acute care hospital in Doral as evidence of need for a hospital. The DMC application focuses largely on geographic access concerns, while the JW application is premised upon six arguments as to why JHS contends its proposed JW hospital should be approved. The lack of a hospital in Doral is not itself an indication of need.3/ In addition, population growth, and the demands of the population for inpatient hospital beds, cannot be considered in a vacuum. Sound healthcare planning requires an analysis of existing area hospitals, including the services they offer and their respective locations; how area residents travel to existing hospitals, and any barriers to access; the utilization of existing hospitals and amount of capacity they have; and other factors which may be relevant in a given case. Doral is in the west/northwest part of Miami-Dade County, in between the Miami International Airport (to the east) and the Everglades (to the west). It is surrounded by major roadways, with US Highway 27/Okeechobee Road running diagonally to the north, US Highway 836/Dolphin Expressway running along its southern edge, US Highway 826/Palmetto Expressway running north-south to the east, and the Florida Turnpike running north- south along the western edge of Doral. To the west of the Turnpike is the Everglades, where there is minimal population and very limited development possible in the future. The City of Doral itself has an area of about 15 square miles, and is only two or three times the size of the Miami International Airport, which sits just east of Doral. Much of Doral is commercial and industrial, with the largest concentration of residential areas being in the northwest part of the city. While there is unquestionably residential growth in Doral, the population of Doral is currently only about 59,000 people. Doral is not as densely populated as many areas of Miami-Dade County, has a number of golf course communities, and is generally a more affluent area with a higher average household income than much of Miami-Dade County. JW proposes to locate its hospital on the eastern side of Doral, just west of Miami International Airport, while the DMC site is on the western side of Doral, just east of the Everglades. JW’s site is located in an industrial area with few residents, while the DMC site is located in an area where future growth is likely to be limited. Both sites have downsides for development of a hospital, with both applicants spending considerable time at hearing pointing out the flaws of each other’s chosen location. Both applicants define their service areas to include the City of Doral, but also areas outside of Doral. Notably, the entire DMC service area is contained within KRMC’s existing service area, with the exception of one small area. While the population of Doral itself is only 59,000 people, there are more concentrated populations in areas outside of Doral (except to the west). However, the people in these areas are closer to existing hospitals like PGH, Hialeah, KRMC, and others. For the population inside Doral, there are several major roadways in and out of Doral, and area residents can access several existing hospitals with plenty of capacity within a 20-minute drive time, many closer than that. It was undisputed that inpatient acute care hospital use rates continue to decline. There are different reasons for this, but it was uniformly recognized that decreasing inpatient use rates, and a shift toward outpatient services, are ongoing trends in the market. These trends existed at the time of the Batch One Case. As observed by Tenet’s healthcare planner at hearing: “The occupancy is lower today than it was two years ago, the use rates are lower, and the actual utilization is lower.” Both applicants failed to establish a compelling case of need. While there is growth in the Doral area, it remains a relatively small population, and there was no evidence of community needs being unmet. Sound healthcare planning, and the statutory criteria, require consideration of existing hospitals, their availability, accessibility, and extent of utilization. These considerations weigh heavily against approval of either CON application, even more so than in the prior case. Section 408.035(1)(b): The availability, accessibility, and extent of utilization of existing healthcare facilities and health services in the service district of the applicant; and Section 408.035(1)(e): The extent to which the proposed services will enhance access to healthcare for residents of the service district. As stated above, there are several existing hospitals in close proximity to Doral. Thus, the question is whether they are accessible and have capacity to serve the needs of patients from the Doral area. The evidence overwhelmingly answers these questions in the affirmative. Geographic access was a focal point of the DMC application, which argued that there are various barriers to access in and around Doral, such as a canal that runs parallel to US Highway 27/Okeechobee Road, train tracks and a rail yard, industrial plants, and the airport. While the presence of these things is undeniable, as is the fact that there is traffic in Miami, based upon the evidence presented, they do not present the barriers that DMC alleges. Rather, the evidence was undisputed that numerous hospitals are accessible within 20 minutes of the proposed hospital sites, and some within 10 to 15 minutes. All of Doral is within 30 minutes of multiple hospitals. These are reasonable travel times and are not indicative of a geographic access problem, regardless of any alleged “barriers.” In addition, existing hospitals clearly have the capacity to serve the Doral community, and they are doing so. Without question, there is excess capacity in the Miami-Dade County market. With approximately 7,500 hospital beds in the county running at an average occupancy just over 50%, there are around 3,500 beds available at any given time. Focusing on the hospitals closest to Doral (those accessible within 20 minutes), there are hundreds of beds that are available and accessible from the proposed service areas of the applicants. KRMC is particularly noteworthy because of its proximity to, and market share in, the Doral area. The most recent utilization and occupancy data for KRMC indicate that it has, on average, 100 vacant beds. This is more than the entire 80-bed hospital proposed in the DMC application (for a service area that is already served and subsumed by KRMC). Moreover, KRMC is expanding, and will soon have even more capacity at its location less than a 10-minute drive from the DMC site. From a programmatic standpoint, neither applicant is proposing any programs or services that are not already available at numerous existing hospitals, and, in fact, both would offer fewer programs and services than other area hospitals. As such, patients in need of tertiary or specialized services will still have to travel to other hospitals like PGH, KRMC, or JMH. Alternatively, if they present to a small hospital in Doral in need of specialized services, they will then have to be transferred to an appropriate hospital that can treat them. The same would be true for babies born at either DMC or JW in need of a NICU. Similarly, there are bypass protocols for EMS to take cardiac, stroke, and trauma patients to the closest hospital equipped to treat them, even if it means bypassing other hospitals not so equipped, like JW and DMC. Less acute patients can be transported to the closest ED. And since both applicants are building FSEDs in Doral, there will be ample access to emergency services for residents of Doral. This criterion does not weigh in favor of approval of either hospital. To the contrary, the evidence overwhelmingly established that existing hospitals are available and accessible to Doral area residents. Section 408.035(1)(e), (g) and (i): The extent to which the proposed services will enhance access to healthcare, the extent to which the proposal will foster competition that promotes quality and cost-effectiveness, and the applicant’s past and proposed provision of healthcare services to Medicaid patients and the medically indigent. It goes without saying that any new hospital is going to enhance access to the people closest to its location; but as explained above, there is no evidence of an access problem, or any pressing need for enhanced access to acute care hospital services. Rather, the evidence showed that Doral area residents are within very reasonable travel times to existing hospitals, most of which have far more extensive programs and services than either applicant is proposing to offer. Indeed, the proposed DMC service area is contained within KRMC’s existing service area, and KRMC is only 10 minutes from the DMC site. Neither applicant would enhance access to tertiary or specialized services, and patients in need of those services will still have to travel to other hospitals, or worse, be transferred after presenting to a Doral hospital with more limited programs and services. Although it was not shown to be an issue, access to emergency services is going to be enhanced by the FSEDs being built by both applicants. Thus, to the extent that a new hospital would enhance access, it would be only for non-emergent patients in need of basic, non-tertiary level care. Existing hospitals are available and easily accessible to these patients. In addition, healthy competition exists between several existing providers serving the Doral area market. That healthy competition would be substantially eroded by approval of the DMC application, as HCA would likely capture a dominant share of the market. While approval of the JW application might not create a dominant market share for one provider, it would certainly not promote cost-effectiveness given the fact that it costs the system more for the same patient to receive services at a JHS hospital than other facilities. Indeed, approval of JW’s application would mean that the JW campus will have the more expensive hospital-based billing rates. Florida Medicaid diagnosis related group (DRG) payment comparisons among hospitals are relevant because both DMC and JW propose that at least 22% of their patients will be Medicaid patients. Data from the 2017-18 DRG calculator provided by the Medicaid program office was used to compare JHS to the three Tenet hospitals, KRMC, and Aventura Hospital, another EFD hospital in Miami-Dade County. The data shows that JHS receives the highest Medicaid rate enhancement per discharge for the same Medicaid patients ($2,820.06) among these six hospitals in the county. KRMC receives a modest enhancement of $147.27. Comparison of Medicaid Managed Care Reimbursement over the period of fiscal years 2014-2016 show that JHS receives substantially more Medicaid reimbursement per adjusted patient day than any of the hospitals in this proceeding, with the other hospitals receiving between one-third and one-half of JHS reimbursement. In contrast, among all of these hospitals, KRMC had the lowest rate for each of the three years covered by the data, which means KRMC (and by extension DMC) would cost the Medicaid program substantially less money for care of Medicaid patients. Under the new prospective payment system instituted by the State of Florida for Medicaid reimbursement of acute care hospital providers, for service between July 1, 2018, and March 31, 2019, JHS is the beneficiary of an automatic rate enhancement of more than $8 million. In contrast, KRMC’s rate enhancement is only between $16,000 and $17,000. Thus, it will cost the Medicaid program substantially more to treat a patient using the same services at JW than at DMC. Furthermore, rather than enhance the financial viability of the JHS system, the evidence indicates that the JW proposal will be a financial drain on the JHS system. Finally, JHS’s past and proposed provision of care to Medicaid and indigent patients is noteworthy, but not a reason to approve its proposed hospital. JW is proposing this hospital to penetrate a more affluent market, not an indigent or underserved area, and it proposes to provide Medicaid and indigent care at a level that is consistent with the existing hospitals. JHS also receives the highest Low Income Pool (LIP) payments per charity care of any system in the state, and is one of only a handful of hospital systems that made money after receipt of the LIP payments. HCA-affiliated hospitals, by comparison, incur the second greatest cost in the state for charity care taking LIP payments into consideration. Analysis of standardized net revenues per adjusted admission (NRAA) among Miami-Dade County acute care hospitals, a group of 16 hospitals, shows JHS to be either the second or the third highest hospital in terms of NRAA. KRMC, in contrast, part of the EFD/HCA hospitals, is about 3% below the average of the 16 hospitals for NRAA. DMC’s analysis of standardized NRAA using data from 2014, 2015, and 2016, among acute care hospitals receiving local government tax revenues, shows JHS receives more net revenue than any of the other hospitals in this grouping. Using data from FY 2014 to FY 2016, DMC compared hospital costs among the four existing providers that are parties to this proceeding and JMH as a representative of JHS. Standardizing for case mix, fiscal year end, and location, an analysis of costs per adjusted admission shows that the hospitals other than JMH have an average cost of between a half and a third of JMH’s average cost. The same type of analysis of costs among a peer group of eight statutory teaching hospitals shows JHS’s costs to be the highest. It should also be noted that if JW were to fail or experience significant losses from operations, the taxpayers of Miami-Dade County will be at risk. In contrast, if DMC were to fail financially, EFD/HCA will shoulder the losses. When the two applications are evaluated in the context of the above criteria, the greater weight of the evidence does not mitigate in favor of approval of either. However, should AHCA decide to approve one of the applicants in its final order, preference should be given to DMC because of its lower costs per admission for all categories of payors, and in particular, the lower cost to the Florida Medicaid Program. In addition, the risk of financial failure would fall upon EFD/HCA, rather than the taxpayers of Miami-Dade County. Rule 59C-1.008(2)(e): Need considerations. Many of the considerations enumerated in rule 59C- 1.008(2)(e) overlap with the statutory criteria, but there are certain notable trends and market conditions that warrant mention. Specifically, while the population of Doral is growing, it remains relatively small, and does not itself justify a new hospital. And while there are some more densely populated areas outside of the city of Doral, they are much closer to existing hospitals having robust services and excess capacity. Doral is a more affluent area, and there was no evidence of any financial or cultural access issues supporting approval of either CON application. The availability, utilization, and quality of existing hospitals are clearly not issues, as there are several existing hospitals with plenty of capacity accessible to Doral area residents. In terms of medical treatment trends, it was undisputed that use rates for inpatient hospital services continue trending downward, and that trend is expected to continue. Concomitantly, there is a marked shift toward outpatient services in Miami-Dade County and elsewhere. Finally, both applicants are proposing to provide OB services without a NICU, which is below the standard in the market. While not required for the provision of obstetrics, NICU backup is clearly the most desirable and best practice. For the foregoing reasons, the considerations in rule 59C-1.008(2)(e) do not weigh in favor of approval of either hospital.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Healthcare Administration enter a final order denying East Florida-DMC, Inc.’s CON Application No. 10432 and denying The Public Health Trust of Miami-Dade County, Florida, d/b/a Jackson Hospital West’s CON Application No. 10433. DONE AND ENTERED this 30th day of April, 2019, in Tallahassee, Leon County, Florida. S W. DAVID WATKINS 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 30th day of April, 2019.
The Issue Whether the Agency for Health Care Administration should approve the application of Kindred Hospitals East, LLC, for a Certificate of Need to establish a 60-bed, long- term care hospital ("LTCH") to be located in Brevard County, one of four counties in AHCA District 7.
Findings Of Fact The Parties Kindred Hospitals East, LLC, ("Kindred" or the "Applicant") is a subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 84 LTCHs nationwide, including eight in the State of Florida. Twenty-four of Kindred Healthcare's LTCHs are operated by Kindred Hospitals East, LLC, including the eight in Florida. The Agency is the state agency responsible for the administration of the Certificate of Need program in Florida. See § 408.034(1), Fla. Stat., et seq. Pre-hearing Stipulation The Joint Pre-hearing Stipulation between Kindred Hospitals East, LLC, and Agency for Health Care Administration, filed May 25, 2006, contains the following: E. STATEMENT OF FACTS WHICH AREADMITTED AND WILL REQUIRE NO PROOF The CON application filed by Kindred complies with the application content and review process requirements of Sections 408.037 and 408.039, Florida Statutes (2005), and Rule 59C- 1.008, Florida Administrative Code, and the Agency's review of the application complied with the review process requirements of the above-referenced Statutes and Rule. With respect to compliance with Section 408.035(3), Florida Statutes (2005), it is agreed that Kindred has the ability to provide a quality program based on the descriptions of the program in its CON application and based on the operational facilities of the applicant and/or of the applicant's parent facilities which are JCAHO certified. With respect to compliance with Section 408.035(4), Florida Statutes (2005), it is agreed that Kindred has the ability to provide the necessary resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. With respect to compliance with Section 408.035(6), Florida Statutes (2005)it is agreed that the project is likely to be financially feasible. The parties agree there are no disputed issues with respect to Kindred's compliance with Section 408.035(8), Florida Statutes (2005), which relates to an applicant's proposed costs and methods of proposed construction for the type of project proposed. The parties agree there are no disputed issues with respect to Kindred's compliance with Section 408.035(9), Florida Statutes (2005), which relates to an applicant's proposed provision of health care services to Medicaid patients and the medically indigent. Section 408.035(10), Florida Statutes (2005), relating to nursing home beds, is not at issue with respect to the review of Kindred's CON application. With respect to compliance with Rule 59C-1.008(1)(a)-(c), Florida Administrative Code, it is agreed that Kindred complied with the letter of intent requirements contained therein. 9. Rules 59C-1.008(1)(d), (e), (h), (i), and (j) are not at issue with respect to the review of Kindred's CON applications. With respect to compliance with Rule 59C-1.008(1)(f), Florida Administrative Code, it is agreed that Kindred complied with the applicable certificate of need application submission requirements contained therein. The need assessment methodology is governed by Rule 59C-1.008(2)(e)2.a.- d., Florida Administrative Code. With respect to Rule 59C-1.008(2), Florida Administrative Code, except as to Rule 59C-1.008(2)(e)2.a-d and (2)(e)3, Florida Administrative Code, it is agreed that this provision is not applicable to this proceeding, as the Agency did not at the time of the review cycle at issue, and currently does not, calculate a fixed need pool for LTCH beds. With respect to compliance with Rule 59C-1.008(3), Florida Administrative Code, it is agreed that Kindred submitted the required filing fees. With respect to compliance with Rule 59C-1.008(4)(a)-(e), Florida Administrative Code, it is agreed that Kindred complied with the certificate of need application requirements contained therein. Rule 59C-1.008(5), Florida Administrative Code, relating to identifiable portions of a project, is not at issue with respect to the review of Kindred's CON applications. In light of the stipulation, the issues remaining generally concern: the need for Kindred's proposed facility (including the reasonableness of Kindred's need methodology and whether its need assessment conforms to AHCA rules), the accessibility of existing LTCH facilities, and the extent to which the proposal will foster competition that fosters cost-effectiveness and quality. Long-Term Care Services The length of stay in the typical acute care hospital (a "short-term hospital" or a "STACH") for most patients is four to five days. Some hospital patients, however, are in need of acute care services on a long-term basis, that is, much longer than the average lengths of stay for most patients in an short-term hospital. Patients appropriate for LTCH services represent a small but discrete sub-set of all inpatients. They are differentiated from other hospital patients. Typically, they have multiple co-morbidities that require concurrent treatment. Patients appropriate for LTCH services tend to be elderly and frail, unless they are victims of severe trauma. All LTCH patients are generally medically complex and frequently catastrophically ill. Generally, Medicare patients admitted to LTCHs have been transferred from short-term hospitals. At the LTCH, they receive a range of services, including cardiac monitoring, ventilator support, and wound care. Existing LTCHs in District 7 At the time of the CON application there were 12 LTCHs operating in Florida with a total licensed bed capacity of 805 beds. There is one existing LTCH within District 7. Another is approved and under construction. Select Specialty Hospital-Orlando, Inc. ("Select-Orlando") contains 35 beds; it was licensed in 2003. The occupancy rate for this facility for CY 2005 was 73.57 percent. Select-Orlando's history shows few discharges to Brevard County. The majority of its discharges are to Orange, Seminole, and Osceola Counties. Most of the balance are to Volusia, Lake, and Polk Counties. A second LTCH, Select Specialty-Orange, Inc., has been approved and is under construction. It will contain 40 beds. The total licensed capacity of these two LTCHs will be 75 beds. Both of the facilities are located in Orange County and are located in or near Orlando within a few miles of each other. The acuity levels of the patients in the existing LTCH are not known. There are no LTCHs in Brevard County where Kindred proposes to build and operate a new LTCH should its application be approved. Kindred's Proposal Kindred's proposal in Brevard County, AHCA District 7, is for a freestanding 60-bed LTCH, with all private rooms, including an 8-bed intensive care unit (ICU). The proposed LTCH will follow a care model template that is similar to Kindred's other LTCHs. It will be a freestanding, licensed, certified and accredited acute-care hospital with an independent self-governed medical staff under the same model as a short-term acute hospital. The majority of patients in an LTCH typically arrive after discharge from a short-term acute care hospital, most often ending their STACH stay in an ICU. Not surprisingly, Kindred projects that its proposed LTCH will receive the bulk of its referrals from STACHs in the surrounding area. Kindred's LTCH patients will be discharged to either their homes, home health care, or to another post-acute provider on the basis of patient needs, family preference, and geography. There are several levels of care provided within an LTCH such as Kindred's proposed facility. Typically, LTCHs accept stable medical patients but with catastrophically ill patients some are bound to become medically unstable. There are eight ICU beds for the medically unstable patient. Thus, Kindred's patients who undergo changes of condition (such as becoming medically unstable) can be cared for without a transfer, unlike in skilled nursing facilities or comprehensive medical rehabilitation hospitals facilities not suited for the medically unstable patient. The goal of an LTCH is to take acute care hospital patients and provide them with a higher level of medical rehabilitation than they would receive in an STACH, and rehabilitate them so that they can be transferred home, or to a rehab hospital, or to a nursing facility. The "medical rehabilitation" of an LTCH addresses system failures and dependence on machines. This is different from the rehabilitation that takes place in an inpatient or outpatient rehab center, where patients usually have suffered an injury or trauma to a muscular or bone system, and their care is based on physical medicine rather than internal medicine. The Orlando Metropolitan Area and Brevard County In evaluating markets that may need an LTCH, Kindred looks at established metropolitan areas the boundaries of which are determined on the basis of population concentrations and commuting data. District 7 contains most of the metropolitan area associated with the city of Orlando (the "Orlando Metropolitan Area"). Like District 7, the Orlando Metropolitan Area has a presence in four counties. But the counties are different. The Orlando Metropolitan Area encompasses all or part of Orange, Osceola, Seminole, (shared with AHCA District 7) and a county that is not in District 7: Lake County. In addition to the three counties it shares with the Orlando Metropolitan Area, District 7 includes Brevard County. At hearing, Mr. Wurdock explained the following about the Orlando Metropolitan Area: When we talk about the Orlando area, we are not just talking about Orange County. Orange County, Osceola County, and Seminole County are all part of the Orlando metro area. That means they're an integrated economic unit based on commuting patterns. Lake County is also part of [the Orlando metropolitan area.] . . . [W]hen we looked at . . . Orange, Osceola and Seminole and ran an analysis . . ., we found . . . there was a need for approximately 180 more beds beyond the . . . 35 that currently existed. So even after you take out the 40 under construction, there is still a really huge need [in the Orlando metropolitan area.] Tr. 56-57. That Brevard County is not part of the Orlando Metropolitan Area is a consideration in this case. Kindred's evaluation also showed two other factors about Brevard County that distinguish it from the Orlando Metropolitan Area. First, it does not have adequate access to long-term care hospitals. Second, it's population with a significant number of seniors and a high number of discharges from STACHs makes it one of the few markets of its size that does not have at least one LTCH. As Mr. Wurdock continued at hearing: Brevard County has a population of more than a million people and it's got more than 100,000 seniors and they have six short term hospitals that produce more than 60,000 discharges a year. . . . [T]here are very few markets of that size in this country that do not have at least one long term hospital . . . Tr. 57. These two factors led Kindred to pursue the application that is the subject of this proceeding. Kindred's decision to pursue a CON for an LTCH in District 7 also stemmed from the interest of Brevard County physicians who had referred patients to Kindred facilities in Fort Lauderdale and Green Cove Springs in Duval County, a government unit consolidated with the city of Jacksonville. This interest was also supported by evidence that showed a predominate north/south referral pattern along the I-95 corridor. Patients in Brevard County STACHs appropriate for LTCH services are referred to facilities in Duval County (north) and Fort Lauderdale (south), but generally not to the lone District 7 LTCH in Orlando. The number of short-term acute hospitals in an area affects the decision of whether to locate a facility in a particular market. The presence of STACHs in a market is significant because the vast majority of an LTCH's patients are transfers from STACHs. The growing senior population (persons aged 65 and over) in Brevard County was also a factor; the elderly population is a large constituent of an LTCH's patient base. Dr. Richard Baney, who practices with Melbourne Internal Medicine Associates, the largest physician- practice group in Brevard County, holds privileges at Holmes Regional Medical Center, and is familiar with the various health care facilities of all types in Brevard County, including hospitals, inpatient rehabilitation hospitals, and nursing homes. Dr. Baney anticipates serving as either an attending or consulting physician if the Kindred facility in Brevard is approved, as do several of the other physicians in his group, including some "intensivists" such as pulmonologists, critical-care physicians, and cardiologists. Dr. Baney's physician group consists of 45 primary care physicians, including internists, family practitioners and pediatricians. The group also includes OB/GYNs, neurologists, medical sub-specialists such as cardiologists, pulmonologists, endocrinologists, hematologists, and oncologists. Among the oncologists are radiological oncologists. There are general surgeons in the group, surgery sub-specialists, including vascular surgeons, and ENT (ear, nose, and throat) physicians. Dr. Baney summed up his opinion on the need for an LTCH in Brevard County as follows: In our area we have excellent acute- care hospitals, and we have a good network located throughout the area of subacute rehab facilities, as well as nursing homes, and then home care, and then eventually a patient is home. What we don't have in this area is a long-term acute-care facility that would handle the more significantly ill patients who need more intensive medical and nursing and physical therapy support. Right now those patients that would normally benefit from this type of facility have to dwell in the hospital for . . . weeks and weeks at a time until they achieve a point of stability where they can be moved into a subacute rehab. What this does in turn is clog up the hospital beds, ICU beds in particular, and every year we have at our large acute-care hospitals here at Holmes patients who are being quartered in the . . . auditorium at the hospital, in the hallways of the emergency room, since the hospital gets just overwhelmed with patients and cannot move them out. Certainly I believe a facility in this area would have no trouble being able to fill that need of taking many of these patients who need this kind of care out of the [STACH] into a better, more efficient setting. Also, we don't have any place that's nearby that patients and their families can go for this kind of care. . . . [I]t's really not logistically feasible for patients and their families to go 80, 90 miles away or further to . . . have their care for this type of duration. Kindred No. 7, Deposition of Richard Baney, Jr., M.D., at 10-11. When asked about the difficulty presented by the distance to the LTCHs in Fort Lauderdale and Duval County, Dr. Baney answered with regard to one of his patients that administratively there a few if any problems. The problem is for the family: But the family was very hesitant to allow their father to be transported . . . 150, 180 miles away and be there for weeks or months while they were recovering. They were quite resistant to the idea of him so far away, since the family would have to travel back and forth. Eventually they overcame that and the patient did go . . . to the facility down south. * * * But it was quite a hurdle that we had to get over. Id., p. 16, 17. Aside from the logistical problems faced by the families whose loved one is a potential patient at an LTCH at great distance from home, Dr. Baney's testimony accentuates another factor faced by potential LTCH patient in Brevard County. This is a factor favoring approval of an LTCH application recently recognized by AHCA when it approved Select-Orange, a second LTCH in the Orlando Metropolitan Area dominated by two large hospital organizations. Similar to the Orlando area, Brevard County STACHs, for the most part, belong to one of two hospital organizations predominate in the area. Brevard County's Two Main Hospital Organizations There are two main hospital organizations in Brevard County: the Health First system and the Wuesthoff system. Health First includes Holmes Regional Medical Center; Palm Bay Community Hospital, which is about 90 beds; and Cape Canaveral Hospital, which is also about 90 beds, in the central part of the county. Palm Bay is a large community about 15 miles south of Melbourne. Cape Canaveral is about 20 miles from Melbourne, and Rockledge is about 15 miles from Melbourne. The Wuesthoff system consists of Wuesthoff Rockledge and Wuesthoff Melbourne. Wuesthoff Rockledge is a 267-bed acute care facility with 32 ICU beds, 8 cardiac surgery beds, and an active emergency room that sees about 1,500 visits a month. Wuesthoff Melbourne is a 115-bed facility with a 12-bed ICU and an active ER of around 800 visits a month. Wuesthoff currently refers LTCH patients- primarily long-term ventilator patients-to Kindred's facilities in Fort Lauderdale and near Jacksonville. When Wuesthoff refers a patient to Kindred, it calls Kindred's intake coordinator who journeys to Wuesthoff to review the patient's records, meet with the family, and determine if the patient can be placed. Only if a physician from the LTCH signs an admission order concurring that the patient is clinically appropriate for admission to an LTCH is the patient transferred. Often, however, because the Kindred facilities are so far away, just as Dr. Baney pointed out, the families do not want to move the patient out of Wuesthoff. This resistance continues despite increased education about the benefit of LTCHs to potential LTCH patients. LTCH Education When an LTCH comes into a market, an education process begins. It begins with the physicians, and with the case managers and social workers in the STACH. Kindred educates these professionals about what an LTCH is, what its services are, and where it fits into the continuum of care. Kindred's Admission and Patient Evaluation Processes Kindred does not admit every patient that falls within the diagnoses that might produce LTCH-appropriate patients. Patients are pre-assessed before admission using what is nationally known as Interqual criteria for hospital admissions. That set of criteria is based on severity of the patient's illness and the intensity of services required to treat the patient, and then a review committee at the LTCH makes a clinical determination whether or not the patient is appropriate for LTCH services. The sole way that a patient gets referred to a Kindred Hospital is through a physician order. Before a patient comes to a Kindred Hospital, a physician has determined that to the best of his or her judgment the patient requires continued care at the level of an acute care hospital and that the patient's course of treatment will be prolonged. A physician from a Kindred Hospital must write the admission order, concurring that it is appropriate for that patient to be in an LTCH. Prior to obtaining that physician order, potential candidates for transfer are identified through the STACH case management staff, with the assistance of the LTCH staff. The STACH medical staff, nurses, or other personnel initiate the request for Kindred to visit the patient, interview the family, talk with the STACH attending physician, and make a determination of whether transfer and care at Kindred is clinically appropriate. Kindred gathers information on a potential patient to assist in making the admission determination using individuals in the field known as "clinical liaisons," who are primarily licensed registered nurses. The clinical liaison gathers the information, but does not make the ultimate determination as to whether to admit the patient to a Kindred facility. The ultimate determination for admission is made by the physician who will be seeing the patient at the Kindred facility. In order to comply with Medicare reimbursement requirements, Kindred employs such safeguards to make sure only appropriate patients are admitted. Medicare reviews the patients treated into the hospital, and it can and does reduce payment for "short stay outliers" who do not stay at least five-sixths of the geometric mean of the length of stay (GMLOS) for the patient's diagnosis. Mathematically, however, LTCHs will always have some patients who are short stay outliers. Even if GMLOSs rise as result of the elimination of short stay patients, between 35 and 40 percent of patients will always be "short stay outliers" under CMS's current definition. They will just be hospitalized for a stay that is short relative to a longer length of stay. Kindred LTCHs utilize criteria that assure that patients, once admitted, have sufficient severity of illness and need sufficient intensity of service to continue to warrant acute care. Case managers in LTCHs apply discharge screens to patients as they near completion of their LTCH care plan to help physicians make a judgment of when they are ready to be transferred either home or to a lower level of post-acute care. Kindred's CON application included a utilization review plan, using an example from Kindred Hospital North Florida. Every hospital has a utilization review plan designed to assure that appropriate care is given to patients. It serves an oversight function for medical care, nursing care, medication administration, and any other area where resources are expended on behalf of the patient. A PPS for LTCHs Effective October 1, 2002, the federal Centers for Medicare and Medicaid Services (CMS) established a prospective payment system for LTCHs. Through this system, CMS recognizes the patient population of LTCHs as separate and distinct from the populations treated by providers of short-term acute care or other post short-term acute care providers. Under the system, each patient is assigned an LTCH DRG, indicating that the patient's diagnosis is within a certain Diagnostic Related Group. The LTCH is reimbursed the pre-determined payment rate for that DRG, regardless of the cost of care. The creation of separate DRGs for LTCH patients is the mark of the federal government's recognition of the validity of LTCH services and the distinct place occupied by LTCHs in the continuum of care based on the high level of LTCH patient acuity. Despite this recognition, concerns about the identification of patients that are appropriate for LTCH services have been voiced both at the federal level and at the state level. With the rise in LTCH applications over the last several years, AHCA has been consistent in voicing those concerns, particularly when it comes to LTCH population levels of acuity. Acuity The Agency is not convinced that there is not significant overlap between the LTCH patient population and the population of patients served appropriately in healthcare settings other than LTCHs. The Agency has reached the conclusion that there are options (other than an LTCH in Brevard County) available to patients targeted by Kindred. The options depend on such matters as physician preference and the availability of long-term care hospitals in a given geographic area. Kindred answers the concerns, in part, with evidence that relates to acuity. A "case mix index" for the hospital is a measure of its average resource consumption. Resource consumption can be viewed as a surrogate measure of complexity and severity of illness, so case mix index is often cited as a readily available measure of patient acuity. Using that indicator, the case mix index of Kindred hospitals is high compared to the entire LTCH industry, and is higher than the average case mix index for STACHs. The APR/DRG system is a way to further refine the variation of patients' acuity within a DRG. The system assigns not only a DRG, but a severity of illness on a scale of one (minor severity) to four (extreme severity). Using that tool with the Kindred data base (as well as the federal MedPAR data base) confirms that the distribution of severe and extreme severity of illness is skewed toward LTCH patients, meaning that there are more patients with higher severity of illnesses in LTCHs than in STACHs. As is to be expected, and one would hope if LTCHs are appropriately serving their niche in the continuum of care, this is consistent with the empirical observation that patients in LTCHs, are more sick than those in STACHs. A third measure of patient acuity routinely used in Kindred hospitals is an APACHE score, which is a combination of physiologic derangement and concurrent illnesses. The average Kindred patient has an APACHE score of about 45, whereas the average critical care patient in all STACHs has a score about two-and-a-half points higher. Thus, Kindred's LTCHs treat a severely ill population only a few points, on the APACHE measure, below that of critical care units in STACHs across the country. The Agency does not, by rule or order, define the level of acuity at which LTCH patients should be for admission. Information on acuity level of patients in STACHs is not available through the State's health statistics data base, nor is any information that would allow an LTCH applicant to undertake an acuity analysis of potential patients. AHCA acknowledges that it has no reason to believe that Kindred admits lower-acuity patients with the least need for resources among those in LTCH- appropriate DRGs. Family Hardship In those markets that do not have LTCHs, STACH patients typically have no choice of treatment but to stay in the STACHs, unless they are willing to travel long distances. As Dr. Baney pointed out in his deposition testimony, many patients who could benefit from an LTCH are not inclined to travel long distances. One reason is that the patients' families are not able to commute that distance. If the patient is going to be in an LTCH for weeks or months, it creates a hardship on the family to have their loved one that far away. The family either loses contact with their loved one or they actually have to relocate to where the loved one is and abandon their home temporarily. The need for family presence and involvement is more than just an emotional matter of patient and family preference. Families are involved in the treatment of a patient in a long-term care hospital, not only through their presence in the hospital but also because they will participate in patient care after the patient leaves the LTCH. Families have to learn how to get the patients out of bed, feed them, and possibly suction them. The families would be taught how to care for their family members once they leave the LTCH, by nursing and therapy staff, teaching them exercises for the patient, how to regulate the oxygen, and giving medications. Differences between LTCHs and Other Providers LTCHs and STACHs do not have the same purpose, and the gap is widening between the two. Over the last 20 years, STACHs have evolved into settings that are very good at stabilizing patients, diagnosing their conditions, and developing treatment plans. Most admissions to the medical ward of an STACH come in through the emergency room where patients are so acute, so unstable, that emergency care is required to stabilize the patient. In their role as diagnostic centers, STACHs provide imaging and laboratory services, and then develop a treatment plan based on the diagnostic work-up performed. STACHs have moved away from the function of carrying out a treatment plan. This is borne out by shrinking STACH lengths of stay over the last 20 years, which now average four to six days. As a result, STACHs have limited capability to provide a prolonged treatment plan for patients with multiple co-morbidities. In contrast, LTCHs do not hold themselves out to be diagnostic or stabilization centers. They have developed expertise in caring for the small subset of patients that require a prolonged treatment plan. A multi-disciplinary physician- based care plan is provided in LTCHs that is not provided in STACHs or other post-acute settings. LTCH patients meet hospital level criteria, and if there is no LTCH readily accessible to provide a hospital-level discharge option for these patients, then the STACH has no option but to keep them, and manage their treatment and costs as best they can. LTCHs take care of those patients who need to be in a hospital, but for whom reimbursement is not adequate for STACHs to treat. The reimbursement system is driving this to a great extent, because of the incentives it gives to discharge patients as quickly as possible. Not every STACH patient needs LTCH care; as a rule of thumb, about one percent of all non-obstetric patients are potentially LTCH-appropriate. Ms. Woods, Vice President for Wuesthoff Health System which operates STACHs in Brevard County, testified in deposition that Wuesthoff's ICUs in Wuesthoff hospitals often retain patients who could be placed in an LTCH. As the Wuesthoff ICUs remain full, the ability to move patients through the hospital, from the emergency department through the ICU, is significantly impacted. While long-term care hospitals take a team approach to getting patients weaned from ventilators or getting them to a rehab involvement, an acute care hospital ICU deals more with acute crisis situations, such as an acute MI (myocardial infarction) or an acute blood clot to the lungs, or someone who has acute sepsis or infection. The roles that LTCHs play have a significant impact on acute care hospitals such as Wuesthoff. If an acute care hospital has to maintain a patient for 30 to 60 days on a ventilator in order to get them weaned or to meet their needs, that poses the potential to interfere with the acute care hospital from meeting the needs of the community, such as patients who are coming in the emergency room with acute conditions. Most of the stays in Wuesthoff's ICU beds, for example, are five to seven days; they are trauma patients, surgery patients that need support and critical care, and patients coming in with major infections. When ICU beds are unavailable, these patients are being held in the emergency departments; it stops the patient flow if the beds in a community hospital are taken up from a long-term ventilator patient. SNFs and LTCHs are different both in intent and execution. SNFs are appropriate for patients whose primary needs are nursing, who are stable and unlikely to change, and who do not require very much medical intervention. Conversely, LTCHs, being licensed and accredited as acute care hospitals, are appropriate when daily medical intervention is required. LTCHs are able to respond to changes in conditions and changes in care plans much better than SNFs because LTCHs have access to diagnostics, laboratory, radiology, and pharmacy services. Further, there are no skilled nursing facilities in Brevard County that operate beds for ventilator dependent patients, nor are there hospital-based skilled nursing units ("HBSNUs"). Using Kindred's own nursing data base, which consists of 250 SNFs across the country, and Kindred's LTCH data base, consisting of 75 LTCHs, Kindred has discovered that that overlap in patient condition is very small. Where there is overlap, it tends to be at the ends of care in LTCHs and the beginning of care in SNFs. This progression makes sense, since SNFs are a common discharge destination for LTCH patients. LTCHs and rehab hospitals are also distinctly different. Rehab hospitals are geared for people with primarily neurologic or musculoskeletal orthopedic issues, and are driven with a care model based on physical medicine rather than internal medicine; LTCH care requires the oversight of an internist rather than a physical medicine doctor. While rehab is a concurrent component of LTCH care, the patient in an LTCH cannot tolerate the three hours per day of therapy required for admission to rehab hospitals due to their medical conditions. In fact, a common continuum of care is for an LTCH patient to receive treatment and improve to the point where they can tolerate three hours of rehab and so be transferred to a rehab hospital. There is one acute rehab center in Brevard County, and it does not take ventilator-dependent patients. There are no hospital based skilled nursing units in Brevard County. There are no skilled nursing facilities in Brevard County that can accommodate ventilator-independent patients. Often ventilator-dependent patients also have IV antibiotics and tube feedings, and these are complicated conditions that a nursing home will not treat. LTCH care cannot be provided through home health care, because, by definition, LTCH patients meet criteria for inpatient hospitalization. Home health care is designed for patients who are very stable and have such a limited medical need that it can be administrated by a visiting nurse or by families. This is in sharp contrast to an LTCH patient where many hours a day of nursing, respiratory, and other therapies are required under the direct care of a physician. On the basis of regulation alone, STACHs could provide LTCH care. They generally do not do so because they have evolved into centers of stabilization, diagnosis, and initiating a treatment plan. Case studies bear out that when patients who made very little progress in STACHs are transferred to LTCHs, where the multidisciplinary approach takes over from the diagnostic focus, the patients improve in both medical and physical well-being. Those patients that would normally benefit from an LTCH have to dwell in the hospital for weeks until they achieve a point of stability where they can be moved in to a subacute facility; instead of continuing to move efficiently down the continuum they remain in the "upper end of the stream." This, in turn, may overwhelm the short-term acute care hospital, particularly in its ICU, resulting in patients being quartered in the auditorium at the hospital and in the hallways of the emergency room. The LTCHs available along the east coast of Florida in Fort Lauderdale or Jacksonville are at a distance from Brevard County that is an obstacle to referral of a Brevard County patient. Having a long-term care hospital in Brevard County would enhance the continuum of services available to Brevard County residents. On the other end of the referral process from Dr. Baney is Rita DeArmond, the clinical liaison for Kindred Hospital Fort Lauderdale. Her duties include, "patient evaluations on potential admissions to [Kindred Fort Lauderdale], which also involves meeting with families and educating the families, . . . case managers, . . . physicians and other people in the community about our hospital and long-term acute care hospitals in general." Kindred No. 8, at 5. She serves "Palm Beach County, the area around Lake Okeechobee [Okeechobee and Hendry Counties], Martin County, . . ., St. Lucie County, Indian River County and Brevard County." Id. at 11. In Ms. DeArmond's experience in dealing with potential long-term care hospital patients and their families not in the immediate vicinity of an LTCH, the willingness of those patients to travel great distances is the biggest hurdle for the patients admission to an LTCH. Most of the patients and their spouses are elderly, and they do not tend to travel long distances, or on the interstate. Being faced with traveling hundreds of miles round-trip to visit a loved one is very distressing to most of them. Not only would potential Brevard County LTCH patients be more likely to avail themselves of LTCH services if there were an LTCH in Brevard County but so would patients in other counties. For example, according to Ms. DeArmond, Lawnwood Regional Medical Center in Fort Pierce, a St. Lucie County STACH, and Sebastian River Medical Center, an STACH in Indian River County, would definitely send potential LTCH patients to an LTCH in Brevard County rather than the current closest LTCH, Kindred Fort Lauderdale. Having an LTCH would be a positive impact for other Brevard County STACHs as well. For example, Wuesthoff would not experience the backup in its emergency department and in its ICU beds, especially in the winter time where there is a high census due to more cases of pneumonia in the winter. If a patient who might be clinically appropriate for an LTCH remains in the ICU in an acute care hospital such as Wuesthoff, that patient does not receive the same care that he or she would receive at an LTCH. Acute care hospitals do not provide the medical rehabilitation work that LTCH's do, such as a plan of care just for the rehab of ventilator patients. An acute care hospital can deal with the pneumonia, and can wean the patient, but does not have the same plans or care or the same focus that an LTCH does with those types of patients. If the patient does not go to an LTCH, they will stay in the acute care hospital using the hospital resources. Wuesthoff has had patients there up to 65 days. The hospitals and physicians visited by Kindred- Fort Lauderdale clinical liaison Ms. DeArmond on a regular basis are located in Brevard County in District 7, as well as Indian River and St. Lucie counties. The hospitals within Brevard County that she contacts include Holmes Regional and Wuesthoff Melbourne Hospital; within Indian River County, Indian River Memorial Hospital in Vero Beach and Sebastian River Medical Center, and within St. Lucie County, St. Lucie Medical Center in Port St. Lucie and Lawnwood Hospital in Fort Pierce. In gathering letters of support that were submitted with Kindred's CON application for a long-term care hospital in Brevard County, Ms. DeArmond met with case managers and physicians and informed them of Kindred's intention to apply for a CON to build a hospital in Brevard County. The physicians and case managers who provided letters of support had previously referred patients to Kindred Hospital in Fort Lauderdale, so they were familiar with the services that Kindred can offer in an LTCH. It is reasonable to assume that such physicians and case managers would refer patients to a Kindred LTCH in Brevard County, if approved. MedPAC Concerns In denying Kindred's application, AHCA relied on reports issued to Congress annually by the Medicare Payment Advisory Committee (MedPAC) that discuss the placement of Medicare patients in appropriate post-acute settings. The June 2004 MedPAC report state the following about LTCHs: Using qualitative and quantitative methods, we find that LTCHs' role is to provide post-acute care to a small number of medically complex patients. We also find that the supply of LTCHs is a strong predictor of their use and that acute hospitals and skilled nursing facilities are the principal alternatives to LTCHs. We find that, in general, LTCH patients cost Medicare more than similar patients using alternative settings but that if LTCH care is targeted to patients of the highest severity, the cost is comparable. AHCA Ex. 7, at 121. The June 2004 MedPAC report, therefore, concludes that LTCHs should "be defined by facility and patient criteria that ensure that patients admitted to these facilities are medically complex and have a good chance of improvement." Id. Despite the above language in the June 2004 MedPAC report, discussion in the SAAR of portions of the MedPAC report shows that AHCA may have misread some of the subtleties of the MedPAC findings. The MedPAC report makes statements that LTCHs and SNFs substitute for one another. While there is some gross administrative data to support that hypothesis, that conclusion cannot yet be drawn due to limitations in data and the wide variation of patient conditions that may be represented by a single administrative grouping such as a DRG. An example of patients in different settings who would appear to be similar are those under DRG-475, which means they were on ventilator life support for at least 96 hours. Such patients may be discharged in conditions that vary greatly. These conditions range from an "alert, talking patient, no longer on life support," to a patient who is "not on life support but is making no progress." There is no administrative data that describes patients at the time of their discharge. MedPAC analysis, therefore, lacks the data to determine why some of those patients went to a higher versus a lower level of care. The SAAR also concludes, based on a letter from the MedPAC Chairman, that LTCH patients cost more on average than patients in other settings. This conclusion is based on an analysis that is unable to differentiate patients within a DRG based on their severity at the time of discharge. The limitation in the DRG is that it is designed to describe the patient's need at the time of admission rather than discharge, so the DRG classification alone does not identify whether the patient was healthy or ill at the time of discharge. Furthermore, MedPAC found that patients who tended to be more severe based on DRG assignment tended to be cared for at similar cost between LTCHs and other settings. In fact, for the tracheostomy patient, which is the extreme of severity and complexity, there was evidence of lower cost of care for patients whose case included an LTCH stay. MedPAC Chairman Glenn Hackbaith, in his March 20, 2006 letter, agreed that CMS's proposed change to the short stay outlier policy was "too severe"; that it affects a "substantial percentage of LTCH patients"; and that it would continue to affect a large percentage of admissions "regardless of the admission policies of LTCHs." MedPAC's March 2006 Report to Congress notes that the total Medicare payments to LTCHs nationwide -- $3.3 billion in 2004 -- represented less than one percent of all Medicare spending. Need Analysis in the Absence of an AHCA Need Methodology The Agency does not have a rule that sets out a formula for determining the need for LTCH beds. Accordingly, AHCA does not publish a fixed need pool for LTCH beds. As the parties agree, this case is governed, therefore, by Florida Administrative Code Rule 59C- 1.008(2)(e)2.a-d (the "Needs Assessment Rule"). Application of the Needs Assessment Rule makes Kindred responsible for demonstrating need through a needs assessment methodology that covers specific criteria listed by the rule as detailed below, following the sections of this Order devoted to Kindred's Need Methodology and AHCA's criticisms of it. Kindred's Need Methodology Kindred bases its need methodology (the "Kindred Methodology") in this case on long-stay patients in short- term hospitals. A description of the Kindred Methodology, supported and proved by the testimony of Mr. Wurdock at hearing, appears in Kindred's CON application under a section entitled "Bed Need Analysis," see Exhibit K-1, at 14. It begins with the statement: "Long-term care hospital bed need can be estimated directly based on the acute care discharges and days occurring in the market." Id. There follows a chart that lists the six Brevard County STACHs and shows the number of patient discharges in the six months ending March 2004 and the patient days for the same period. These total 68,710 and 309,704, respectively. To identify the number of patient days appropriate for LTCH care, the Kindred Methodology takes into account patient diagnosis at discharge, patient age and length of stay. Some types of patients (burn patients, obstetric and pediatric patients or behavioral patients) are not appropriate for LTCH admission. Likewise, patients with short-term rehabilitation diagnoses typically are not appropriate for LTCH care. The first step in the Kindred Methodology, therefore, is to identify and omit those diagnoses which represent patients not appropriate for long-term care admission. Those include all DRGs in the Major Diagnostic Categories (MDC) of 13-Female Reproductive System; 14-Pregnancy, Childbirth and Puerperium; 15- Newborns and Other Neonates; 19-Mental Diseases and Disorders; 20-Alcohol and Substance Abuse; 22-Burns; and 23-Factors Influencing Health Status. Two additional groups of DRGs are omitted by the Kindred Methodology: DRGs specific to patients less than 18 years of age and DRGs for organ transplant patients who are usually required to remain in the STACH for specialized care. The end result of the first step in the Kindred Methodology is a list of 387 short-term acute care DRGs ("LTCH Referral DRGs") that represent patients who potentially could be eligible for LTCH admission. The Kindred Methodology's second step is to identify discharges that are assigned to one of the LTCH Referral DRGs and are aged 18 or older and whose length of stay exceeds a threshold number of days. This threshold is described in the application as follows: The length of stay threshold is defined in terms of the national geometric mean length of stay (GeoMean). That statistic is calculated annually by the federal Centers for Medicare and Medicaid Services (CMS) for each DRG. The number of long-term hospital patients and patient days is affected by the timing of the referrals. Referrals usually occur after the patient's length of stay has become longer than average. It is commonly accepted that many patients who stay in the acute care hospital beyond the geometric mean length of stay would be best cared for in a specialized, long- term environment. Therefore, in this analysis it is assumed that referral to Kindred Hospital Brevard will occur five days after a patient has passed their DRG-specific geometric mean length of stay. This allows time for patient assessment and transfer arrangements. Another important factor affecting the potential number of long-term hospital patients and patient days is the length of time a patient stays in the LTCH. In order to qualify for Medicare certification, long-term care hospitals must maintain a minimum average length of stay of twenty-five days or greater among their Medicare patients. Admission criteria, therefore, are used to minimize the number of Medicare patients requiring just a few days of care. To reflect this in the analysis, patients are considered to be LTCH appropriate only if they would have a long-term hospital length of stay of ten days or more. Exhibit K-1, at 16. Discharged patients, therefore are considered appropriate for LTCH care by the Kindred Methodology if they are discharged from a Brevard County STACH, are at least 18 years of age, are assigned to one of the 387 Referral DRGs, and have a hospital length of stay that exceeds the geometric mean by at least 15 days, the sum of a referral period of five days and an LTCH minimum length of stay of ten days. The third step in the Kindred Methodology is to sum the potential LTCH days produced by the appropriate patients. For these patients, potential LTCH days include all days after the "'transfer day' (i.e., all days that exceed the GeoMean + five days)." Id. For the 12-month period ending March 2004, this calculation yielded approximately 18,400 hospital days in the six Brevard County hospitals, for an average daily census (ADC) of 50.4. The fourth step in the Kindred Methodology is to identify the number of patient days that are leaving Brevard County for LTCH care, due to the absence of an LTCH in the county. During the 12-month period ending in March 2004, 41 Brevard County residents were discharged from Kindred Hospital North Florida in Green Cove Springs and Kindred Hospital Fort Lauderdale. Those patients received 2,229 days of LTCH care, equaling an average daily census of 6.1. Adding that to the 50.4 ADC un-served patients in Brevard County, yields a potential LTCH ADC of 56.5. The fifth step is to account for population growth. This is especially important when there is rapid growth in senior population as there is in Brevard County. According to AHCA projections, the population 65 and over will increase 9.2 percent during the next five years, while the total population will increase 10.8 percent. It is appropriate to increase LTCH ADC at least by 9.2 percent during this time period, since the proposed project will not open until 2007 at the earliest, and will not achieve full utilization until at least 2011. This step produces an LTCH ADC of 61.7. The sixth and final step is to calculate LTCH "bed need" by assuming 85 percent occupancy. Dividing the LTCH ADC of 61.7 by 0.85 yields a bed need of 72 LTCH beds. The Kindred Methodology does not account for the five percent or more of referrals that come from sources other than LTCHs such as nursing homes. Nor does it take into account the admissions from Indian River County currently served by Kindred Hospital Fort Lauderdale, some of which are sure to come to the proposed project if approved. AHCA Criticism The methodology is criticized by AHCA on the bases, among others, that it does not account for beds available elsewhere in District 7, and that it determines need solely within Brevard County, a departure from the statutory mandate which requires Agency review of CON applications with regard to "availability, quality of care, accessibility, and extent of utilization of existing health care facilities in the service district of the applicant." § 408.035(2), Fla. Stat. (emphasis supplied). The Agency's argument with regard to the un- utilized beds at the one existing LTCH in District 7, Select-Orlando, is undermined by recent action of the agency in approving a second Select facility in Orange County, a 40-bed freestanding facility: Select Specialty Hospital-Orange, Inc. ("Select-Orange"). The Agency approved the 40-bed Select-Orange facility, not open at the time of hearing, by way of a Settlement Agreement (the "Select-Orange Settlement Agreement") with the applicant. The two parties to the agreement, AHCA and Select-Orange, jointly stated in that document: [T]he Agency, in recognizing that there are two distinct health systems in the Orlando area, believes that this LTCH is needed for the Orlando Regional Healthcare System due to that unique situation . . . Kindred Ex. 4, at 2. The two distinct health systems in the Orlando area are Orlando Regional Healthcare System, Inc., which has a number of STACHs in the Orlando area including Orlando Regional Medical Center (ORMC), a tertiary medical facility with more than 500 beds, and the Adventist Health System, Inc. (Adventist), a hospital organization with a nationwide presence that as of 2002 operated seven acute care campus systems under a single license held by Adventist d/b/a Florida Hospital in the Orlando Metropolitan Area. See Orlando Regional Healthcare System, Inc. vs. AHCA, Case No. 02-0449 (DOAH November 18, 2002), pp. 8-10. The Select-Orange Settlement Agreement was entered in the midst of administrative litigation over AHCA's preliminary agency action with regard to a CON application. The meaning and impact of AHCA's statement quoted above from the Select-Orange Settlement Agreement were not fully elaborated upon at hearing by any direct evidence. Kindred established through the testimony of Mr. Wurdock and through cross-examination of Ms. Rivera that although Select-Orange was originally approved as a "hospital-in- hospital" or "HIH," that Select-Orange obtained a modification of its CON to become a freestanding facility. Had the facility remained an HIH, federal regulations would have limited the percentage of Medicare referrals that could come from its host hospital, ORMC. As a freestanding facility, Select-Orange has no such limitations. It can fill its beds with referrals from ORMC. Whatever the impact of the freestanding nature of Select-Orange, the Agency's recognition of the unique situation in the Orlando area created by two distinct health systems, such that there is support for a new LTCH when the existing LTCH has available beds, gives rise in this case to an inference in Kindred's favor. If two distinct hospital systems in the Orlando area can support the addition of 40 LTCH beds, then it is highly likely that Brevard County can support a 60-bed LTCH. The county is not a part of the Orlando Metropolitan Area. LTCH referral patterns are north-south along the I-95 corridor (not to Select-Orlando). There are geographic and roadway access issues from Brevard County to the Orlando area demonstrated by commuting patterns that exclude Brevard County from the Orlando Metropolitan Area. And most significantly, the methodology reasonably established need for more than 60 beds in Brevard County. The Needs Assessment Rule The need for any health care service or program regulated by CON Law for which AHCA has not provided a specific need methodology by rule is governed by Florida Administrative Code Rule 59C-1.008(2)(e)(the "Need Assessment Rule"), which states in part: . . . If an agency need methodology does not exist for the proposed project: . . . If an agency need methodology does not exist for the proposed project: The Agency will provide to the applicant, if one exists, any policy upon which to determine need for the proposed beds or service. The applicant is not precluded from using other methodologies to compare and contrast with the agency policy. If no agency policy exist, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except when 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; Market conditions; and Competition. The Agency does not publish a fixed need pool for LTCH beds because it does not have a specific need formula or methodology for LTCH beds. The Agency, furthermore, has not provided Kindred with any policy upon which to determine need in this case. Accordingly, Kindred used its own methodology for determining need in Brevard County and elsewhere in the district (the Orlando Metropolitan Area). Finally, since no agency policy exists with regard to an LTCH need methodology, Kindred is required to prove the existence of need for its proposed project on the basis of the five categories of criteria (referred to in the rule as "topics") listed in sub-paragraphs "a. through e.," of paragraph 2., in subsection (2)(e) of the Rule. Population Demographics and Dynamics In assessing an area's population and demographics for the purpose of evaluating LTCH need, special attention is paid to the elderly population because the majority of LTCH patients are Medicare patients. The elderly are also more likely to produce LTCH patients because they are more likely to be medically complex and catastrophically ill with co-morbidities and dependent on medical equipment like ventilators. Brevard County, while home to only an approximate one-quarter of District 7's population, accounts for more than a third of its seniors. While Brevard County's elderly population is experiencing average or slightly below average growth in relation to the rest of the state, there is no question that Brevard County's elderly population is on the increase and reasonably projected to increase in the future. Availability, Utilization, and Quality of Like Services in the District "[B]y definition, putting a long term hospital in Brevard County will increase accessibility [make LTCH services more available] because . . . the people in Brevard County will no longer have to go all the way to Orlando, or Jacksonville, or Ft. Lauderdale for [LTCH] care." Tr. 48. Mr. Wurdock elaborated on the point of district availability at hearing: We did look at the entire district. . . . [T]here [are] only four counties in the district, three of which orbit around the Orlando and then there is the Palm Bay/Melbourne metropolitan area, which is Brevard. And when we looked at the district as a whole, what we discovered was that there is a need really for two new long term hospitals in the district. There is clearly a need for another one in Orlando [beyond the existing Select- Orlando and the approved not yet operating Select-Orange] and there is also a need for one in Brevard County. . . . [You] could build . . . two new long term care hospitals, both of them in Orlando, but that doesn't . . . make . . . sense when you've got a very large concentration of seniors significantly removed from the Orlando area with six short term hospitals in . . . [Brevard C]ounty comprising essentially its own market. So logically, you . . . put one long term hospital in Brevard and then another long term hospital in Orlando. Tr. 48-49. The presence of six STACHs in Brevard County and the large senior population is significant. The closest LTCH is Select-Orlando more than an hour's drive away. The distance to Select-Orlando and Select-Orange's future site from the municipality in which Kindred proposes to site its proposed LTCH, Melbourne, is more than 60 miles, in a direction not favored by Brevard County residents oriented to driving north or south along the I-95 corridor, but not to the west into the Orlando Metropolitan Area. Furthermore, and most significantly, family members rarely fully understand and accept that their catastrophically ill elderly loved one should be shipped 60 miles away when the patient is in a hospital with a good reputation. Their resistance to a referral at such a distance is unlikely to increase utilization at the Orlando area LTCHs no matter how convinced are their physicians and other clinical practitioners that such a move is required for better care. Medical Treatment Trends LTCHs are recognized as a legitimate part of the health care continuum by the federal government and CON approvals of LTCHs in Florida have been on the upswing throughout this decade. At the federal level, in recognition of their treatment of a small but important subset of patients, Medicare has adopted LTCH DRGs, that is, DRGs specific to LTCHs, for reimbursement under Medicare's PPS. At the state level, the Agency recognizes that "[t]he trend is for LTCHs to be increasingly used to meet the needs of patients in other settings who for a variety of reasons are better served in LTCHs." Respondent Agency for Health Care Administration's Proposed Recommended Order, at 15. This recognition is made by AHCA despite MedPAC's concerns, many of which were tempered and adequately addressed by Kindred in this proceeding. Market Conditions At first blush, market conditions might not seem to favor Kindred's application. The occupancy rate in the District indicates that there are available beds. In AHCA's view, the occupancy rate at the one existing LTCH in District 7, the 35-bed Select-Orlando facility, an H-I-H in a converted nursing home at Florida Hospital Orlando, is not optimal. Select-Orlando opened in 2003, only a few years ago, and it is operating at a high occupancy rate that is approaching optimal. Kindred, moreover, did not confine its need case to its Brevard County methodology. It also presented evidence of need in the Orlando Metropolitan Area consisting, in part, of the three other counties in District 7. Competition While the Agency asserts that it did not give competition much weight in this application, AHCA has not taken the position that Kindred's proposed facility would not foster competition. Having an LTCH in Brevard County would foster competition in the traditional sense in that the only LTCHs in the District, one existing and one approved, are those of Select Medical Corporation, Kindred's chief competitor. A Reasonable Methodology for Brevard County In short, Kindred's methodology is reasonable for determining need in Brevard County and it appropriately includes the topics required by the Needs Assessment Rule. The Agency's argument that there is no need for LTCH beds in Brevard County when there are LTCH beds available elsewhere in the district is defeated by its approval of the Select-Orange facility. Whether Kindred's methodology in this case carries the day for Kindred, given the Agency's approach on a district-wide basis to the need for LTCHs, is addressed in the section of this Order devoted to conclusions of law.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is recommended that the Agency for Health Care Administration issue CON No. 9835 to Kindred Hospitals East, LLC, for a 60-bed, long-term acute care hospital in AHCA Health Planning Service District 7, to be located in Brevard County. DONE AND ENTERED this 29th day of November, 2006, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 29th day of November, 2006. COPIES FURNISHED: Alan Levine, Secretary Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3116 Tallahassee, Florida 32308 Christa Calamas, General Counsel Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3116 Tallahassee, Florida 32308 Richard Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive Tallahassee, Florida 32308 M. Christopher Bryant, Esquire Oertel, Fernandez, Cole & Bryant, P.A. 301 South Bronough Street Tallahassee, Florida 32302 Sandra E. Allen, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive Tallahassee, Florida 32308
The Issue At issue in this proceeding is whether Respondent’s denial of Petitioner’s Level II appeal should be upheld or whether the inpatient residential mental health services provided to R.H. by McLean Hospital’s 3 East Dialectical Behavior Therapy (“DBT”) program from September 9, 2015, through September 22, 2015, and again from October 15, 2015, through December 11, 2015, were “medically necessary” and therefore covered under the terms of the State Employees’ PPO Group Health Insurance Plan.
Findings Of Fact DSGI is the state agency responsible for administration of the state group insurance program, pursuant to section 110.123, Florida Statutes. Petitioner, A.H., is a State of Florida employee and was insured through the State Employees’ PPO Group Health Insurance Plan (the “Plan”). R.H., the child of A.H., was eligible for coverage under A.H.’s health insurance policy as of September 1, 2015. Pursuant to contract, Florida Blue acts as DSGI’s third-party medical claims administrator for employee health insurance benefits. New Directions is Florida Blue’s subcontractor and third-party administrator for mental health and substance abuse reviews and authorizations. “Utilization management” is the process of reviewing a service claim to determine whether the service is a covered benefit under the Plan and whether the service is “medically necessary” as that term is defined in the Plan. In cases involving mental health or substance abuse services, the service must also satisfy the more detailed and specific coverage guidelines, titled “Medical Necessity Criteria,” established by New Directions.1/ Consistent with general practice in the field, the “medical necessity” criteria of the New Directions document observe the following levels of care, in increasing order of intensity: psychiatric outpatient; psychiatric intensive outpatient; psychiatric partial hospitalization; psychiatric residential; and psychiatric acute residential. In the interests of conserving medical resources and preserving patient liberty, safety, and dignity, every effort is made to place patients in the least intensive level of care consistent with effective treatment of their presenting condition. R.H., a female who was 15 years old during the period relevant to this proceeding, has been diagnosed with borderline personality disorder and has a history of eating disorders. Her treating psychologist in Florida, Nicolle Arbelaez Lopez, noted that R.H. was also being treated for generalized anxiety disorder. R.H. had an inpatient admission to the Renfrew Center in Florida for eating disorder treatment in May 2015. R.H. transitioned to partial hospitalization over the summer, followed by a step down to the Renfrew Center's intensive outpatient program, then by a step up back to partial hospitalization when her eating disorder behaviors worsened. Though less intensive than a full residential admission, intensive outpatient treatment and partial hospitalization allow patients to receive comparatively intensive treatment while remaining in their home environment.2/ R.H.’s final discharge from the Renfrew Center was on August 21, 2015. At the time she was admitted to McLean Hospital’s 3 East DBT program, R.H. had a recent history of engaging in superficial cutting of her arm. On August 30, 2015, R.H. intentionally hit herself in the hand with a hammer. R.H.’s mother took her to the emergency room for treatment and told the treating personnel that R.H. had fallen down some stairs. The hammer blow caused swelling and bruising but no broken bones. R.H. was also continuing to purge and restrict her food intake. R.H.’s treating psychiatrist, Dr. Thania V. Quesdada, and her psychologist, Ms. Lopez, both urged that she be admitted to one of three nationally-recognized immersion DBT programs. Her family chose the program at McLean Hospital. DBT is a cognitive behavioral treatment that was originally developed to treat chronically suicidal individuals diagnosed with borderline personality disorder, though it is now employed for treatment of other conditions, including eating disorders. DBT teaches behavioral coping skills such as mindfulness, distress tolerance, interpersonal effectiveness, and emotional regulation. At the hearing, DSGI did not dispute the general efficacy of DBT treatment. However, DSGI did dispute whether R.H.’s presentation merited “immersion” DBT, i.e., a residential inpatient admission. McLean Hospital’s 3 East DBT program is self-pay and requires a minimum stay of 28 days. The program does not accept insurance and does not assist patients with insurance reimbursement efforts. Because of its stance on insurance, the 3 East DBT program is obviously not an in-network provider under the Plan. Prior to admission, Petitioner was aware that the 3 East DBT program did not accept insurance. R.H. was in residential treatment at McLean Hospital from September 9, 2015, through September 22, 2015. While at McLean Hospital, R.H. engaged in restricting and purging behaviors that led to medical instability. She was discharged to Cambridge Eating Disorder Center on September 23, 2015. She remained at the Cambridge Center until October 15, 2015. R.H.’s stay at the Cambridge Center was pre-certified by New Directions and is not at issue in this proceeding. On October 15, 2015, R.H. returned to McLean Hospital, again as a residential inpatient admission. She remained at McLean Hospital until her discharge on December 11, 2015. The total billed amount for R.H.’s two stays at McLean Hospital was $96,950, which was paid by the family out-of- pocket. Section 3-5 of the Plan sets forth the following under the heading “Mental Health and Substance Dependency Services”: “Physician office visits, Intensive Outpatient Treatment, Inpatient and Partial Hospitalization and Residential Treatment Services are covered based on medical necessity.” The general definition of “Medically Necessary” is set forth at section 15-4 of the Plan: [s]ervices required to identify or treat the Illness, injury, Condition, or Mental and Nervous Disorder a Doctor has diagnosed or reasonably suspects. The service must be: consistent with the symptom, diagnosis and treatment of the patient’s Condition; in accordance with standards of good medical practice; required for reasons other than convenience of the patient or the Doctor; approved by the appropriate medical body or board for the illness or injury in question; and at the most appropriate level of medical supply, service, or care that can be safely provided. The fact that a service, prescription drug, or supply is prescribed by a Doctor does not necessarily mean that the service is Medically Necessary. Florida Blue, CVS/Caremark, and DSGI determine whether a service, prescription drug, or supply is Medically Necessary. New Directions’ Medical Necessity Criteria guidelines provided the following admission criteria for psychiatric residential admissions: Must meet all of the following: A DSM diagnosis is the primary focus of active, daily treatment. There is a reasonable expectation of reduction in behaviors/symptoms with treatment at this level of care. The treatment is not primarily social, custodial, interpersonal, or respite care. The member has documented symptoms and/or behaviors that are a significant deterioration from baseline functioning and create a significant functional impairment in at least three (3) of the following areas: primary support social/interpersonal occupational/educational health/medical compliance ability to maintain safety for either self or others Must have one of the following: The member’s family members and/or support system demonstrate behaviors that are likely to undermine goals of treatment, such that treatment at a lower level of care is unlikely to be successful. This lack must be situational in nature and amenable to change as a result of the treatment process and resources identified during a residential confinement. The member has a documented history of an inability to be managed at an intensive lower level of care. There is a recent (in the last six months) history of multiple brief acute inpatient stays without a successful transition to a lower level of care, and at risk of admission to inpatient acute care. New Directions’ Medical Necessity Criteria guidelines provided the following admission criteria for eating disorder residential admissions: Must meet 1-4 and either 5, 6, or 7 A DSM diagnosis found in the Feeding and Eating Disorder section is the primary focus of active, daily treatment. There is a reasonable expectation of reduction in behaviors/symptoms with treatment at this level of care. The treatment is not primarily social, custodial, interpersonal, or respite care. The member has documented symptoms and/or behaviors that are a significant deterioration from baseline functioning and create a significant functional impairment in at least three (3) of the following areas: primary support social/interpersonal occupational/educational health/medical compliance ability to maintain safety for either self or others Must have one of the following: The member’s family members and/or support system demonstrate behaviors that are likely to undermine goals of treatment, such that treatment at a lower level of care is unlikely to be successful. This lack must be situational in nature and amenable to change as a result of the treatment process and resources identified during a residential confinement. The member has a documented history of an inability to be managed at an intensive lower level of care. There is a recent (in the last six months) history of multiple brief acute inpatient stays without a successful transition to a lower level of care, and at risk of admission to inpatient acute care. There are active biomedical complications that require 24-hour care, including, but not limited to: Adults Children/Adolescents Pulse <40 <50 Blood Pressure <90/60 <80/50 Orthostatic changes in BP Systolic: >20 point drop Systolic: > 20 point drop (Supine to standing) Diastolic: > 10 point drop Diastolic: > 10 point drop Potassium < 3 meq/l Hypokalemia Body temperature < 97 F Abnormal core temperature Electrolytes/ serum chemistry Significant deviation from normal Significant deviation from normal Must have either a. or b.: A low body weight that can reasonably lead to instability in the absence of intervention as evidenced by one of the following: Less than 85% of IBW or a BMI less than 16.5. Greater than 10% decrease in body weight within the last 30 days. In children and adolescents, greater than 10% decrease in body weight during a rapid growth cycle. Persistence or worsening of eating disorder behavior despite recent (with [sic] the last three months), appropriate therapeutic intervention in a structured eating disorder treatment setting. If PHP or IOP is contraindicated, documentation of the rationale supporting the contraindication is required. One of the following must be present: Compensatory behaviors (binging, purging, laxative abuse, excessive exercise, etc.) have caused significant physiological complications. Compensatory behaviors occur multiple times daily and have failed to respond to treatment at a lower level of care and acute physiologic imbalance can reasonably be expected. New Directions’ contact notes for this case indicate that it was called by someone named “Rachelle” on behalf of A.H.’s family on September 3, 2015. This person asked about the authorization process for McLean Hospital. No witness was presented who had direct knowledge of the contents of this conversation. The note indicates that “Rachelle” was advised that any authorization process must be initiated with New Directions by McLean Hospital. On September 9, 2015, the day R.H. was admitted to McLean Hospital, Florida Blue received what its notes reference as a “critical inquiry” message regarding this admission. A Florida Blue employee phoned the number attached to the message but discovered it was not for A.H. but for “someone at AllState Insurance who is out of the office.” (This person turned out to be Pearl Harrison, R.H.’s grandmother and qualified representative in this proceeding, who had not yet obtained a release to receive confidential medical information concerning R.H.). No number for A.H. could be found. Florida Blue contacted New Directions, which confirmed that no request for pre-authorization3/ had been received from McLean Hospital or the member. R.H.’s stays at McLean Hospital were not emergency admissions. The term “medical emergency” was not specifically defined in the 2015 Plan, but expert testimony at the hearing established that it is a term of common meaning and usage in the medical community. An emergency situation is one in which there is an immediate risk of death, serious bodily harm, or creation of an irreversible condition. If care is not administered immediately, the person will harm herself or someone else. Michael Shaw, the utilization management team leader for New Directions, explained that emergency care is not provided at the residential level of care, but in an inpatient setting under lock and key. The medical records indicated that R.H.’s last incident of self-harming behavior occurred about a week prior to her admission to McLean Hospital. Her injuries were superficial and she was in no immediate danger or risk of irreversible damage. Section 7-1 of the Plan provides for hospital admissions, including the following pertinent language as to non-emergency admissions to non-network hospitals and pre- certification for stays at non-network hospitals: Non-Network Hospital: Non-emergency Admission Every non-emergency admission to a non- network Hospital must be pre-certified. This means that before services are provided Florida Blue must certify the Hospital admission and provide the number of days for which certification is given. Precertification of non-network Hospital stays is your responsibility, even if the Doctor admitting you or your dependent to the Hospital is a Network Provider. Failure to obtain pre-certification will result in penalties (higher out-of-pocket costs). For more information on penalties, see “If You Do Not Pre-Certify Your Stay” within this section below. To pre-certify your stay in a non-network Hospital, ask your Doctor to call Florida Blue at (800) 955-5692 before your Hospital admission and provide the reason for hospitalization, the proposed treatment or surgery, testing, and the number of Hospital days anticipated. Florida Blue will review your Doctor’s request for admission certification and immediately notify your Doctor or the Hospital if your admission has been certified and the number of days for which certification has been given. If the admission is not certified, your Doctor may submit additional information for a second review. If your Hospital stay is certified and you need to stay longer than the number of days for which certification was given, your Doctor must call Florida Blue to request certification for the additional days. Your Doctor should make this call as soon as possible. * * * If You Do Not Pre-Certify Your Stay: Non- Network Hospital Benefits for covered services will be reduced by 25 percent of the covered charges, not to exceed a maximum benefit reduction of $500 IF you are admitted to a participating Hospital (Payment for Hospital Services or PHS Provider)[4/] that is not part of the Preferred Patient Care (PPC) Network and admission certification has not been requested on your behalf or the request is denied. This Plan will not pay room and board benefits for your first two days of hospitalization IF your non-network Hospital admission is denied, but you are admitted to a non-network Hospital anyway. This Plan will not pay room and board benefits for your entire Hospital stay IF you are admitted to a non-network Hospital without having your Doctor call prior to the admission. This Plan will not pay room and board benefits for the additional days that were not certified IF your non-network Hospital admission is certified but your stay is longer than the number of days for which the admission was certified. The Plan’s pre-certification requirement was not met. Neither A.H. nor McLean Hospital requested pre-certification. Mr. Shaw testified that he spoke to three different people at McLean Hospital, all of whom stated that the 3 East DBT program does not accept or work with insurance. Mr. Shaw was unable to generate the paperwork needed to begin the pre-certification process because McLean Hospital declined to share with him the necessary clinical information about R.H.5/ Although pre-certification was not obtained for R.H.’s stays at McLean Hospital, Florida Blue conducted a post-service review to determine whether the claim was eligible for reimbursement. Petitioner submitted a request for a Level I appeal pursuant to Section 12 of the Plan, under which a person denied benefits or payment of a claim for medical services may obtain a review by Florida Blue. Petitioner submitted a package of R.H.’s medical records for review. Prest & Associates, Inc., a URAC-approved independent review organization,6/ was retained to conduct an independent review of Petitioner’s claim. Dr. Barbara Center, a staff psychiatrist with Prest & Associates, performed a review designed to determine the medical necessity of R.H.’s stays at McLean Hospital. Dr. Center is board-certified in General Psychiatry, Child and Adolescent Psychiatry, and Addiction Medicine. Dr. Center reviewed the claim in terms of the New Directions criteria for psychiatric residential admissions and for eating disorder residential admissions. She performed two reviews, one for the admission starting on September 9, 2015, and another for the admission starting on October 15, 2015. Dr. Center stated that the McLean Hospital medical records provided by Petitioner gave a detailed description of R.H.’s history of present illness, past psychiatric history, and other elements of her history that were adequate for making a medical necessity determination. As to the September 9 admission, Dr. Center concluded that medical necessity criteria were not met for either a psychiatric residential or an eating disorder residential admission. As to the psychiatric residential criteria, Dr. Center concluded that R.H.’s admission failed to satisfy criteria 3, 4, and 5. Dr. Center testified that criterion 4 looks at symptoms and behaviors that represent a significant deterioration from the patient’s baseline functioning in several areas. R.H.’s primary support structures were stable. Her mother was clearly involved in her care and had the support of other family members. Dr. Center stated that the medical records showed no sign of substantial social or interpersonal deterioration, aside from some typical difficulty in starting high school. R.H. was having no medical instability at the time of admission. She was not at a dangerously low body weight. She had a recent onset of self-harming behaviors, but there was no documentation of acute risk issues that warranted placement in 24-hour care. As to criterion 5, Dr. Center testified that the records showed no indication that R.H.’s family and support system was unsupportive or unable to take her to treatment and participate in her care. There was no documentation that R.H. could not progress in a less intensive level of care. Dr. Center noted that R.H.’s prior treatment for eating disorders had been at varying levels of care and that R.H. had not had multiple brief acute inpatient stays. Criterion 3 is a diagnosis of exclusion, meaning that if there is no apparent medical necessity for the residential placement, then the reason must be “primarily social, custodial, interpersonal or respite care.” Dr. Center found in the records no support for a 24-hour residential placement. She noted that R.H.’s self-injury was of a recent onset and that McLean Hospital had ruled out any immediate prospect of self-injury or serious threat to other people. Cutting is not uncommon among adolescents and does not rise to the level of requiring residential care. Mental health providers distinguish between self-injurious behaviors and suicidal ideation, and McLean Hospital did not describe R.H. as suicidal. Dr. Center testified that, at the request of Mr. Shaw, she also reviewed R.H.’s admission in terms of the New Directions eating disorder residential criteria. Dr. Center noted that R.H. was not at a dangerous body weight (122 pounds, with a BMI of 22.2) at the time of her admission on September 9. There was no indication of medical instability or of out-of- control eating disorders requiring 24-hour care. Dr. Center testified that DBT is routinely taught on an outpatient basis and that she recommended outpatient treatment for the stay beginning on September 9. She opined that R.H. did not meet numbers 3 through 7 of the New Directions eating disorder residential criteria. As to the McLean Hospital admission beginning on October 15, 2015, Dr. Center recommended intensive outpatient treatment. Dr. Center knew that R.H. had been transitioned from McLean Hospital to the Cambridge Center to address the eating disorder as her primary symptom. Dr. Center felt that continuing R.H. in an intensive outpatient setting would help her stabilize and maintain the progress she had made at the Cambridge Center. Dr. Center stated that a basic tenet of medical care, and especially psychiatric care, is that the patient be treated in the least restrictive setting possible under the circumstances. She stated that it is always best to treat people in the environment they live in. Treatment in the 24- hour residential setting removes the patient from the stressors she will have to deal with when she goes home. Upon her readmission to the McLean Hospital from Cambridge Center, R.H. denied suicidal ideation and homicidal ideation, and the record disclosed nothing to indicate suicidal thoughts. R.H. denied auditory or visual hallucinations and her mood was described as “euthymic,” i.e., essentially normal. Dr. Center acknowledged that the medical record showed that R.H. had been in intensive outpatient treatment for her eating disorder at the Renfrew Center in Florida from July 23 through August 21, 2015, with limited success. Dr. Center stated that the issue for R.H. had recently changed from her eating disorder to her self-harming behavior and believed that an intensive outpatient program focusing on skills to deal with self-injurious behaviors would be the appropriate placement under the circumstances. Dr. Center also acknowledged that her review did not include the records of R.H.’s treating psychiatrist and therapist during her stay at Renfrew, and that their notes indicated that R.H.’s condition had regressed while in intensive outpatient care. Dr. Center testified that these records might have persuaded her to recommend a higher level of care, such as a partial hospital program, but that she still would not have recommended residential placement. After Dr. Center rendered her opinion that R.H.’s residential stays at McLean Hospital were not medically necessary, the claim was reviewed by Dr. Frank Santamaria, Florida Blue’s care management medical director. In rendering his opinion, Dr. Santamaria reviewed the medical records sent by Petitioner and McLean Hospital, the log of contact notes kept by New Directions, and Dr. Center’s report.7/ He testified that the available records were adequate to allow him to render an opinion as to medical necessity. Dr. Santamaria concluded that, as to the New Directions criteria for psychiatric residential admissions, R.H. failed to meet criteria 3, 4, and 5. He opined generally that when assessing the need for a residential stay, he is looking for someone who is at risk of self-harm or harming others or who has an acute severe psychiatric condition such as a psychotic disorder that requires confinement. Dr. Santamaria noted that R.H.’s eating disorder was not the primary concern at the time of her admissions to McLean Hospital; however, because the eating disorder was occurring at the same time as the psychiatric problem, he was also looking for medical manifestations of the eating disorder, such as severe weight loss affecting blood chemistry. Criterion 4 requires documented symptoms and/or behaviors that are a significant deterioration from baseline functioning and create a significant functional impairment in at least three of five listed areas. Under area 4a, “primary support,” Dr. Santamaria noted that R.H. had good support from her mother and grandmother. He did not believe that primary support was a problem.8/ As to area 4b, “social/interpersonal,” the notes indicated that R.H. recently had an altercation with a friend. Dr. Santamaria did not find such an altercation out of the ordinary for a 15-year-old and thus found no functional impairment under 4b. Area 4c, “occupational/educational,” appeared to pose no problem because the records indicated that R.H. was an A-B student, despite her rocky first week of high school. As to area 4d, “health/medical compliance,” Dr. Santamaria noted that R.H. had been compliant with medical instructions and her family had been good about seeking care for her. As to area 4e, “ability to maintain safety for either self or others,” Dr. Santamaria acknowledged that R.H. had hit her hand with a hammer and acted in other self-injurious ways, chiefly superficial cutting. He testified that such behaviors are not uncommon in younger populations and do not necessarily make the person a candidate for residential care. Self-injury alone does not satisfy the criterion, unless there is a concern for suicide or homicide. The hammer incident occurred in August, at least one week before R.H.’s admission to McLean Hospital. The McLean Hospital admission note of September 9, 2015, indicates no reported history of suicidal thinking. Dr. Santamaria found no documentation to indicate R.H. was aggressive against herself or others. She had no acute conditions such as psychotic disorders. Dr. Santamaria noted that even if area 4e were deemed to have been met, criterion 4 requires significant functional impairment and degradation from baseline functioning in at least three of the listed areas, and that R.H. at most satisfied one area of the criterion. Criterion 5 of the New Directions psychiatric residential criteria requires that one of three conditions relating to the patient’s support system or treatment history be met. Dr. Santamaria concluded that none of the three conditions were met. Condition 5c requires a recent history of multiple brief acute inpatient stays without a successful transition to a lower level of care. Dr. Santamaria conceded that the record he examined disclosed little information about prior therapies that had been tried with R.H., but he concluded that the record was sufficient to confirm that R.H. did not have multiple brief inpatient stays. He was reasonably confident that McLean Hospital would have documented such stays had they occurred because they would be a very significant part of her history. Dr. Santamaria also noted that R.H. had been able to transition to an intensive outpatient program from her inpatient admission to the Renfrew Center in May 2015. Condition 5a requires that family members or the patient’s support system demonstrate behaviors that are likely to undermine the goals of treatment, such that treatment at a lower level of care is unlikely to be successful. The record disclosed that R.H.’s mother, who was her custodial guardian, had a history of substance abuse but had gone through a rehabilitation program, attended Narcotics Anonymous regularly, and had been sober for one year at the time of R.H.’s October 15, 2015, admission to McLean Hospital. Dr. Santamaria testified that if R.H.’s mother were currently using drugs and R.H. had nowhere else to go, then condition 5a might be met. However, the actual situation presented by the medical record did not establish that R.H. was living in an unsafe environment that could undermine her treatment. As to condition 5b, a documented history of an inability to be managed at an intensive lower level of care, Dr. Santamaria concluded that R.H. had responded to various therapies in the past. As noted above, criterion 3 of the New Directions psychiatric residential criteria is exclusionary, i.e., if the placement appears not to be medically necessary, then one begins to seek another motivation, such as the desire for a change of pace or a respite for the family. Dr. Santamaria noted that DBT does not require placement at the residential level. It can be done at an intensive outpatient or partial hospitalization level, both of which are lower levels of care than residential.9/ This fact made Dr. Santamaria suspect that the prime motive for R.H.’s placement may have been custodial. Dr. Santamaria testified that he also analyzed R.H.’s admission under the New Directions eating disorder residential criteria. He stated that he could not be certain from the record whether McLean Hospital was treating R.H.’s eating disorder, as well as providing DBT, but he knew that McLean Hospital was mindful of the eating disorder. He also knew that R.H.’s transfer to the Cambridge Center was partly because her eating disorder was becoming worse. Dr. Santamaria concluded that R.H. did not satisfy criteria 3 through 7 for an eating disorder residential admission. Dr. Santamaria testified that R.H. did not meet eating disorder residential criteria 3 through 5 for the same reasons she did not meet the identical criteria 3 through 5 of the psychiatric residential criteria. Criterion 6 concerns biomedical complications of an eating disorder. Dr. Santamaria reviewed the medical records and concluded that R.H. presented none of the complications that would require 24-hour care at the time of her admission on September 9, 2015. Dr. Santamaria likewise found that R.H. satisfied neither factor 7a nor 7b of Criterion 7. As to 7a, R.H. did not present with a low body weight and there was no documentation that she had lost 10 percent of her body weight in the last 30 days. As to 7b, there was no evidence that R.H.’s “compensatory behaviors,” i.e., binging and purging, had caused “significant physiological complications” or that such behaviors occurred multiple times daily and did not respond to treatment “at an intensive lower level of care.” Dr. Santamaria testified that his analysis as to the October 15, 2015, admission was identical to that for the September 9, 2015, admission. As to both admissions, he believed that intensive outpatient was the appropriate level of care. Dr. Santamaria defined “intensive outpatient” as three hours of intensive therapy for at least three days per week. He believed that this level of care could address all of R.H.’s issues, including her self-injurious behavior. Dr. Santamaria concluded that if R.H. tried the intensive outpatient level of care and failed, then a higher level could be considered. Like Dr. Center, he stated that he might have recommended a partial hospitalization setting had he known that intensive outpatient had been tried and failed, but he still would not have recommended a 24-hour residential admission. Petitioner’s presentation implied that Florida Blue and/or Prest & Associates base their coverage decisions on financial considerations rather than strictly on the merits of the claims. Dr. Center and Dr. Santamaria both testified that they had no incentive, financial or otherwise, to deny a claim for reimbursement. Their testimony on this point is credible. Petitioner offered no direct evidence that Florida Blue or Prest & Associates directly pressure their physician employees to reject meritorious claims, and there is no evidence that Dr. Santamaria or Dr. Center based their recommendations on anything other than their assessment of R.H.’s medical records in light of the relevant medical necessity criteria. Petitioner raised questions about the completeness of the records examined by Dr. Santamaria and Dr. Center and sounded a skeptical note as to the diligence of the physicians’ efforts to obtain additional documentation. As found above, both Dr. Santamaria and Dr. Center testified that they had adequate documentation to render an opinion as to medical necessity in this case. Both physicians stated that in other cases they have taken additional steps to obtain missing information, including making peer-to-peer calls to the treating physicians or reaching out to the case managers, but that no such steps were necessary in this case. Both physicians conceded that not all of the medical records were available to them at the time of their reviews. They did not have records from R.H.’s stays at the Renfrew Center and the Cambridge Center or the notes of R.H.’s treating physicians in Florida. Both Dr. Center and Dr. Santamaria credibly testified that nothing in these additional records would have changed their opinion as to the medical necessity of residential treatment for R.H. Section 12 of the Plan, which sets forth the appeal process for a denied claim, expressly states: “Your appeal may include any additional documentation, information, evidence or testimony that you would like reviewed and considered during the appeal process.” This language is included in the explanations for both the Level I and Level II appeals. Nothing prevents the member from providing any documentation whatsoever during the appeal process. Dr. Center and Dr. Santamaria are physician reviewers, not medical investigators. If something Petitioner asserted to be relevant to the decision was missing from the files, it was not the fault of the reviewing physicians. It is ultimately the member’s responsibility to provide appropriate documentation for review. By letter dated April 5, 2016, Florida Blue notified Petitioner that it “remains unable to approve additional coverage and/or payment for the Residential Treatment.” The letter set forth the following rationale for the denial: Per the State Employees’ PPO Plan Booklet and Benefits Document page 5-5: “Services or supplies that are not Medically Necessary, as determined by Florida Blue and/or CVS Caremark clinical staff and Division of State Group Insurance, are non- covered.” Specifically, coverage for the Mental Health (Eating Disorder) Residential stays is denied as it does not meet the definition of medical necessity. This is for hospital stay on and after 09/09/2015 and 10/15/2015. The final decision to proceed with the requested services is between the provider and the member. Records show that the member was not deemed to be a present risk to self or to others. Though the member had a preoccupation with weight sand [sic] eating, there was no evidence of inability to adequately care for self with functioning in multiple sphere areas, including stabilization of the eating disorder issues. There was no report of medical instability or psychosis. The member was in a body weight range. The member was described as having her eating disorder symptoms under control. From the clinical evidence, this member could have been safely treated at each occasion at a lesser level of care such as in an eating disorder intensive outpatient setting. This review was done using New Directions Clinical Care criteria and is based on the opinion of a board certified psychiatrist. Services that are not medically necessary are not covered under your health benefit plan. The denial letter provided Petitioner with information regarding the Level II appeal process to DSGI, including a reference to the pertinent section of the Plan. The denial letter reiterated that Petitioner could submit any information or documentation that Petitioner believed could assist in DSGI’s review of the appeal. Petitioner submitted a request for a Level II appeal to DSGI on May 23, 2016. The Level II appeal was reviewed by DSGI’s legal nurse coordinator, Kathy Flippo. Ms. Flippo reviewed all of the documents reviewed by Dr. Center and Dr. Santamaria, plus additional records submitted by Petitioner with the Level II appeal request. Ms. Flippo determined that the stays at issue were non-emergency admissions that required pre-certification and that the pre-certification requirements of the Plan were not met. Ms. Flippo reached the same conclusions as Dr. Center and Dr. Santamaria regarding the New Directions psychiatric residential criteria. Ms. Flippo concluded that R.H. did not meet criteria 3, 4, or 5. Ms. Flippo testified that she did not review the case pursuant to the New Directions eating disorder residential criteria because Petitioner’s Level II appeal addressed only the psychiatric issues and because R.H.’s eating disorder stay at the Cambridge Center was covered by Florida Blue. By letter dated July 29, 2016, signed by Tami Fillyaw, director of DSGI, Petitioner was informed that the Level II appeal had been denied. The letter informed Petitioner of his rights under the Plan to file a petition for a formal or an informal hearing contesting the denial of the appeal and/or to request a binding external review from an Independent Review Organization (“IRO”).10/ Petitioner requested both an administrative hearing and an external review.11/ The external review was conducted under the auspices of the Medical Review Institute of America, Inc. (“MRIoA”), a URAC-accredited external review network. The MRIoA assigned a physician whom it stated is board-certified by the American Board of Psychiatry and Neurology in the specialties of General Psychiatry and Child & Adolescent Psychiatry.12/ The external review upheld the adverse determinations regarding coverage for the McLean Hospital stays. In its decision letter dated November 11, 2016, the MRIoA provided the following relevant clinical summary and findings: At the time in question, the patient was a 15 year old female with a variety of difficulties related to depression, anxiety, eating disorder symptoms, and symptoms of obsessive compulsive disorder (OCD) with self-harming behaviors. This review has to do with a question of whether residential treatment center (RTC) level of care (LOC) for two episodes of service 9/9/15-9/22/15 and 10/15/15-12/11/15 met the plan criteria for medical necessity. It is noted that the patient was treated in a special eating disorders program on the dates between these two episodes. * * * The patient’s presentation did not meet the plan criteria for medical necessity for the dates in question. Specifically, the patient did not meet criteria #5 of the Admission Criteria. The patient is noted to have a caring and effective support system that would have supported a less intensive level of care. There was no recent history of inability to be effectively treated at an intensive level of service below residential treatment center (RTC) level of care (LOC), and there was no recent history of inability to transition from inpatient treatment into a less intensive level of care. At the time of admission to residential treatment, it is clear that the patient struggled with mood dysregulation along with episodes of food restriction and self- harming behaviors. She was not responding to attempts at outpatient treatment. The residential program in question was sought out specifically due to its approach to the utilization of DBT (dialectical behavior therapy). However, there is no indication that the patient could not have responded to attempts to escalate her treatment in the outpatient setting through the use of either intensive outpatient or partial hospitalization services. In particular, the patient could have been involved in a formal DBT program without utilization of residential treatment. Her symptom severity for the dates in question was not of a severity to require the use of round the clock observation and treatment. As a result, there was no medical necessity for residential treatment center (RTC) level of care (LOC). * * * The appeal letters from the patient’s family, outpatient providers, and residential facility discuss the need for residential treatment due to the patient’s symptoms severity, particularly the patient’s episodes of self-harming behavior and the need for her to participate in the immersive DBT program utilized at the residential program in question. The patient’s need for more intensive treatment is acknowledged. However, the patient’s recent treatment history was one of outpatient treatment with a previous history of residential treatment for eating disorder symptoms. For the DOS in question, the patient could have obtained appropriate and effective DBT in a less restrictive setting, such as either a partial hospitalization program (PHP) or an intensive outpatient program (IOP). Based on the above, the previous determination has been upheld. At the hearing, Petitioner complained that, prior to receiving the letter denying the Level II appeal, he had no inkling that medical necessity determinations were based on criteria produced by New Directions. The Plan’s definition of “medically necessary” does not reference the fact that Florida Blue relies on the New Directions criteria for medical necessity determinations in psychiatric and eating disorder admissions. Petitioner basically argues that not having the precise language of the New Directions medical necessity criteria deprived him and the medical providers of the ability to frame the coverage requests in such a way as to satisfy the criteria. The record evidence shows Florida Blue does not make the New Directions medical necessity criteria directly available to its members. In fact, New Directions is nowhere mentioned in the Plan. Witnesses for DSGI correctly stated that anyone can download the criteria from the New Directions website, but Petitioner pointed out that one must be aware the criteria exist before one can download them. If this case is typical, it appears that a Florida Blue member must be denied coverage and go through the appeal process before Florida Blue makes him aware of precisely how the determination of medical necessity is made. Dr. Santamaria testified that Florida Blue does not expect its members to have any knowledge of the New Directions criteria or to “understand all the medical jargon.” The member is expected to present Florida Blue with the best and most accurate medical information available (preferably before the services are rendered) and rely on Florida Blue to make the decision. Dr. Santamaria stated, “Your role is not to do the utilization management. That’s my role. Your role is, if you disagree with a coverage determination, to appeal it and to even have your doctor speak on your behalf or write a letter or do whatever. It’s not your role to access the documents and to use them on your own. That--that’s not what they were created for.” Dr. Santamaria emphasized that the member’s “role” is not to “meet criteria” but to provide Florida Blue with information sufficient to allow its experts to apply the criteria. While his phrasing may be condescending, Dr. Santamaria’s statement is basically accurate: the medical records determine whether the criteria have been met. Petitioner’s awareness of the particulars of the criteria would not change the substance of the medical record. The undersigned tends to agree with Petitioner that Florida Blue’s process could be more transparent. However, Petitioner failed to show how the outcome would have been different if the New Directions medical necessity criteria had been available to him or McLean Hospital. Every expert who examined the medical records agreed that R.H. did not meet the criteria for medical necessity. Their opinions are credited. Ms. Flippo emphasized that Florida Blue did not deny coverage merely because McLean Hospital’s 3 East DBT program was self-pay. If the member had been able to obtain pre- certification for hospitalization and a proper bill had been presented to Florida Blue, it would have been covered at the allowable non-network coverage amount. Ms. Flippo also stated that even if pre-certification had been obtained, Florida Blue would certainly not have covered the 70 days that R.H. spent in McLean Hospital. Ms. Flippo had never seen more than 15 days at a time approved, even for members who were floridly psychotic and admitted under the Baker Act. With modern treatments and medications, it is seldom necessary to keep patients at a residential level of care for months at a time. All of the experts agreed that DBT is more commonly provided on an outpatient basis. Additionally, Mr. Shaw pointed out that the ability of the insurer to pay the non-contracted, non-network rate to the hospital is contingent on the hospital’s willingness to accept insurance payments. McLean Hospital’s 3 East DBT program did not accept insurance. Mr. Shaw succinctly stated, “We’re not obligated to pay you back because you made the choice to go to a facility that takes your money but not ours.”
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Management Services, Division of State Group Insurance, issue a final order denying Petitioner’s claim for coverage under the State Employees’ PPO Plan for R.H.’s residential treatment at McLean Hospital from September 9, 2015, to September 30, 2015, and October 15, 2015, to December 11, 2015. DONE AND ENTERED this 17th day of May, 2017, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON 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 17th day of May, 2017.
The Issue Kindred Hospitals East, LLC ("Kindred") and Select Specialty Hospital-Palm Beach, Inc. ("Select-Palm Beach"), filed applications for Certificates of Need ("CONs") with the Agency for Health Care Administration ("AHCA" or the "Agency") seeking approval for the establishment of long-term care hospitals ("LTCHs") in Palm Beach County, AHCA District 9. Select-Palm Beach's application, CON No. 9661, seeks approval for the establishment of a 60-bed freestanding LTCH in "east central" Palm Beach County about 20 miles south of Kindred's planned location. Kindred's application, CON No. 9662, seeks approval for the establishment of a 70-bed LTCH in the "north central" portion of the county. The ultimate issue in this case is whether either or both applications should be approved by the Agency.
Findings Of Fact Long Term Care Hospitals Of the four classes of facilities licensed as hospitals by the Agency, "Class I or general hospitals," includes: General acute care hospitals with an average length of stay of 25 days or less for all beds; Long term care hospitals, which meet the provisions of subsection 59A-3.065(27), F.A.C.; and, Rural hospitals designated under Section 395, Part III, F.S. Fla. Admin. Code R. 59A-3.252(1)(a). This proceeding concerns CON applications for the second of Florida's Class I or general hospitals: LTCHs. A critically ill patient may be admitted and treated in a general acute care hospital, but, if the patient cannot be stabilized or discharged to a lower level of care on the continuum of care within a relatively short time, the patient may be discharged to an LTCH. An LTCH patient is almost always "critically catastrophically ill or ha[s] been." (Tr. 23). Typically, an LTCH patient is medically unstable, requires extensive nursing care with physician oversight, and often requires extensive technological support. The LTCH patient usually fits into one or more of four categories. One category is patients in need of pulmonary/respiratory services. Usually ventilator dependent, these types of LTCH patients have other needs as well that requires "complex comprehensive ventilator weaning in addition to meeting ... other needs." (Tr. 26). A second category is patients in need of wound care whose wound is life-threatening. Frequently compromised by inadequate nutrition, these types of LTCH patients are often diabetic. There are a number of typical factors that may account for the seriousness of the wound patient's condition. The job of the staff at the LTCH in such a case is to attend to the wound and all the other medical problems of the patient that have extended the time required for care of the wound. A third category is patients with some sort of neuro-trauma. These patients may have had a stroke and are often elderly; if younger, they may be victims of a car accident or some other serious trauma. They typically have multiple body systems that require medical treatment, broken bones and a closed head injury for example, that have made them "very sick and complex." (Tr. 27). The fourth category is referred to by the broad nomenclature of "medically complex" although it is a subset of the population of LTCH patients all of whom are medically complex. The condition of the patients in this fourth category involves two or more body systems. The patients usually present at the LTCH with "renal failure ... [and] with another medical condition ... that requires a ventilator ..." Id. In short, LTCHs provide extended medical and rehabilitative care to patients with multiple, chronic, and/or clinically complex acute medical conditions that usually require care for a relatively extended period of time. To meet the definition of an LTCH a facility must have an average length of inpatient stay ("ALOS") greater than 25 days for all hospital beds. See Fla. Admin. Code R. 59A-3.065(34). The staffs at general acute care hospitals and LTCHs have different orientations. With a staff oriented toward a patient population with a much shorter ALOS, the general acute care hospital setting may not be appropriate for a patient who qualifies for LTCH services. The staff at a general acute care hospital frequently judges success by a patient getting well in a relatively short time. It is often difficult for general acute care hospital staff to sustain the interest and effort necessary to serve the LTCH patient well precisely because of the staff's expectation that the patient will improve is not met in a timely fashion. As time goes by, that expectation continues to be frustrated, a discouragement to staff. The LTCH is unlike other specialized health care settings. The complex, medical, nursing, and therapeutic requirements necessary to serve the LTCH patient may be beyond the capability of the traditional comprehensive medical rehabilitation ("CMR") hospital, nursing home, skilled nursing facility ("SNF"), or, the skilled nursing unit ("SNU"). CMR units and hospitals are rarely, if ever, appropriate for the LTCH patient. Almost invariably, LTCH patients are not able to tolerate the minimum three (3) hours of therapy per day associated with CMR. The primary focus of LTCHs, moreover, is to provide continued acute medical treatment to the patient that may not yet be stable, with the ultimate goal of getting the patient on the road to recovery. In comparison, the CMR hospital treats medically stable patients consistent with its primary focus of restoring functional capabilities, a more advanced step in the continuum of care. Services provided in LTCHs are distinct from those provided in SNFs or SNUs. The latter are not oriented generally to patients who need daily physician visits or the intense nursing services or observations needed by an LTCH patient. Most nursing and clinical personnel in SNFs and SNUs are not experienced with the unique psychosocial needs of long-term acute care patients and their families. An LTCH is distinguished within the healthcare continuum by the high level of care the patient requires, the interdisciplinary treatment model it follows, and the duration of the patient's hospitalization. Within the continuum of care, LTCHs occupy a niche between traditional acute care hospitals that provide initial hospitalization care on a short-term basis and post-acute care facilities such as nursing homes, SNFs, SNUs, and comprehensive medical rehabilitation facilities. Medicare has long recognized LTCHs as a distinct level of care within the health care continuum. The federal government's prospective payment system ("PPS") now treats the LTCH level of service as distinct with its "own DRG system and ... [its] own case rate reimbursement." (Tr. 108). Under the LTCH PPS, each patient is assigned an LTC- DRG (different than the DRG under the general hospital DRG system) with a corresponding payment rate that is weighted based on the patient diagnosis and acuity. The Parties The Agency is the state agency responsible for administering the CON Program and licensing LTCHs and other hospital facilities pursuant to the authority of Health Facility and Services Development Act, Sections 408.031-408.045, Florida Statutes. Select-Palm Beach is the applicant for a free-standing 60-bed LTCH in "east Central Palm Beach County," Select Ex. 1, stamped page 12, near JFK Medical Center in AHCA District 9. Its application, CON No. 9661, was denied by the Agency. Select-Palm Beach is a wholly owned subsidiary of Select Medical Corporation, which provides long term acute care services at 83 LTCHs in 24 states, four of which are freestanding hospitals. The other 79 are each "hospitals-in-a- hospital" ("HIH" or "LTCH HIH"). Kindred is the applicant for a 70-bed LTCH to be located in the north central portion of Palm Beach County in AHCA District 9. Its application, CON No. 9662, was denied by the Agency. Kindred is a wholly owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 73 LTCHs, 59 of which are freestanding, according to the testimony of Mr. Novak. See Tr. 56-57. Kindred Healthcare has been operating LTCHs since 1985 and has operated them in Florida for more than 15 years. At the time of the submission of Kindred's application, Kindred Healthcare's six LTCHs in Florida were Kindred-North Florida, a 60-bed LTCH in Pinellas County, AHCA District 5; Kindred-Central Tampa, with 102 beds, and Kindred-Bay Area- Tampa, with 73 beds, both in Hillsborough County, in AHCA District 6; Kindred-Ft. Lauderdale with 64 beds and Kindred- Hollywood with 124 beds, both in Broward County, ACHA District 10; and Kindred-Coral Gables, with 53 beds, in Dade County, AHCA District 11. The Applications and AHCA's Review The applications were submitted in the first application cycle of 2003. Select-Palm Beach's application is CON No. 9661; Kindred's is CON No. 9662. Select-Palm Beach estimates its total project costs to be $12,856,139. Select-Palm Beach has not yet acquired the site for its proposed LTCH, but did include in its application a map showing three priority site locations, with its preferred site, designated "Site 1," located near JFK Medical Center. At $12,937,419, Kindred's estimate of its project cost is slightly more than Select-Palm Beach's. The exact site of Kindred's proposed LTCH had not been determined at the time of hearing. Kindred's preference, however, is to locate in the West Palm Beach area in the general vicinity of St. Mary's Hospital, in the northern portion of Palm Beach County along the I-95 corridor. This is approximately 15 to 20 miles north of Select's preferred location for its LTCH. There is no LTCH in the five-county service area that comprises District 9: Indian River, Okeechobee, St. Lucie, Martin, and Palm Beach Counties. There are two LTCHs in adjacent District 10 (to the south). They have a total of 188 beds and an average occupancy of 80 percent. The Agency views LTCH care as a district-wide service primarily for Medicare patients. At the time of the filing of the applications, the population in District 9 was over 1.6 million, including about 400,000 in the age cohort 65 and over. About 70 percent of the District 9 population lives in Palm Beach County. More than 70 percent of the District's general acute care hospitals are located in that county. Kindred's preferred location for its LTCH is approximately 40 to 50 miles from the closest District 10 LTCH; Select-Palm Beach is approximately 25 to 35 miles from the closest District 10 LTCH. The locations of Select Palm-Beach's and Kindred's proposed LTCHs are complementary. The SAAR Following its review of the two applications, AHCA issued its State Agency Action Report ("SAAR"). Section G., of the report, entitled "RECOMMENDATION," states: "Deny Con #9661 and CON #9662." Agency Ex. 2, p. 43. On June 11, 2003, the report was signed by Karen Rivera, Health Services and Facilities Consultant Supervisor Certificate of Need, and Mr. Gregg as the Chief of the Bureau of Health Facility Regulation. It contained a section entitled "Authorization for Agency Action" that states, "[a]uthorized representatives of the Agency for Health Care Administration adopted the recommendations contained herein and released the State Agency Action Report." Agency Ex. 2, p. 44. The adoption of the recommendations is the functional equivalent of preliminary denial of the applications. In Section F. of the SAAR under the heading of "Need," (Agency Ex. 2, p. 40), the Agency explained its primary bases for denial; it concluded that the applicants had not shown need for an LTCH in AHCA District 9. The discussions for the two, although not precisely identical, are quite similar: Select Specialty Hospital-Palm Beach, Inc.(CON #9661): The applicant's two methodological approaches to demonstrate need are not supported by any specific discharge studies or other data, including DRG admission criteria from area hospitals regarding potential need. The applicant also failed to provide any supporting documentation from area physicians or other providers regarding potential referrals. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Kindred Hospitals East, L.L.C. (CON #9662): The various methodological approaches presented are not supported by any specific DRG admission criteria from area hospitals suggesting potential need. The applicant provided numerous letters of support for the project from area hospitals, physicians and case managers. However, the number of potential referrals of patients needing LTCH services was not quantified. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Id. At hearing, the Agency's witness professed no disagreement with the SAAR and continued to maintain the same bases contained in the SAAR for the denials of the two applications The SAAR took no issue with either applicant's ability to provide quality care. It concluded that funding for each applicant was likely to be available and that each project appeared to be financially feasible once operating. The SAAR further stated that there were no major architectural concerns regarding Kindred's proposed facility design, but noted reservations regarding the need for further study and revision of Select Palm-Beach's proposed surgery/procedure wing, as well as cost uncertainties for Select Palm Beach because of such potential revisions. By the time of final hearing, however, the parties had stipulated to the reasonableness of each applicant's proposed costs and methods of construction. The parties stipulated to the satisfaction of a number of the statutory CON criteria by the two applicants. The parties agreed that the applications complied with the content and review process requirements of sections 408.037 and 409.039, Florida Statutes, with one exception. Select reserved the issue of the lack of a Year 2 of Schedule 6, (Staffing) in Kindred's application. The form of Schedule 6 provided by AHCA to Kindred (unlike other schedules of the application) does not clearly indicate that a second year of staffing data must be provided. The remainder of the criteria stipulated and the positions of the parties as articulated in testimony at hearing and in the proposed orders that were submitted leave need as the sole issue of consequence with one exception: whether Kindred has demonstrated that its project is financially feasible in the long term. Kindred's Long Term Financial Feasibility Select-Palm Beach contends that Kindred's project is not financially feasible in the long term for two reasons. They relate to Kindred's application and are stated in Select Palm Beach's proposed order: Kindred understated property taxes[;] Kindred completely fails to include in its expenses on Schedule 8, patient medical assistance trust fund (PMATF) taxes [citation omitted]. Proposed Recommended Order of Select-Palm Beach, Inc., p. 32, Finding of Fact 97. Raised after the proceeding began at DOAH by Select- Palm Beach, these two issues were not considered by AHCA when it conducted its review of Kindred's application because the issues were not apparent from the face of the application. AHCA's Review of Kindred's Application Kindred emerged from a Chapter 11 bankruptcy proceedings on April 20, 2001, under a plan of reorganization. With respect to the events that led to the bankruptcy proceeding and the need to review prior financial statements, AHCA made the following finding in the SAAR: Under the plan [of reorganization], the applicant [Kindred] adopted the fresh start accounting provision of SOP 90-7. Under fresh start accounting, a new reporting entity is created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values. Accordingly, the prior period financial statements are not comparable to the current period statements and will not be considered in this analysis. Agency Ex. 2, p. 30. The financial statements provided by Kindred as part of its application show that Kindred Healthcare, Kindred's parent, is a financially strong company. The information contained in Kindred's CON application filed in 2003 included Kindred Healthcare's financial statements from the preceding calendar year. Kindred Healthcare's Consolidated Statement of Operations for the year ended December 31, 2002, showed "Income from Operations" to be more than $33 million, and net cash provided by operating activities (cash flow) of over $248 million for the period. Its Consolidated Balance Sheet as of December 31, 2002, showed cash and cash equivalents of over $244 million and total assets of over $1.6 billion. In light of the information contained in Kindred's CON application, the SAAR concluded with regard to short term financial feasibility: Based on the audited financial statements of the applicant, cash on hand and cash flows, if they continue at the current level, would be sufficient to fund this project as proposed. Funding for all capital projects, with the support of its parent, is likely to be available as needed. Agency Ex. 2, p. 30 (emphasis supplied). The SAAR recognized that Kindred projected a "year two operating loss for the hospital of $287,215." Agency Ex. 2, p. Nonetheless, the SAAR concludes on the issue of financial feasibility, "[w]ith continued operational support from the parent company, this project [Kindred's] is considered financially feasible." Id. The Agency did not have the information, however, at the time it reviewed Kindred's application that Kindred understated property taxes and omitted the Public Medicaid Trust Fund and Medical Assistance Trust Fund ("PMATF") "provider tax" of 1.5 percent that would be imposed on Kindred's anticipated revenues of $11,635,919 as contended by Select-Palm Beach. Consistent with Select Palm-Beach's general contentions about property taxes and PMATF taxes, "Kindred acknowledges that it likely understated taxes to be incurred in the operation of its facility." Kindred's Proposed Recommended Order, paragraph 50, p. 19. The parties agree, moreover, that the omitted PMATF tax is reasonably projected to be $175,000. They do not agree, however, as to the impact of the PMATF tax on year two operating loss. The difference between the two (approximately $43,000) is attributable to a corporate income tax benefit deduction claimed by Kindred so that the combination of the application's projected loss, the omitted PMATF tax, and the deduction yields a year two operating loss of approximately $419,000. Without taking into consideration the income tax benefit, Select-Palm Beach contends that adding in the PMATF tax produces a loss of $462,000. Kindred and Select-Palm Beach also disagree over the projection of property taxes by approximately $50,000. Kindred projects that the property taxes in year two of operation will be approximately $225,000 instead of the $49,400 listed in the application. Select-Palm Beach projects that they will be $50,000 higher at approximately $275,000. Whether Kindred's or Select-Palm Beach's figures are right, Kindred makes two points. First, if year two revenues and expenses, adjusted for underestimated and omitted taxes, are examined on a quarterly basis, the fourth quarter of year two has a better bottom line than the earlier quarters. Not only will the fourth quarter bottom line be better, but, using Kindred's figures, the fourth quarter of year two of operations is profitable. Second, and most importantly given the Agency's willingness to credit Kindred with financial support from its parent, Kindred's application included in its application an interest figure of $1.2 million for year one of operation and $1.03 million for year two. Kindred claims in its proposed recommended order that "[i]n reality ... this project will incur no interest expense as Kindred intends to fund the project out of cash on hand, or operating capital, and would not have to borrow money to construct the project." Id., at paragraph 54, p. 20. Through the testimony of John Grant, Director of Planning and Development for Kindred's parent, Kindred Healthcare, Kindred indicated at hearing that its parent might, indeed, fund the project: A ... Kindred [Healthcare] would likely fund this project out of operating capital. Like I said, in the first nine months of this year Kindred had operating cash flow of approximately $180 million. So it's not as if we would have to actually borrow money to complete a project like this. Q And what was the interest expense that you had budgeted in Year Two for this facility? A $1,032,000. Q ... so is it your statement then that this facility would not owe any interest back to the parent company? A That's correct. Tr. 221-222 (emphasis supplied). If the "financing interest" expense is excluded from Kindred's statement of projected expenses in Schedule 8 of the CON application, using Kindred's revised projections, the project shows a profit of approximately $612,0002 for the second year of operation. If Select-Palm Beach's figures and bottom line loss excludes the "finances interest" expense, the elimination of the expense yields of profit for year two of operations in excess of $500,000. If the support of Kindred's parent is considered as the Agency has signaled its willingness to do and provided that the project is, in fact, funded by Kindred Healthcare rather than financed through some other means that would cause Kindred to incur interest expense, Kindred's project is financially feasible in the long term. With the exception of the issue regarding Kindred's long term financial feasibility, as stated above, taken together, the stipulation and agreements of the parties, the Agency's preliminary review contained in the SAAR, and the evidence at hearing, all distill the issues in this case to one overarching issue left to be resolved by this Recommended Order: need for long term care hospital beds in District 9. Need for the Proposals From AHCA's perspective prior to the hearing, the only issue in dispute with respect to the two applications is need. This point was made clear by Mr. Gregg's testimony at hearing in answer to a question posed by counsel for Select-Palm Beach: Q. ... Assuming there was sufficient need for 130 beds in the district is there any reason why both applicants shouldn't be approved in this case, assuming that need? A. No. (Tr. 398). Both applicants contend that the application each submitted is superior to the other. Neither, however, at this point in the proceeding, has any objection to approval of the other application provided its own application is approved. Consistent with its position that both applications may be approved, Select-Palm Beach presented testimony through its health care planner Patricia Greenberg3 that there was need in District 9 for both applicants' projects. Her testimony, moreover, rehabilitated the single Kindred methodology of three that yielded numeric need less than the 130 beds proposed by both applications: Q ... you do believe that there is a need for both in the district. A I believe there's a need for two facilities in the district. Q It could support two facilities? A Oh, absolutely. Q And the disagreement primarily relates to the conservative approach of Kindred in terms of not factoring in out-migration and the narrowing the DRG categories? A Correct. ... Kindred actually had three models. Two of them support both facilities, but it's the GMLOS model that I typically rely on, and it didn't on the surface support both facilities. That's why I reconciled the two, and I believe that's the difference, is just the 50 DRGs and not including the out-migration. That would boost their need above the 130, and two facilities would give people alternatives, it would foster competition, and it would really improve access in that market. Tr. 150-51. Need for the applications, therefore, is the paramount issue in this case. Since both applicants are qualified to operate an LTCH in Florida, if need is proven for the 130 beds, then with the exception of Kindred's long term financial feasibility, all parties agree that there is no further issue: both applications should be granted. No Agency Numeric Need Methodology The Agency has not established a numeric need methodology for LTCH services. Consequently, it does not publish a fixed-need pool for LTCHs. Nor does the Agency have "any policy upon which to determine need for the proposed beds or service." See Fla. Admin. Code R. 59C-1.008(2)(e)1. Florida Administrative Code Rule 59C-1.008(2), which governs "Fixed Need Pools" (the "Fixed Need Pools Rule") states that if "no agency policy exist" with regard to a needs assessment methodology: [T]he applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. Fla. Admin. Code R. 59C-1.008(2)(e)2. The Fixed Need Pools Rule goes on to elaborate in subparagraph (e)3 that "[t]he existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area." Population, Demographics and Dynamics The first of the four topics to be addressed when an applicant is responsible for demonstrating need through a needs assessment methodology is "population, demographics and dynamics." The Agency has not defined service areas for LTCHs. Nonetheless, from a health planning perspective, it views LTCH services as being provided district-wide primarily for Medicare patients. Consistent with the Agency's view, Select-Palm Beach identified the entire district, that is, all of AHCA District 9, as its service area. It identified Palm Beach County, one of the five counties in AHCA District 9, as its primary service area. In identifying the service area for Select-Palm Beach, Ms. Greenberg drew data from various sources: population estimates for Palm Beach County and surrounding areas; the number of acute care hospital beds in the area; the number of LTCH beds in the area; the types of patients treated at acute care hospitals; and the lengths of stay of the patients treated at those hospitals. AHCA District 9 has more elderly than any other district in the State, and Palm Beach County has more than any other county except for Dade. Palm Beach County residents comprise 71% of the District 9 population. It is reasonably projected that the elderly population (the "65 and over" age cohort) in Palm Beach County is projected to grow at the rate of 8 percent by 2008. The "65 and over" age cohort is significant because the members of that cohort are most likely to utilize hospital services, including LTCH services. Its members are most likely to suffer complications from illness and surgical procedures and more likely to have co-morbidity conditions that require long- term acute care. Persons over 65 years of age comprise approximately 80 percent of the patient population of LTCH facilities. Both Select-Palm Beach and Kindred project that approximately 80 percent of their admissions will come from Medicare patients. Since 90 percent of admissions to an LTCH come from acute care facilities, most of the patient days expected at Select-Palm Beach's proposed LTCH will originate from residents in its primary service area, Palm Beach County. When looking at the migration pattern for patients at acute care facilities within Palm Beach County, the majority (90 percent) come from Palm Beach County residents. Thus, Select- Palm Beach's projected primary service area is reasonable. Just as Select-Palm Beach, Kindred proposes to serve the entire District. Kindred proposes that its facility be based in Palm Beach County because of the percentage of the district's population in the county as well as because more than 70% of the district's general acute care hospitals are in the county. Its selection of the District as its service area, consistent with the Agency's view, is reasonable. Currently there are no LTCHs in District 9. Availability, Utilization and Quality of Like Services The second topic is "availability, utilization and quality of like services." There are no "like" services available to District residents in the District. Select-Palm Beach and Kindred, therefore, contend that they meet the criteria of the second topic. There are like services in other AHCA Districts. For example, AHCA District 10 has at total of 188 beds at two Kindred facilities in Fort Lauderdale and Hollywood. The Agency, however, did not present evidence of their quality, that they were available or to what extent they are utilized by the residents of AHCA District 9. Medical Treatment Trends The third topic is medical treatment trends. Caring for patients with chronic and long term care needs is becoming increasingly more important as the population ages and as medical technology continues to emerge that prolongs life expectancies. Through treatment provided the medically complex and critically ill with state of the art mechanical ventilators, metabolic analyzers, and breathing monitors, LTCHs meet needs beyond the capability of the typical general acute care hospitals. In this way, LTCHs fill a niche in the continuum of care that addresses the needs of a small but growing patient population. Treatment for these patients in an LTCH, who otherwise would be cared for without adequate reimbursement to the general acute care hospital or moved to an alternative setting with staff and services inadequate to meet their needs, is a medical trend. Market Conditions The fourth topic to be addressed by the applicant is market conditions. The federal government's development of a distinctive prospective payment system for LTCHs (LTC-DRG), has created a market condition favorable to LTCHs. General acute care hospitals face substantial losses for the medically complex patient who uses far greater resources than expected on the basis of individual diagnoses. Medicare covers between 80 and 85 percent of LTCH patients. The remaining patients are covered by private insurance, managed care and Medicaid. LTCH programs allow for shorter lengths of stay in a general acute care facility, reduces re-admissions and provide more discharges to home. These benefits are increasingly recognized. Numeric Need Analysis Kindred presented a set of needs assessment methodologies that yielded numeric need for the beds applied for by Kindred. Select-Palm Beach did the same. Unlike Kindred, however, all of the needs assessment methodologies presented by Select-Palm Beach demonstrated numeric need in excess of the 130 beds proposed by both applications. Select-Palm Beach's methodologies, overall, are superior to Kindred's. Select-Palm Beach used two sets of needs assessment methodologies and sensitivity testing of one of the sets that confirmed the methodology's reasonableness. The two sets or needs assessment methodologies are: (1) a use rate methodology and (2) length of stay methodologies. The use rate methodology yielded projected bed need for Palm Beach County alone in excess of the 130 beds proposed by the two applicants. For the year "7/05 - 6/06" the bed need is projected to be 256; for the year "7/06 - 6/07" the bed need is projected to be 261; and, for the year "7/07 - 6/08" the bed need is projected to be 266. See Select Ex. 1, Bates Stamp p. 000036 and the testimony of Ms. Greenberg at tr. 114. If the use rate analysis had been re-computed to include two districts whose data was excluded from the analysis, the bed need yielded for Palm Beach County alone was 175 beds, a numeric need still in excess of the 130 beds proposed by both applicants. The use rate methodology is reasonable.4 The length of stay methodologies are also reasonable. These two methodologies also yielded numeric need for beds in excess of the 130 beds proposed. The two methodologies yielded need for 167 beds and 250 beds. Agency Denial The Agency's general concerns about LTCHs are not without basis. For many years, there were almost no LTCH CON applications filed with the Agency. A change occurred in 2002. The change in the LTCH environment in the last few years put AHCA in the position of having "to adapt to a rapidly changing situation in terms of [Agency] understanding of what has been going on in recent years with long-term care hospitals." (Tr. 358.) "... [I]n the last couple of years long-term care hospital applications have become [AHCA's] most common type of application." (Tr. 359.) At the time of the upsurge in applications, there was "virtually nothing ... in the academic literature about long- term care hospitals ... that could [provide] ... an understanding of what was going on ... [nor was there anything] in the peer reviewed literature that addressed long-term care hospitals" id., and the health care planning issues that affected them. Two MedPAC reports came out, one in 2003 and another in 2004. The 2003 report conveyed the information that the federal government was unable to identify patients appropriate for LTCH services, services that are overwhelmingly Medicare funded, because of overlap of LTCH services with other types of services. The 2004 report gave an account of the federal government decision to change its payment policy for a type of long-term care hospitals that are known as "hospitals-within- hospitals" (tr. 368) so that "hospitals within hospitals as of this past summer [2004] can now only treat 25 percent of their patients from the host hospital." Id. Both reports roused concerns for AHCA. First, if appropriate LTCH patients cannot be identified and other types of services overlap appropriately with LTCH services, AHCA cannot produce a valid needs assessment methodology. The second produces another concern. In the words of Mr. Gregg, The problem ... with oversupply of long-term care hospital beds is that it creates an incentive for providers to seek patient who are less appropriate for the service. What we know now is that only the sickest patient ... with the most severe conditions are truly appropriate for long-term care hospital placement. * * * ... [T]he MedPAC report most recently shows us that the greatest indicator of utilization of long-term care hospital services is the mere availability of those services. Tr. 368-369. The MedPAC reports, themselves, although marked for identification, were not admitted into evidence. Objections to their admission (in particular, Kindred's) were sustained because they had not been listed by AHCA on the stipulation required by the Pre-hearing Order of Instructions.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be issued by the Agency for Health Care Administration that: approves Select-Palm Beach's application, CON 9661; and approves Kindred's application CON 9662 with the condition that financing of the project be provided by Kindred Healthcare. DONE AND ENTERED this 18th day of April, 2005, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 18th day of April, 2005.
Findings Of Fact On April 1, 1986, a letter of intent was filed on behalf of Anthony J. Estevez to apply for a CON in the March 16, 1986, batching cycle for a 120-bed long-term psychiatric hospital in Dade County, Florida, HRS Service District XI. A long-term psychiatric hospital is defined in Rule 10-5.011(p), Florida Administrative Code, as a "category of services which provides hospital based inpatient services averaging a length of stay of 90 days." Subsequently, DHRS notified Mr. Estevez that his letter of intent was effective March 17, 1986; the application was to be filed by April 15, 1986; the application was to be completed by June 29, 1986; and the date for final department action was August 28, 1986. On April 15, 1986, Mr. Estevez filed his CON application with DHRS (designated action #4854). Anthony J. Estevez' name appeared along with Health Care Advisors Corporation on the line of the application which requested "legal name of project sponsor." Mr. Francis A. Gomez, Mr. Estevez' authorized representative, had the responsibility for the preparation and submission of the application. Mr. Estevez signed the CON application as the project sponsor. HCAC Psychiatric Hospital of Dade County was meant to be the name of the proposed facility. HCAC is an acronym for Health Care Advisors Corporation, Inc. HCAC was incorporated as of April 14, 1987, but the name had been reserved prior to that time. HCAC was initially intended to be a health care management corporation owned by Mr. Estevez. However, it is now anticipated that Flowers Management Corporation (Flowers) will manage the project under the HCAC corporate umbrella. Mr. Estevez owns 100 percent of the stock of HCAC and is also its sole director and sole shareholder. Mr. Estevez considered HCAC and himself to be one and the same for the purpose of the CON application. HCAC initially proposed to construct in Dade County, Florida, a freestanding 120-bed long-term psychiatric hospital. HCAC proposed to divide those beds into three groups: (1) 75 beds for adults; (2) 30 beds for geriatrics; and (3) 15 beds for adolescents. On May 15, 1986, DHRS requested additional information from HCAC regarding its CON application. On June 19, 1986, and June 23, 1986, HCAC in two separate filings provided DHRS with responses to its request for additional information which DHRS believed was omitted from the original application. The application was deemed complete effective June 29, 1986. On August 20, 1986, Francis Gomez, Paul McCall, a health care consultant employed by HCAC at that time, and HCAC's attorney, met with Islara Soto of DHRS regarding the CON application. At this meeting, HCAC advised DHRS of its intent to orient the facility programmatically to meet the needs of the Hispanic population of Dade and Monroe Counties. By letter dated August 29, 1986, DHRS notified Mr. Francis Gomez of its decision to deny CON application 4584. HCAC requested a formal administrative hearing to contest the denial. At the formal hearing, HCAC indicated a desire to abandon its proposal to provide 15 beds dedicated to serve adolescent patients and sought to introduce evidence relating to a down-sized 105-bed long-term psychiatric hospital serving only adult and geriatric patients. Charter renewed its prehearing motion to exclude any evidence concerning a 105-bed facility. (Approximately three or four weeks prior to the administrative hearing, HCAC had decided to go forward with a proposal for the 105-bed facility.) The undersigned ruled that HCAC would be allowed to present evidence concerning a down-sized 105-bed facility to the extent that such evidence related to a separate and identifiable portion of the original application. HCAC's Proposal The proposed building site for the facility, although not finally selected, is intended to be within the Northwest Dade Center cachement area which is in the northwest corner of Dade County. The ownership of the proposed facility will be by Mr. Estevez and/or his family or wife. The proposed area to be serviced by the facility is Dade and Monroe Counties (HRS Service District XI). HCAC proposes to offer at its facility a psychiatric inpatient unit, patient support services, diagnostic/treatment services, ambulatory care, administrative services, environmental/maintenance, educational and training services, and materials management. The HCAC facility will be managed by Flowers Management Corporation (Flowers), of which Mr. Estevez is a majority shareholder. Flowers was created approximately three and a half years ago for the purpose of providing management in the psychiatric field. Humana Hospital, a hospital chain, has selected Flowers to manage four of its facilities and is also considering Flowers for an additional two facilities. Those facilities are currently providing short-term psychiatric and substance abuse services. Nelson Rodney will be responsible for the design and implementation of the treatment programs in the HCAC facility. Rodney is employed as Regional Vice President of Flowers and is responsible for the management of the Florida hospitals affiliated with Flowers, including a chemical dependency unit at Humana-Biscayne Hospital and a psychiatric unit at Humana West Palm Beach Hospital. The HCAC facility is intended to provide specialty long-term psychiatric services for chronically mentally disturbed individuals requiring a 90-day or greater average length of stay. Many of the patients would be a danger to themselves and others and will require a very restrictive setting -- a locked facility. The programs proposed to be offered involve a range of inpatient diagnostic services, including an intensive diagnostic work-up done prior to admission for all patients. Each patient will have an individualized treatment plan updated every two weeks. The treatment program will include specialized therapy, such as art, music, milieu therapy and special education. There would also be specialized inpatient and outpatient treatment programs for family members and significant others. Discharge planning from the day of admission to assure continuity of care would be another aspect of the program. The proposed HCAC facility would offer a community-like atmosphere. It would provide both open and locked units. Flower's therapeutic model encourages patient participation in daily activities and in the many decisions of what is occurring at the hospital. One component of the project will be an initial screening process by a multi-disciplinary team who will employ a predetermined set of admissions criteria to assist in appropriate levels of care determination. The multi- disciplinary team would consist of a psychiatrist, psychologist, sometimes a neurologist, social worker, a family social assessment person, the patient, and others. The team will attempt to identify and admit only those patients who will have an expected length of stay greater than 90 days. The HCAC facility would provide seminars and workshops to practitioners in the community as well as its own staff. In-service training will also be offered. HCAC proposes to be flexible in the design of its treatment programs and allow new treatments to be utilized. A variety of therapies will be available to provide individualized treatment plans in order to optimize the chance of successful outcome in the patient's treatment. Currently, Flowers affords an in-house program of evaluation. Peer review serves this function in order to assess quality of care rendered to patients in the facility. The HCAC facility proposes to have an Hispanic emphasis. More than 50 percent of the staff will be bilingual. Upper management will consist of individuals who have an acute understanding of Hispanic culture and treatment implications of that culture. The facility will be more flexible in family visitation than is done in many facilities which is an important aspect of the Hispanic culture. The facility as managed by Flowers would have the required "patient's bill of rights" and will also seek JACH accreditation, although these items were not discussed in the application. The HCAC facility would offer each patient an attending psychiatrist who will be part of the multi-disciplinary team that will determine the individualized plan for each patient. Sufficient health manpower including management resources are available to HCAC to operate the project. Additionally, the facility will provide internships, field placements and semester rotations. PROJECT AND CONSTRUCTION COSTS HCAC's CON application, admitted into evidence as Petitioner's Exhibit 4, contains 26 tables concerning various aspects of the 120-bed project as well as Exhibit III.D.1., an operating pro forma. In response to a request for omissions by DHRS, HCAC submitted, among other things, a revised Table 7, revised Table 8, and a revised operating pro forma for the 120-bed project. The items making up HCAC's omission responses were admitted into evidence as Petitioner's Exhibit 5. In conjunction with its desire to complete a 105-bed facility only, HCAC submitted various new tables and a new operating pro forma (forecasted income statement), which were admitted into evidence as Petitioner's Exhibit 6. Table 1 - Source of Funds The estimated total project cost of the 120-bed facility would be $6,469,500. The estimated project cost of the 105-bed facility would be $5,696,940. The financing of the project is contemplated to be done through NCNB bank which has expressed its willingness to finance the project. It is reasonable to assume that HCAC would and could obtain the necessary financing for the proposed facility. Table 2 - Total Debt Table 2 for both the 120-bed project and the 105-bed project shows that 100 percent of the project costs would be financed by debt at an interest rate of 13 percent. The 13 percent interest rate was projected in 1986 and is higher than current rates. It is reasonable to assume that 100 percent of the costs can be financed at 13 percent for either the 120-bed or 105-bed project. Table 3 - New Purchase Equipment HCAC initially projected that $750,000 would be needed to equip the proposed 120-bed facility. The projected expenditure for the 105-bed facility is $500,000. The projected costs of $750,000 and $500,000 for the equipment needed for the 120-bed and 105-bed facility, respectively, are unreasonably low. For example, of the $500,000 projected for equipment costs for the 105-bed project, $80,000 is for mini-vans, $15,000 is for the security system, $40,000 is for a computerized medical records system, and $40,000 for a computerized on-line nurse care program. This would leave $325,000 for all other necessary equipment. Pharmacy, laboratory services and x-ray equipment would be on contract. The remaining $325,000 would be insufficient to equip the kitchen (which would require $80,000), furnish patient rooms (approximately $150,000) and equip the remainder of the 105-bed facility which would reasonably require housekeeping equipment, exam room equipment, chart racks for the nurses station, seclusion room beds, office furniture and equipment, laundry equipment, lockers or shelving, refrigerators, ice makers, day room furniture and lounge furniture. A more reasonable projection for equipment costs would be in the neighborhood of $850,000 to $900,000. Table 7 - Utilization by Class of Pay Tables 7 and 8 of the original application which dealt with utilization by class of pay and effect on patient charges, were revised by HCAC in their responses to DHRS' Omissions Request. Table 7 reflects estimations of the net revenues which HCAC expects to capture from specific payor mixes, namely, contract/indigent, Medicare and insurance/private pay. There is no Medicaid reimbursement available for psychiatric care rendered in a freestanding psychiatric facility. The proposed payor mix for the 120-bed facility is, in patient days, as follows: Year 1 -- Contract/Indigent 8.64 percent (1989) Medicare 26.10 percent Insurance and Private Pay 65.26 percent Year 2 -- Contract/Indigent 8.48 percent (1990) Medicare 26.15 percent Insurance and Private Pay 65.37 percent The proposed payor mix for the 105-bed facility is, in patient days, as follows: Years 1 and 2 - Medicare 3.3 percent Insurance and Private Pay 90.7 percent Indigent 6.0 percent The change in payor mix was not attributed to down-sizing of the facility, but rather was the result of HCAC's additional research and understanding of what the payor mix would most likely be. The change in payor mix does not represent a substantial change to the original application taken as a whole. Francis Gomez, who prepared the Table 7 and was designated as an expert for HCAC in the area of health care facilities management and financial and marketing operations, conceded that HCAC's Table 7 for the 120-bed facility is not reasonable. The Table 7 for the 105-bed facility is also not reasonable. HCAC's contractual allowances are not reasonable. HCAC projects 3.3 percent for Medicare and nothing for HMOs or PPOs. It is unreasonable for HCAC's proposal to make no provision for HMO and PPO type arrangements in view of its projection of 90.7 percent insurance and private pay. Because the proposed patient mix for the 105-bed project is adults and geriatrics, 20 to 25 percent would be a more reasonable Medicare projection. HCAC's projected 90.7 percent insurance and private patient days is unreasonably high in view of the project's intended emphasis of serving the Hispanic population in HRS Service District XI. In 1980, 27.8 percent of the Hispanics in Dade County had incomes less than 150 percent of the poverty level. The 1987 United States Hispanic market study establishes that 20 percent of the Hispanic adults who are heads of households are either retired, students or unemployed. These groups of individuals would not reasonably fit into the insurance and private pay category in most cases. Thus, the 90.7 percent figure for insurance and private pay would have to be reduced significantly. Table 8 - Effects on Patient Charges HCAC's revised Table 8 for the 120-bed facility lists net revenues rather than gross charges for the specific services listed. In year one (1989), the table lists the following projected charges/rates: daily room charge - $214.61; average daily ancillary charge - $25.00; contract/indigent - $125.00; and Medicare - $229.61. In year two (1990), the table lists the following projected charges: daily room charge - $223.19; average daily ancillary charge - $26.00; contract/indigent - $130.00; and Medicare - $238.79. The Table 8 for the 105-bed facility reflects an all-inclusive gross charge of $300 per day in both years (1989 and 1990) for the daily room charge, Medicaid and Medicare. The $300 per day figure would include ancillary charges but not physician fees. The projected patient charges fall within the range of charges currently in effect at psychiatric hospitals in Dade and Monroe Counties and are reasonable for both the 120-bed facility and the 105-bed project. Table 10 - Projected Utilization The financial feasibility of any proposed hospital is largely tied to the ability of the hospital to generate an adequate level of utilization. Absent an adequate level of utilization, a facility will not generate sufficient revenues to meet expenses. Table 10 for both the 120-bed facility and the 105- bed facility sets forth the projected utilization of the proposed facility, by month and year, in patient days, for the first two years of anticipated operation. Table 10 for the 120-bed facility projects the facility will exceed 80 percent occupancy for two of the last three months of the second year and be at 80 percent occupancy at the end of that year. Eighty percent occupancy of 120 beds yields an average daily census of about 96 patients. Table 10 for the 105- bed facility projects that the facility will arrive at 92 percent occupancy at the end of the first year of operation and remain at 95 percent throughout the second year. Ninety-five percent occupancy of the 105-bed facility equals an average daily census of about 99 or 100 patients. The Table 10 "fill-up" rates for both the 120-bed and 105-bed facilities are unreasonable and not practical to be achieved. There is presently an emphasis on providing psychiatric care in less restrictive settings, a trend favoring reduced lengths of stay and a trend in third-party payors to provide reimbursement for a shorter number of days. In addition, nationwide statistics show that only 4 percent of the patients admitted to psychiatric facilities require treatment longer than 90 days. Table 11 - Manpower Requirements For the 120-bed facility, HCAC projected in the Table 11 a staffing ratio of one full-time equivalent (FTE) per occupied bed of 1.625 for the first year of operation and 1.43 for the second year. For the 105-bed facility, HCAC projected in the Table 11 1.91 FTE per occupied bed ratio for the first year and 1.45 for the second year. The actual average of FTEs available for both facilities would be 1.8 to 2.0. The application figures are lower than the actual average because students and other non-paid personnel were not included. Thus, when all programmatic FTEs are included, the number of FTEs per occupied bed is higher than what is listed in the Table 11 for either project. There is a relationship between the number and quality of staff personnel and a facility's ability to provide quality psychiatric care. The industry standard for FTEs is 1.8 to 2.0 FTEs per occupied bed. HCAC's proposed staffing for both the 120-bed and 105-bed projects are reasonable. For both proposed facilities, HCAC projects 110.5 FTEs for the first year with a total annual salary of $1,932,000 which equals an average salary of approximately $17,400 per FTE. HCAC's projected total annual salary expense is unreasonably low. Specifically, the salary for the occupational therapist is too low and the nursing salaries are too low because of shortages. Table 16 - Areas and Square Feet / Table 18 - Space Requirements HCAC proposes a total 59,603 square feet of gross area for the 120-bed facility and a total of 56,050 square feet of gross area for the 105-bed facility. The decrease in size for the 105-bed facility is attributed to a reduction of the ground floor, a reduction of the second floor by removing the adolescent portion and an increase of ancillary services on the second floor for the geriatric population. HCAC projects 168 feet of net living space in the patient's bedroom for both the 120-bed facility and the 105-bed facility. HCAC's proposal of total area and square feet requirements for both the 120-bed and 105-bed facility are reasonable for the delivery of quality psychiatric care within the proposed facilities. There would be adequate land space for parking at HCAC's facility to forego the necessity of constructing a parking garage. Table 19 - Nursing Unit Area Summary HCAC proposes a total of 34,479 square feet of gross area for the nursing unit in the 120-bed facility and the 105-bed facility. The square footage figures under Table 19 for both the 120-bed facility and 105-bed facility are reasonable. Table 25 - Estimated Project Costs Project Advisors Corporation (PAC), of which Mr. Estevez is the Chief Executive Officer, will be responsible for the design and construction of the proposed facility. PAC is a design and construction company which employs a registered architect, several licensed general contractors, an engineer, two graduate architects and a registered graduate architect. The registered architect and basically 90 percent of the staff have previously been involved in the design and construction of health related facilities. HCAC's projected total cost for the 120-bed facility is $6,469,500 and the projected total costs for the 105-bed facility is $5,696,940. HCAC projected construction costs per square foot of $57.55 for the 120-bed facility and $60.00 per square foot for the 105-bed facility. Although the average construction cost of psychiatric facilities today is around $75 to $95 per square foot, HCAC's projected costs are reasonable and reflect reasonable charges given the fact that PAC, the company which would construct the facility, is controlled by Mr. Estevez. The projected costs of land acquisition are also reasonable. HCAC's projected equipment costs are contained in both Table 25 and Table 2. As previously discussed, the projected equipment costs for both projects are unreasonably low. Table 26 - Project Completion Forecast HCAC projects that construction for both the 120-bed facility and 105- bed facility would be completed approximately one year after DHRS' approval of the construction documents. The project completion forecasts for both projects are reasonable. Exhibit III.D.1.- Operating Pro Forma/Forecasted Income Statement Revised Exhibit III.D.1 sets forth the operating pro forma for the first two years of operation of the 120-bed facility (1989 and 1990). HCAC's pro forma for its 120-bed facility is not reasonable. The supplies and other expenses depicted in the pro forma (year one at $55.60 per patient day and year two at $58.10 per patient day) are unreasonably low. A more reasonable estimate would be approximately $100 per patient day. The pro forma for the 120-bed facility does not include any estimate for the Hospital Cost Containment Board (HCCB) tax. Similar facilities in Florida pay an HCCB tax which is composed of one and a half percent of net revenue. Utilizing the more reasonable estimate of $100 per patient day for supplies and other expenses, and including the appropriate HCCB tax, the total supplies and other expenses would increase approximately $1,100,000 and the HCCB tax would be approximately $85,000 in year one. Instead of showing a profit of $395,012, HCAC would potentially lose approximately $785,000 in that year. In year two, the total supplies and other expenses would increase approximately $1,400,000 and the HCCB tax would be approximately $115,000 to $117,000. Thus, in year two, instead of showing a profit of $919,036, HCAC would potentially lose approximately $617, 000. HCAC's "forecasted income statement" for the 105-bed project is also not reasonable. Specifically, the contractual allowances, the allowance for bad debt, and the salaries, wages and fringe benefits are unreasonable. Contractuals include such things as Medicare, Medicaid, HMOs and PPOs, which all generate discounts which are considered contractual allowances. HCAC estimates its bad debt factor at 1.6 percent. A more reasonable projection would be 6 to 8 percent of gross revenue. CONSISTENCY WITH THE DISTRICT XI HEALTH PLAN AND STATE MENTAL HEALTH PLAN The District XI local health council has produced the 1986 District XI Health Plan. The district plan contains the relevant policies, priorities, criteria and standards for evaluation of an application such as HCAC's. HCAC's application is consistent with some of the applicable sections of the District XI Health Plan but inconsistent with the plan taken as a whole. Policy No. 1 of the District XI health plan states that the district should direct its efforts toward a licensed bed capacity of 5.5 non-federal beds per thousand population ratio by 1989. Presently there are 11,294 beds in District XI which represents a number in excess of 5.5 non-federal beds. HCAC's application is inconsistent with this policy. Policy No. 1, Priority No. 1, states that proposals for the construction of new beds in the district should be considered only when the overall average occupancy of licensed beds exceeds 80 percent. Priority No. 1 refers to certain types of beds, specifically, acute care general beds, short- term psychiatric beds and substance abuse beds. HCAC's application is not inconsistent with this priority because long-term psychiatric beds are not mentioned. Policy No. 1, Priority No. 2 favors the encouragement of projects that meet specific district service needs through the conversion of existing beds from currently underutilized services. Because HCAC is not the operator of an existing hospital and it is not possible for HCAC to convert any beds from other services, HCAC's application is inconsistent with Policy No. 1, Priority No. 2. Policy No. 1, Priority No. 3 would only be relevant in the case of an existing hospital but not in the case of a new hospital where no comparative hearing is involved. HCAC's application is not inconsistent with Policy No. 1, Priority No. 3. Policy No. 1, Priority No. 4 allows for priority consideration for the initiation of new services for projects which have had an average occupancy rate of 80 percent for the last two years and which have a documented history of providing services to Medicaid and/or other medically indigent patients. HCAC's application is not entitled to priority consideration under Policy No. 1, Priority No. 4. Policy No. 2 is a broad policy which provides that service alternatives should be available within the district to meet the needs of community residents, while at the same time maintaining an efficient level of utilization. This policy is necessarily tied to the demonstration of overall need for the facility. If HCAC can show need for the proposed facility, its proposal would be consistent with this policy. Policy No. 2, Priority No. 1(f) (Psychiatric Bed Services) provides for priority consideration to be given to specific institutions which have achieved an 80 percent occupancy rate for the preceding year. HCAC's application is not entitled to priority consideration under Policy No. 2, Priority No. 1(f). Policy No. 2, Policy No. 3(f) states that a CON applicant should propose to provide the scope of services consistent with the level of care proposed in the application in accordance with appropriate accrediting agency standards. In the case of psychiatric bed services the appropriate accrediting agency is the Joint Commission for Accreditation of Hospitals (JCAH). Although HCAC neglected to address its ability to comply with JCAH standards in its application, it has established its intent to seek JCAH accreditation. HCAC's proposal is consistent with Policy No. 2, Priority No. 3(f). Policy No. 2, Priority No. 4 gives a preference to those applicants that propose innovative mechanisms such as various complimenting outpatient and inpatient services which are directed toward an ultimate reduction in dependency upon hospital beds. HCAC does not meet this priority because it has not proposed any mechanisms to complement outpatient services with inpatient services directed toward an ultimate reduction in the dependency on hospital beds. Policy No. 2, Priority No. 5 gives a preference to applicants who have based their project on a valid marketing research effort and have placed it in the context of a long-range plan. HCAC does not meet this priority because there was no evidence that the project was based on a valid marketing research plan or placed in the context of a long-range plan. Policy No. 2f Priority No. 6 states that existing facilities as well as applicants for new services should demonstrate a willingness to enter into cooperative planning efforts directed at establishing a system whereby duplication of specialized services is avoided while quality of such services is enhanced. HCAC presented no documentation of transfer agreements with other hospitals and did not substantiate its willingness to enter into cooperative planning efforts with letters of intent, referral agreements or memoranda of understanding. Policy No. 3 provides that services in the community should be made available to all segments of the resident population regardless of the ability to pay. HCAC's proposal is consistent with this policy because a provision for services to indigent patients has been made. Policy No. 3, Priority No. 1 provides that priority should be given to applications proposing services and facilities designed to include Medicaid (Baker Act) patients to the greatest extent possible based on documented history or proposed services. Although Medicaid does not reimburse for freestanding psychiatric services, and Baker Act is only available to short-stay facilities specifically chosen to receive a Baker Act contract, HCAC has not designed its project to include those patients to the greatest extent possible. Thus, HCAC's application is not consistent with Policy No. 3, Priority No. 1. Goal I of the 1986 District XI Goals and Policies for Mental Health and Substance Abuse Services is applicable to HCAC's application. This goal favors mental health services in the least restrictive setting possible. Long- term institutional care may be the least restrictive setting possible in the continuum of mental health care for the treatment of certain more serious types of patients. The concept of "continuum of care" means the full breadth of services available within a community, from least restrictive to most restrictive, from least intensive to most intensive. There must be settings along the full continuum of psychiatric care for patients to receive the level of care they may need. HCAC's application is not inconsistent with Goal I. Issues Relating to CON Recommendations and Priority for Inpatient Psychiatric Services (District XI Health Plan 1986, page 26). In this section of the district health plan, the Planning Advisory Committee states its recommendations and preferences for services for the comprehensive treatment of the mentally ill. The Committee recognizes that long-term hospitalization is a viable form of treatment for some mentally ill patients. However, the Committee expresses a preference for short hospital stays and applicants that project treatment modalities with an average length of stay under 20 days. In addition, the Committee emphasizes a preference for services to be obtained through the conversion of medical/surgical beds, because the district has a large surplus of such beds. Overall, HCAC's project is not consistent with the recommendations and priorities of the Planning Advisory Committee. HCAC's proposal is inconsistent with the goals, objectives and recommendations of the State Health Plan taken as a whole. The State Health Plan contains an important and significant goal that no additional long-term hospital psychiatric beds should be added in the area until the existing and approved beds in the district have achieved an 80 percent occupancy level. The existing long-term hospital psychiatric beds in the district have an occupancy level at approximately 67 percent. AVAILABILITY AND ADEQUACY OF ALTERNATIVES There are available, accessible and appropriate facilities within the service district which can be utilized for the services proposed by HCAC that are presently underutilized. Currently, there are short-term psychiatric providers, a long-term provider, residential facilities, nursing homes and adult congregate living facilities that are available as alternatives in the service district, and in many cases are significantly underutilized. Although the services to be offered by the HCAC facility would be in excess of what is provided in an adult residential treatment facility, nursing home or adult congregate living facility, those facilities could serve as viable alternatives in appropriate cases. In 1986, there were 6,513 existing nursing home beds in District XI and an additional 1,928 approved for opening. There are 24 adult congregate living facilities in District XI with 50 beds or more. The total number of beds for ACLFs in 1986 was 2,620. In addition, Grant Center Hospital has 140 existing and 20 approved long-term psychiatric beds; its occupancy rate is low. THE ABILITY OF THE APPLICANT TO PROVIDE QUALITY OF CARE AND THE APPLICANT'S RECORD OF PROVIDING QUALITY OF CARE The "Flowers Model," made a part of the application, is a description of how, from a clinical perspective, the proposal will be managed. Although Flowers does not presently operate any long-term psychiatric facilities, the Flowers Model is appropriate for a long-term psychiatric care facility. From a clinical and programmatic perspective, the HCAC facility would provide good quality of care. PROBABLE ECONOMIES AND IMPROVEMENTS IN SERVICE WHICH MAY BE DERIVED FROM OPERATION OF JOINT, COOPERATIVE OR SHARED HEALTH CARE RESOURCES HCAC has not demonstrated that there will be any improvements in service which may be derived from operation of joint, cooperative or shared health care resources. The Northwest Dade County proposed location of the HCAC facility would place the project within two hours travel of 90 percent or more of District XI population. Nevertheless, HCAC's facility would increase the number of people who would be within two hours of long-term adult psychiatric facilities by less than 1 percent. The patients in District XI will not experience serious problems in obtaining inpatient care of the type proposed in the absence of the service proposed by HCAC. There is presently adequate and accessible long-term hospital inpatient services for District XI population based on the existing and approved facilities in District X (Southwinds Hospital, Florida Medical Center) and District XI (Grant Center). There are two approved but not yet open long-term psychiatric facilities in District X, Broward County. Florida Medical Center holds a CON for 60 long-term adult psychiatric beds to be located in Lauderdale Lakes and Southwinds Hospital holds a 75-bed CON with 60 beds counted for long-term treatment of adult and geriatric patients to be located in Andy Town. In addition, there are 238 long-term state hospital beds at South Florida State Hospital in Broward County. Although the need for long-term psychiatric beds is assessed on a district-wide basis, it is reasonable to consider psychiatric beds in Broward County (District X) as an alternative to HCAC's proposal because they are within two hours access of individuals within the two counties. Likewise, it is reasonable to consider approved beds because need is projected for a future date. Not counting approved beds would overestimate need and result in duplication of services. FINANCIAL FEASIBILITY HCAC has not demonstrated that the 120-bed project or the 105-bed facility is financially feasible in the short or the long term. The projection of revenues and expenses in the pro forma (120-bed project) and the forecasted income statement (105-bed project) were flawed to such an extent that financial feasibility of the project was not shown. IMPACT ON COSTS AND COMPETITION If HCAC's project were to be built, a likely result is increased charges for the provision of services in the area. HCAC's proposed facility would negatively impact the availability of psychiatric nurses. There is a shortage of psychiatric nurses in Dade County and it is difficult to recruit and hire R.N.s with psychiatric experience. In order to hire nurses in a time of shortage, hospitals must recruit staff from other facilities. Shortages can increase the cost of recruitment and the cost of salaries. Charter is a hospital located in District XI and consists of 88 beds, 80 of which are licensed as short-term psychiatric beds and eight of which are licensed as short-term substance abuse beds. Short-term psychiatric inpatient care is defined in Rule 10-5.011(1)(o), Florida Administrative Code, as "a service not exceeding three months and averaging a length of stay of 30 days or less for adults." HCAC's proposed facility, if approved, would have a negative economic impact on Charter. It is very likely that many of the patients at the proposed HCAC facility would experience lengths of stay between 45 and 60 days. Charter treats a significant number of patients (approximately 15 percent) who stay longer than 30 days. Because of the difficulty of initially identifying patients who would require either short or long-term stays, many of Charter's patients could be lost to the HCAC project. Charter could suffer a loss of up to 657 patient days per year if HCAC's proposed facility is approved. This loss of patients would impair Charter's ability to have certain types of programs, equipment and staff. PROVISION OF HEALTH CARE SERVICES TO MEDICAID PATIENTS AND THE MEDICALLY INDIGENT HCAC's project does not propose a significant amount of indigent care and HCAC has no history of providing health care services to Medicaid patients and the medically indigent. OCCUPANCY RATE FOR EXISTING LONG-TERM HOSPITAL PSYCHIATRIC BEDS Grant Center Hospital is the only existing long-term psychiatric facility in District XI. It has 140 beds and specializes in treating children and adolescent patients. Its occupancy rate at the time of review for the preceding year was approximately 67 percent. The appropriate period to calculate occupancy rate of existing facilities in this case is July 1985 to July 1986 because this is the most recent 12-month period preceding application decision. The occupancy rate of all psychiatric beds within District XI was below 80 percent. HCAC'S PROPOSED NEED METHODOLOGY At the hearing, W. Eugene Nelson testified on behalf of HCAC on the need for the proposed long-term adult psychiatric beds. Mr. Nelson was accepted as an expert in the field of health care planning, including psychiatric bed need assessment. Mr. Nelson performed his analysis in District XI using the Graduate Medical Educational National Advisory Committee (GMENAC) methodology. The need methodology proposed by HCAC is inappropriate to adequately and accurately predict need for long-term adult psychiatric beds in District XI. The GMENAC study is a national study based on national data developed to determine physician requirements in 1990 for 23 medical specialities. GMENAC estimates the prevalence of certain psychiatric disorders among the general population and estimates the number of those persons who need care for their conditions in differing treatment settings ranging from outpatient services to 24-hour institutional care. HCAC's methodology, utilizing the GMENAC study, predicted a gross need of 895 beds in District XI in the applicable horizon (July 1991). The total number of existing long-term psychiatric beds in the entire State of Florida is only 836 beds, and the majority of those beds are experiencing occupancy levels under 65 percent. Many of these long-term facilities have been around for a period of at least three years and are still experiencing low occupancy. Therefore, the low levels are probably not based on the fact that the facilities are in a start-up mode. HCAC's bed need computation is as follows: Adult Long Term Psychiatric Bed Requirements (Excludes Alcohol, Drug Abuse, Mental Retardation, Organic Brain Syndrome and "other" Conditions) District XI: July 1991 Condition Admission Rate Schizophrenia & Other Psychoses 99 Affective Disorder Psychosis 20 Affective Disorder Neuroses 60 Neuroses and Personality Disorders 199 20 Projected 1991 Population Age 18+ 1,459,437 Total Projected Admissions 2,904 Average Length of Stay 90 Projected Patient Days Target Occupancy 80.00 261,385 percent Total Beds Required 895 Beds Currently Available 438 South Florida State Hospital (450 X .48) Residential Treatment Facilities 216 233 Net Beds Needed 496 The projected 1991 population for District XI for age 18 and above is 1,459,473. The population projections were received from the Office of the Governor. The anticipated admissions per 100,000 is calculated to be 199 for the conditions listed. The total projected admissions for 1991 is 2,904. The 2,904 projected long-term care admissions when multiplied by the average length of stay of 90 days generates 261,385 projected patient days in the 1991 horizon period in District XI. The 261,385 patient days is then divided by 365 days in the year, and then by 80 percent, the latter of which is contained in the rule as the optimum or desired occupancy for long-term psychiatric beds. This yields a total gross long-term psychiatric bed requirement for adults and geriatrics of 895 beds. In performing his analysis, Mr. Nelson used Table 4, page 22 of the GMENAC Study which lists information for mental disorders requiring care by treatment setting. The prevalence rate of 199 admissions per 100,000 population was based on the study's projection of the mental disorders listed requiring a "24-hour" treatment setting. Nelson used a projected 90-day length of stay in his computations. There is nothing in the GMENAC document that sets forth the average length of stay of persons reflected in the 24-hour column. Therefore, it is misleading to assume that persons admitted subject to the 199 per 100,000 admissions rate will actually experience an average length of stay as long as 90 days. For HCAC's admission rate to be valid, all of the facilities in District XI would have to average a 90-day length of stay. This is an unreasonable assumption. Nationwide, only a small percentage of all psychiatric admissions experience a length of stay as long as 90 days. In computing beds currently available in District XI, Mr. Nelson did not consider nursing home beds, adult congregate living facility beds, or the 135 long-term psychiatric beds that have been approved for two facilities in District X (Broward County). Nelson also did not consider whether short-term facilities were capable or willing to take additional patients for long-term treatment. Thus, the computation of beds currently available in the HCAC methodology is unreasonably low. HCAC's need methodology generated a long-term psychiatric bed to population ratio of .61 per thousand. DHRS' rule for short-term psychiatric beds was a population ratio of .35 per thousand. Short-term care facilities have admission rates two to three times greater than long-term facilities and nationwide statistics establish that only 4 percent of all psychiatric patients stay longer than 90 days. It is not reasonable for the bed rate for long-term adult psychiatric beds to be higher than the rate for short-term psychiatric beds. Mr. Nelson excluded organic brain syndrome diagnosis from his analysis and admission rate based on an assumption that many of those patients are in nursing homes. Nelson did not use nursing home beds in computing his need methodology because he believed that eliminating the organic brain syndrome category from the Table 4, page 22, 24-hour column in the GMENAC study eliminates the need for considering nursing home beds in the inventory. For that approach to be valid, the number of organic brain syndrome patients that go to long-term psychiatric facilities would need to cancel out the number of patients in other diagnostic categories who go to nursing homes. Nelson did not consult or review any data concerning the number or percentage rates of schizophrenics and other mentally ill patients in nursing homes or the number of organic brain syndrome people being treated in long-term psychiatric facilities. In addition, Nelson did not know what percentage, if any, of the GMENAC projected admissions were nursing home admissions. In computing existing beds, Nelson listed two types of facilities previously existing in District XI which were applicable to his methodology: the state hospital (216 beds) and residential treatment facilities (233 beds). The correct number of beds available for adults from District XI in the state hospital is 238. The actual number of beds for residential facilities is 335. Dr. Howard Fagin testified as an expert in health planning and feasibility analysis, including psychiatric bed need assessment and feasibility. In Dr. Fagin's opinion, Nelson's bed need methodology is incorrect and the conclusions drawn are wrong because Nelson used an inappropriate length of stay based on the GMENAC study and also incorrectly identified the applicable beds which should be considered for comparable facilities under the GMENAC study and, therefore, his total numbers in terms of gross and net beds needed are incorrect. Dr. Fagin's critique of Mr. Nelson's bed need methodology is persuasive and credible. HCAC has failed to show that its proposed need methodology could accurately project the need for long-term psychiatric beds in District XI.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that CON Application No. 4854 by Health Care Advisors Corporation, Inc. be DENIED. DONE and ORDERED this 1st day of March, 1988 in Tallahassee, Leon County, Florida. W. MATTHEW STEVENSON Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of March, 1988. COPIES FURNISHED: Lesley Mendelson, Esquire Assistant General Counsel Department of Health and Rehabilitative Services Fort Knox Executive Center 2727 Mahan Drive, Suite 308 Tallahassee, Florida 32308 H. Darrell White, Esquire Gerald B. Sternstein, Esquire Post Office Box 2174 Tallahassee, Florida 32302 William E. Hoffman, Esquire 2500 Trust Company Tower 25 Park Place Atlanta, Georgia 30303 George N. Neros, Jr., Esquire 101 North Monroe Street Monroe-Park Tower Suite 900 Tallahassee, Florida 32301 Donna H. Stinson, Esquire The Perkins House Suite 100 118 North Gadsden Street Tallahassee, Florida 32301 R. S. Power, Esquire Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
