The Issue BAMI and VENICE filed competing applications for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida. The sole issue is which application should be granted, and which should be denied.
Findings Of Fact DHRS is the state agency empowered to review, issue, deny, and revoke certificates of need for health care projects. 381.494(8), Fla. Stat. (1981). In January, 1982, VENICE and BAMI separately applied to DHRS for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida. When the applications were filed, Florida law required the appropriate health systems agency to initially review applications for certificates of need. On March 10, 1982, the Project Review Committee of the South Central Florida Health Systems Council, Inc.--the appropriate health systems agency--considered the competing applications, then voted to approve the proposal submitted by VENICE, and deny the proposals submitted by BAMI and a third applicant (not involved in this proceeding). On March 27, 1982, the Board of Directors of the South Central Florida Health Systems Council, Inc. disagreed with the Project Review Committee's recommendation and voted to recommend (to DHRS) approval of the BAMI proposal and disapproval of the VENICE proposal. DHRS then independently reviewed the two competing applications. On April 30, 1982, it issued a (free-form) certificate of need to BAMI to construct a 75,000 square foot, 100-bed acute care hospital in Englewood. Conversely, it denied VENICE's application, asserting: (1) that the interest and depreciation expense per projected patient day for the first two years of operation of the BAMI proposal was less than that projected for the VENICE proposal; (2) that the estimated labor and materials cost per square foot for the BAMI proposal was lower than the amount estimated for the VENICE proposal; (3) and that the provision for 30 semiprivate rooms in the BAMI proposal offered patients an alternative unavailable in the all-private room hospital proposed by VENICE. VENICE thereafter requested a formal hearing to contest DHRS's action, which request resulted in this proceeding. Bami BAMI seeks a certificate of need to construct a new 100-bed acute care hospital in Englewood, Florida, to be known as Englewood Community Hospital. BAMI proposes to relocate and merge its existing Englewood Emergency Clinic and Primary Care Center into the proposed Englewood Community Hospital. The service area for the BAMI proposal includes the following communities in Sarasota, Charlotte, and Lee counties: Englewood, North Port, Warm Mineral Springs, El Jobean, Grove City, Rotunda West, Placida, Cape Haze, and Boca Grande. The proposed hospital contains 92 medical/surgical beds and 8 intensive care unit (ICU) beds. The 92 medical/surgical beds contain a mix of 32 private be and 60 semiprivate beds. The hospital will provide ambulatory surgical services, diagnostic and special procedures, radiology services, nuclear medicine, ultrasonography, cardio-pulmonary, emergency room, and clinical laboratory services. The following services would be shared with its affiliate, Fawcett memorial Hospital in Port St. Charlotte, Florida: business office, medical records, data processing, materials management, personnel, education, public relations, administration, dietary, bio-medical engineering, laboratory, sterile processing, vascular laboratory, and occupational therapy. The proposed hospital will be a wholly-owned subsidiary of BAMI, and will have its own board of directors, board of trustees, and medical staff. BAMI is an experienced health care provider. Its principals have been in the health care business since 1964, and have built and operated 25 health care facilities in the mid-western United States. BAMI owns and operates several health care facilities in Florida: the 400-bed Fort Myers Community Hospital in Fort Myers, Florida; the 254-bed Fawcett Memorial Hospital in Port Charlotte, Florida; the 120-bed Kissimmee Memorial Hospital in Kissimmee, Florida; the Englewood Emergency Clinic and Primary Care Center in Englewood, Florida; the Ambulatory Surgical Center in Tampa, Florida; and the Emergency Clinic and Primary Care Center in Bonita Springs, Florida. BAMI also owns two smaller hospitals, one in Georgia and the other in Alabama. It is experienced in building and opening new hospitals, having built both the Fort Myers Community Hospital and the Kissimmee Memorial Hospital. It also expanded Fawcett Memorial Hospital from 96 beds to 254 beds. BAMI has financial assets of approximately $63,842,400 and a net worth exceeding $13.5 million. Venice VENICE seeks a certificate of need to construct a 100-bed satellite acute care hospital in Englewood, to be known as the Englewood-North Port Hospital. The service area for this proposed hospital consists of Englewood, North Port, Rotunda West, Placida, Warm Mineral Springs, Boca Grande, and Cape Haze. VENICE's proposed hospital contains 96 medical/surgical beds and four ICU beds. No semiprivate rooms will be available. All of the 96 medical/surgical beds will be placed in private rooms. The proposed satellite hospital will share the following services with VENICE's existing 300-bed "mother" hospital in Venice, Florida: specialized laboratory services, physical therapy, nuclear medicine, pulmonary functions, and specialized radiology services. For specialized and more sophisticated services, patients will be transported from the Englewood hospital to the larger hospital in Venice. The following support services will also be shared with the "mother" hospital: purchasing, bulk storage, laundry, dietary management, data processing, financial management, personnel recruitment, and educational services. In order to share these services, the existing Venice Hospital will be required to operate a transportation system. For many years, VENICE has owned and operated Venice Hospital, a fully licensed and accredited 300-bed general acute care hospital at 540 The Rialto, Venice, Florida. Venice neither owns nor operates any other hospital, although it has applied for a certificate of need to construct a 50-bed psychiatric hospital. The present management of Venice Hospital is inexperienced in the construction and opening of new hospitals. II. COSTS AND METHODS OF CONSTRUCTION Construction costs for the competing BAMI and VENICE proposals are broken down into categories and depicted in the following table: COMPARATIVE CONSTRUCTION COSTS CATEGORY BAMI VENICE Total Project Cost $13,355,000 $18,170,000 Total Project Per Bed Cost 135,500 181,700 Total Direct Construction Equipment Cost for and Fixed 11,670,190 13,874,516 Gross Square Feet 75,327 75,000 Construction Costs 155 173 Per Square Foot Number of Stories One Two Expansion Potential 100 additional 200 additional EQUIPMENT Movable 3,500,000 2,272,444 Bami Construction of the BAMI hospital can begin by September 1, 1983, and be completed by December 31, 1984. The new hospital can be opened by January 1, 1985. The BAMI hospital will be a one-story building, a design which is efficient for a hospital of this size. It will consist of a steel structure with curtain walls. The building is functional and economical, and can be expanded horizontally to 200 beds with minimum disruption to existing services and staff. The design of this hospital is similar to the 120-bed Kissimmee Memorial Hospital built by BAMI in 1979. BAMI's cost estimates are based on the actual costs of constructing the Kissimmee Memorial Hospital. BAMI proposes to construct the hospital by using an affiliate, F & E Community Developers of Florida, Inc. The use of an in-house contractor will allow BAMI to build the hospital in a short time period, at less cost and with higher quality. BAMI's proposal contains both active and passive energy conservation elements. The passive elements include overhangs, shaded glass, and movable windows. Active elements include the selection of quality equipment and a computerized control system for the electric reheat heating/ventilation/air conditioning ("HVAC") system. The architectural and construction plans for BAMI's proposed hospital are virtually complete. Schematic drawings were submitted and approved by DHRS in August, 1981. Preliminary plans have also been approved by DHRS. DHRS approval entailed a review of architectural, electrical, and mechanical preliminary drawings. Venice If the VENICE proposal is approved, construction could begin between April and July, 1984. The hospital could open for occupancy on January 1, 1986, a year later than BAMI's proposal. VENICE's architectural and construction plans are at an early stage, consisting only of a program summary and block design. Architectural, electrical, and mechanical preliminary drawings have not yet been submitted to DHRS and approved. The construction cost estimates submitted by VENICE are less reliable than those submitted by BAMI, since they were derived from less developed plans and were based on assumptions presented by persons who did not testify at hearing. VENICE's proposed hospital consists of a reinforced concrete structure with a modular precast concrete exterior. Although it will consist of two stories, the building will be stressed for the subsequent addition of two stories. When and if it is expanded to four stories, it would be a 300-bed hospital. The planned vertical expansion increases the initial cost of the building by approximately ten percent. Because of the extensive sharing of medical and support services between the proposed satellite hospital and the "mother" hospital in Venice, the ancillary medical and support facilities of the satellite have been down-sized. The VENICE proposal will also require horizontal expansion in the future. Areas such as radiology, laboratory, and emergency rooms will require immediate expansion as beds are added to the facility. It has not been shown at what point, in the planned expansion, VENICE's proposed hospital would become a free-standing hospital--when it would no longer be required to rely on its "mother" hospital in Venice. VENICE proposes an energy efficient facility. The multiple-story design minimizes site use and roof coverage. The relatively narrow wings provide for optimum use of daylight. VENICE contends that its HVAC system is more cost effective than the system proposed by BAMI. This contention is not substantiated by convincing evidence. The VENICE witness who testified on this question was an architect, not a mechanical engineer. He was unfamiliar with the computerized energy control system proposed by BAMI and used assumptions made by others who did not testify at the hearing. Bami III. HOSPITAL EQUIPMENT BAMI's proposed movable hospital equipment will cost approximately $3,500,000. Included are three radiology rooms: one general radiographic room, one standard R and F room, and one R and F room with angiographic capability. Also included are 8 ICU beds, four operating "rooms--two major and two minor-- nuclear medicine, and ultrasound capability. Venice The equipment cost for the VENICE proposal is $2,272,444. Included are 3 operating rooms, one with cystographic capability; four ICU beds and two radiology rooms--one R and F, and one general radiographic. More sophisticated diagnostic procedures, such as nuclear medicine and specialized radiology, will be provided at the "mother" hospital in Venice, not at the proposed Englewood satellite. To utilize these procedures, patients will be transported from Englewood to Venice. VENICE acknowledges that its proposed hospital will utilize less sophisticated diagnostic equipment than BAMI's. VENICE's equipment cost would have to be increased approximately $700,000 if it were to provide eight ICU beds and specialized radiology and nuclear-medicine to match BAMI's proposal. The equipment cost differential indicates the different levels of care proposed by the two hospitals. The VENICE proposal requires the development of a transportation "shuttle" system between the "mother" hospital in Venice and the satellite in Englewood. The system would consist of two trucks in addition to vans or ambulances. The plans for this essential transportation system are, however, not fully developed. The need for van or ambulance transportation between the two facilities has not been fully considered. Further, the transportation plan estimates a 25-minute one-way driving time between Englewood and Venice year- round. During the busy winter months, it is likely that the driving time will increase. Although VENICE proposes to lease the necessary trucks, neither the leasing costs nor associated costs have been fully taken into account. IV. FUNDS FOR OPERATING AND CAPITAL EXPENDITURES Bami BAMI will finance the $13,555,000 required to open its proposed hospital with bond proceeds, an equipment lease, and an equity contribution. It will obtain $7,905,000 from taxable bonds with a maturity of 25 years, and an interest rate of 12.5 percent. There will be a 2-year holiday on principal payments. BAMI will finance the $3,500,000 equipment cost pursuant to a lease agreement with Financial and Insurance Services, Inc., with an eight-year term and an interest rate of 15 percent. BAMI will make an equity contribution of $2,150,000. This will be in the nature of a contribution of capital from a parent corporation to a subsidiary corporation. As of September 30, 1982, BAMI had a net worth exceeding $13,500,000. BAMI will provide up to $1,000,000 in operating capital to cover initial start-up costs of the proposed hospital. In addition, BAMI has obtained a $5,000,000 line of credit which will be available to cover any potential cash shortages occurring during the start-up phase of the hospital. Venice VENICE will obtain the $18,170,000 required for its proposal from tax- free bond financing and an equity contribution. The bonds, which will have a maturity of 30 years and an interest rate of 10.52 percent, will be an obligation of the Venice Hospital. A debt service reserve fund of $1,900,750 will be required in order for the bonds to obtain an "A" rating. In unrelated applications, VENICE has proposed a major renovation of its existing hospital and the construction of a new free-standing 50-bed psychiatric hospital. These projects, if undertaken, will require additional equity contributions of $1,221,000 and additional bond financing in the amount of $10,370,000. To obtain the bond financing, VENICE will be required to maintain a one-to-one historical debt coverage ratio. VENICE has not convincingly established that it will be able to carry out all three projects and still maintain the required one-to-one debt coverage ratio. VENICE proposes to locate its proposed hospital on 15 acres of land costing $135,000. But the land sales contract provides only for the sale of 250 acres at a cost of $2,250,000. (The present owners wish to sell the entire 250- acre parcel and not lesser amounts.) The source of the $2,250,000 needed to acquire the property has not been identified. The bond proceeds could not be used. To purchase the 250 acres and fund the equity for its three proposed health care projects, VENICE will require $4,311,000. The source of these funds has not been identified. VENICE contends that one possible source would be Board Designated Funds. However, VENICE's audited financial statements for the period ending September 30, 1982, suggest otherwise. PROPOSED SITES Bami BAMI, through a subsidiary, has contracted to purchase approximately 12 acres as a site for its proposed Englewood hospital. The 12-acre site is part of a 60-acre parcel of land that is zoned OPI, a zoning classification which will permit the construction of a hospital. The 12-acre site is located on Morningside Drive, an access road to Pine Street. Although Morningside Drive is a dirt road, it will be paved. Under the contract, the current owner will pay all paving costs in excess of $65,000. The initial $65,000 in paving costs will be borne by BAMI and has been included in BAMI's estimated construction costs. Pine Street, a major north- south transportation artery in the Englewood area, is currently being resurfaced in both Sarasota and Charlotte counties. A second access to Pine Street has been acquired by the current owner. A watermain is available at the BAMI site. The current owner of the property will construct a sewage treatment plant and provide sewer service to the proposed hospital at prevailing rates. The sewage treatment plant will be located on a 7.5-acre portion of the 48 contiguous acres retained by the current owner. The BAMI site is located in an A-11 flood zone with an elevation of ten feet. Fill dirt will be used to raise it to an acceptable elevation of twelve feet. A current owner of the BAMI site envisions the entire 60 acres as an Englewood medical center. If necessary he will allow BAMI to purchase an additional 12 acres contiguous to the site. BAMI has not yet, however, obtained a legally enforceable right to purchase additional property adjoining its 12- acre site. Although the 12-ace site will permit the planned 100-bed future expansion, the site would be crowded with little space remaining for future improvements. Venice The VENICE site is an undesignated 15-acre portion of a 250-acre parcel of land located off State Road 777, also known as South River Road. It is uncertain whether the hospital will have one or two access roads to State Road 777. A watermain is available at the VENICE site. Sewage treatment will be provided by a nearby privately owned sewage treatment plant until the hospital, eventually, constructs its own. The zoning classification of the VENICE site will not permit construction of a hospital. Before the hospital could be built, Sarasota County would be required to rezone the property to OPI. Use of the property for a hospital is also inconsistent with Sarasota County's comprehensive land use plan, adopted October 31, 1981. Such a rezoning process would take a minimum of three or four months, and perhaps longer. Approximately 100 individual steps are involved. Hearings would be held by the Sarasota Planning Commission and the Sarasota County Commission. VENICE has not yet filed an application to rezone either the 15 acres or the entire 250-acre parcel. Neither has it shown that it is likely to succeed in having the property rezoned to a classification permitting hospital use. Bami VI. EFFICIENT AND ALTERNATIVE USES OF HEALTH CARE RESOURCES As part of its application, BAMI proposes to merge its existing Englewood Emergency Clinic and Primary Care Center into its proposed Englewood hospital. If the BAMI application is denied and VENICE's granted, BAMI will continue to operate the Emergency Clinic and Primary Care Center. As a result, the Emergency Clinic and VENICE's Englewood hospital would be providing duplicative emergency services. The costs resulting from this duplication would be approximately $894,800 in 1985; $975,300 in 1986; and $1,063,100 in 1987. For cost effectiveness, BAMI's proposed hospital will share some ancillary and support services with Fawcett Memorial Hospital in nearby Port Charlotte. Fawcett Memorial will also provide tertiary level services, such as renal dialysis and CAT scans to patients of the proposed Englewood hospital. BAMI operates a multi-hospital system, with subsidiaries which provide ancillary and specialized support services. These services include physical therapy, inhalation therapy, cardiopulmonary function, speech therapy, data processing, and collection services. Corporate level expertise in accounting, property management, pharmacy management, personnel, and marketing, is also available. The multi-hospital system allows BAMI to obtain favorable purchasing contracts and capital for future expansion. Venice Venice Hospital, the only hospital in south Sarasota County, has a high rate of occupancy. Although presently a 300-bed facility, it has an ultimate capacity of 400 beds. It recently applied for a certificate of need to add 24 ICU/PCU beds and additional beds, beyond that, are needed. It has a shelled-in fourth floor that will accommodate an additional 45-bed nursing unit. Completing the fourth floor at Venice Hospital would be a more cost-effective alternative way to add beds than constructing a new hospital in Englewood. As already mentioned, the "mother" hospital in Venice will share numerous ancillary and support services with the proposed satellite hospital in Englewood. VENICE proposes to share, among other things, its present laboratory with the proposed Englewood satellite. As a result, the laboratory in the satellite hospital has been reduced to a minimal size. It has not been convincingly established that the Venice Hospital laboratory, even if expanded as proposed, can process the additional laboratory work-load arising from an Englewood satellite. The laboratory at the existing Venice Hospital presently operates 24-hours per day, seven days a week. Even if its application to expand its laboratory is granted, the total area of the laboratory would be less than the accepted space guidelines required for a 324-bed hospital. VII. AVAILABILITY, APPROPRIATENESS, AND ACCESSIBILITY OF PROPOSED HEALTH CARE SERVICES Scope of Services Although both proposed hospitals would share services with affiliated hospitals, BAMI proposes more of an autonomous, full-service and free-standing hospital than that proposed by VENICE. BAMI will equip its hospital with a more complete and sophisticated range of diagnostic services and, unlike VENICE, has not down-sized its ancillary and support services. For the VENICE proposal to become a free-standing facility comparable to BAMI's, the space devoted to ancillary medical services and support services would have to be expanded by 30 percent and 50 percent, respectively. The costs of such an expansion have not been determined. Economic Access Both parties will enter Medicaid contracts covering their proposed hospitals. BAMI projects that .1 percent of its patients will be Medicaid; VENICE projects .2 percent. BAMI hospitals treat all emergency patients, regardless of ability to pay. Third party payment is accepted. On elective admissions, self-pay patients are requested to make reasonable deposits and sign promissory notes. In specific instances, patients can be admitted without making financial arrangements in advance. Patients are not referred to other hospitals because of inability to pay. If an indigent is defined as "one who cannot pay," Fawcett Memorial Hospital provided between $600,000 and $700,000 in indigent care during 1982. This figure represents approximately 3.9 percent of gross revenue. Similarly, Venice Hospital treats emergency patients regardless of their ability to pay. Promissory notes are obtained from self-pay patients if necessary. The credit policies of Venice Hospital are similar to BAMI's. Venice Hospital had a bad debt or charity to gross receipts ratio of between 2.5 percent and 3.0 percent in 1982. Venice Hospital also has a Hill-Burton requirement to provide indigent care in the amount of approximately $125,000 per year. This requirement stems from a federal grant awarded in 1970. Access to Osteopathic Physicians BAMI's proposed hospital will have an open medical staff, including licensed medical doctors and osteopathic physicians. BAMI has a practice of allowing osteopathic physicians on its medical staff. For several years, osteopathic physicians have been included on the staff of all BAMI hospitals. Fort Myers Community Hospital, a BAMI hospital, is one of two hospitals in the Fort Myers area with osteopathic physicians on its staff. Kissimmee Memorial Hospital, also owned by BAMI, has the only two osteopathic physicians in Kissimmee on its staff. Fawcett Memorial Hospital has the only osteopathic physician in Port Charlotte on its staff. In contrast, VENICE has not added osteopathic physicians to its staff with similar enthusiasm. It granted staff privileges to its first osteopathic physician six to nine months prior to hearing. Two months before the hearing, staff privileges were granted to a second. Venice Hospital has, however, changed its bylaws to comply with the law prohibiting discrimination against osteopathic physicians. Geographic Access The geographic locations of the sites for the two proposed hospitals, as described above, provide equal access to the service area. The BAMI site is closest to the existing population concentrations of the Englewood area, while the VENICE site is closer to Interstate 75. Both sites will require the paving of an access road to major traffic arteries. No significant advantage in access is afforded to either. VIII. COMPETITION The existing Venice Hospital currently serves the hospital needs of approximately 64 percent of the people in the greater Englewood area. These patients comprise approximately 26.8 percent of Venice Hospital's total patient days. BAMI's existing Fawcett Memorial Hospital in Port Charlotte currently serves between ten and twelve percent of the hospital needs of the people in the greater Englewood area. These patients account for approximately 11.3 percent of Fawcett Memorial's total patient load. In addition, BAMI's Englewood Emergency Clinic and Primary Care Center has treated over 20,000 patients since it opened in February, 1980. The existing Venice Hospital holds a dominant market share in the greater Englewood area. It is only twelve miles north of Englewood and is the only hospital in south Sarasota County. The closest competitor in Sarasota County is Sarasota Memorial Hospital, approximately 20 miles north of the Venice Hospital. Venice Hospital has been in operation for approximately 30 years. In contrast, Fawcett Memorial Hospital is approximately 21 miles east of Englewood. In the mid-1970s, it was converted from a nursing home to a 96-bed hospital, and in 1976, it was expanded to 254 beds. Approval of BAMI's proposal will enhance competition among hospitals serving the greater Englewood area. The competition will not, however, adversely affect Venice Hospital's long-term viability. The construction of either hospital in the Englewood area will change existing hospital utilization and physician referral patterns. New referral patterns will form and an increasingly autonomous group of physicians will develop. Local physicians will utilize the Englewood hospital, whether it is owned by BAMI or VENICE. Bami IX. PROJECTED COSTS OF PROVIDING HEALTH CARE SERVICES BAMI forecasts an occupancy rate of 60 percent at its proposed Englewood hospital in 1985; 75 percent in 1986; and 80 percent in 1987, with an average length of stay of 8.5 days. These figures are credible in view of the population growth in the Englewood area, the undisputed need for a new hospital, and the elderly population. To project total cost and gross revenue per patient day, various calculations are made. BAMI's employee salary expenses are based on its experience at nearby Fawcett Memorial Hospital, adjusted by an inflation factor. Non-salary expenses are derived from its experience at Kissimmee Memorial Hospital, a hospital of similar size with a utilization rate similar to that projected for the Englewood hospital. Depreciation of plant and equipment is calculated using the straight-line method. Revenue projections are derived using the American Hospital Association's Monitrend median inpatient revenue, inflated at 9 percent per year. An indigent/bad debt deduction of four percent of total patient revenue is used. These assumptions provide a credible basis from which total cost and gross revenue per patient day can be calculated. Using these assumptions, total costs per patient day is forecast to be $482.00 in 1975; $479.60 in 1986, and $510.32 in 1987. Gross revenue per patient day is forecast to be $552.00 in 1985; $601.68 in 1986; and $655.83 in 1987. These forecasts are credible and accepted as reasonably reliable. Venice VENICE's primary contention is that its proposed hospital, although costing more to build, will--in the long run--result in lower costs to patients and increased savings to the community. This contention was not substantiated by convincing evidence. In forecasting its costs and revenues, VENICE projected an occupancy rate of 65 percent in 1986; 80 percent in 1987; and 80 percent in 1988. The 1986 projection is unreasonably high; it envisions a 70.4 percent utilization rate during the opening month. VENICE's projected salary expenses are derived from its current experience at Venice Hospital, adjusted for inflation. Although this figure is reliable, the projected non-salary expense per patient day is not. The nonsalary expense is not based on Venice Hospital's most recent 1982 expenses, and is not adjusted by the requisite inflation factor. The depreciation schedule and assumptions used by VENICE in forecasting its revenues and costs are also questionable. Discrepancies went unexplained. The testimony of Deborah Kolb, Ph.D., an expert in health care financial and need analysis, is considered more credible. She concluded that VENICE understated 1986 depreciation expense for its proposed hospital by approximately $300,000, an error which would have increased its projected patient costs per day by $13.70. VENICE also projects room charges at its proposed hospital which are significantly lower than those projected for its "mother" hospital in Venice. This difference in room charges was not adequately explained or justified. Although VENICE's controller attributed the difference to cost savings resulting from the satellite hospital concept, these savings were not meaningfully itemized or identified in VENICE's revenue and cost projections. VENICE also failed to identify, and reflect in its projections, increased costs resulting from use of its satellite concept. For example, in 1986, 532 Englewood patient are projected as requiring sophisticated nuclear medicine tests at the "mother" hospital in Venice; 141 Englewood patient are projected as requiring special radiology tests at Venice Hospital. When asked who would absorb the costs of transporting patients between the satellite hospital in Englewood and the "mother" hospital in Venice, VENICE's controller responded that Venice Hospital would. However, those costs have not been quantified. Moreover Venice Hospital does not currently pay for ambulance transportation of its patients and does not have vans which transport patients on 24-mile round trips. This amounts to a significant and additional cost of operation, which has not been fully considered in the financial forecasts. Moreover, VENICE utilized cost per patient day based on Venice Hospital's 1981 costs rather than the higher 1982 costs. (Revenue per patient day increased 23.8 percent, in 1982.) In addition, projected revenues at VENICE's proposed Englewood satellite were not adjusted downward to take into account the less-sophisticated medical services which would be provided. As a result, VENICE's projected revenues per patient day are questionable and lack credibility. Venice Hospital received funds from three philanthropic organizations: Venice Hospital Blood Bank, Venice Hospital Auxiliary Volunteers, and Venice Health Facilities Foundation. Without the infusion of these funds, charges to Venice Hospital's patients would be higher. Venice Hospital's own fund raising literature states that patient charges, alone, do not cover the full costs of providing medical services. These community-raised funds, then, pay part of the costs of providing medical care. But in calculating cost savings to the community from its proposed Englewood hospital, VENICE has not identified or taken into account these additional funds raised from the community. VENICE's comparison of its projected patient charges with those of BAMI's is, accorded little weight. The two proposed hospitals are significantly different, one providing more extensive and sophisticated medical care than the other. This difference was not adequately taken into account in the financial comparison. Additional costs to Venice Hospital resulting from the Englewood satellite hospital were not fully considered. Comparisons based on historical charges by Venice Hospital and Fawcett Memorial Hospital are also misleading since these hospitals are different in size and occupancy rate--and the proposed Englewood hospital will duplicate neither. Moreover, Venice Hospital historical room rates used for the comparison were selectively chosen. VENICE also relies on projected HVAC life cycle savings, which, as already mentioned, were not convincingly established. Finally, the costs of acquiring VENICE's site-- necessitating a 250-acre purchase--were not fully reflected in the comparison. X QUALITY OF CARE The parties stipulated that both proposals will provide high quality medical care. The only question is whether bed-configuration will affect the quality of care provided. BAMI proposes a mix of 32 private and 60 semiprivate medical/surgical beds, with an additional 8 ICU beds. In contrast, VENICE proposes 96 private medical/surgical beds and 4 ICU beds. BAMI's mix of private and semiprivate rooms will allow consumers a choice and is preferable to VENICE's all private-room proposal. Private and semiprivate rooms confer various benefits. BAMI's proposed 32 private rooms will be adequate to serve those patients requiring private rooms while, at the same time, affording patients a choice between private and semiprivate. The VENICE proposal will not allow such a choice. It has not been shown, however, that bed configuration will affect the quality of medical care rendered patients. XI. COMPARISON: BAMI'S PROPOSED HOSPITAL IS PREFERABLE TO VENICE'S Both proposed hospitals would provide necessary and quality medical care to people in the Englewood area. On balance, however, BAMI's proposal is preferable. BAMI's free-standing hospital will provide more complete and sophisticated medical care, with less need to transport patients between "mother" and satellite hospitals. VENICE's satellite hospital will require extensive transporting of patients, food, linens, equipment, lab samples, and medications between the "mother" hospital in Venice and the satellite hospital in Englewood. BAMI, a multi-hospital system, is more experienced in constructing and operating new hospitals. The BAMI proposal will cost approximately $2,000,000 less to build, yet be of comparable quality and equipped with more sophisticated diagnostic equipment. While VENICE's construction plans are preliminary, BAMI's are detailed and virtually complete. VENICE's site requires rezoning, BAMI's does not. If BAMI's application is approved, its hospital could be opened by January 1, 1985,a year earlier than VENICE's. BAMI is financially able to begin construction immediately while VENICE--because of other projects simultaneously undertaken--may not be. Apart from zoning, both hospital sites are equally acceptable, although BAMI's 12-acre site is minimally sufficient for the anticipated future expansion to 200 beds. BAMI's financial ability to purchase is assured, while VENICE's is not. BAMI's proposal would avoid a duplication of emergency medical services in Englewood, while VENICE's would cause it. For patients preferring osteopathic physicians, BAMI's hospital would, most likely, be preferable. For patients preferring semiprivate rooms, BAMI's proposal would be preferable. Competition between hospitals serving the Englewood area would be enhanced with the BAMI proposal and decreased with VENICE's. Although VENICE argued that the costs to its patients would, over the long run, be less than BAMI's, this proposition was not convincingly proved.
The Issue Whether there is need for a new hospital in AHCA Acute Care Subdistrict 5-2 (eastern Pasco County)? If so, whether AHCA should approve either CON 9975 or CON 9977?
Findings Of Fact The Applicants and Background Pasco-Pinellas Pasco-Pinellas, the applicant for CON 9975, is a joint venture between two nonprofit healthcare organizations: University Community Hospital, Inc. (UCH) and Adventist Health System Sunbelt Healthcare Corporation (Adventist). A not-for-profit healthcare system, UCH has served the Tampa Bay area for the last 40 years. It owns and operates two hospitals in Hillsborough County and one in Pinellas County. UCH has approximately $100 million available for capital expenditures to fund the hospital proposed by CON 9975. One of its Hillsborough County facilities, University Community Hospital, is located on Fletcher Avenue in northern Hillsborough County, AHCA Health Planning District VI. Across the street from the main campus of the University of South Florida (USF) and its College of Medicine, University Community Hospital has an agreement with USF for GME. University Community Hospital at present serves the Wesley Chapel area in eastern Pasco County. The other member of the joint venture, Adventist, is a financially successful not-for-profit healthcare organization. It operates 17 hospitals in the state of Florida. As of December 31, 2007, Adventist's cash on hand, including investments, exceeded $3.6 billion and net revenue for 2007 was approximately $368 million. The joint venture between UCH and Adventist was formed to establish a hospital to serve the Wesley Chapel area of Pasco County and to provide other healthcare services in the county. At present, the two members of the joint venture compete to serve the Wesley Chapel area through University Community Hospital and Adventist's Florida Hospital Zephyrhills (FHZ), a 154-bed general acute care hospital in Pasco County. The collaboration of competing hospitals in seeking approval for a new hospital through Florida's CON process is unusual. But by bringing the similar missions, strength in community interests and capable leadership of UCH and Adventist together, the Pasco Pinellas joint venture poses potential healthcare benefits to eastern Pasco County. BayCare The Applicant for CON 9977, BayCare of Southeast Pasco, Inc., is a not-for-profit corporation formed to develop the hospital proposed in the application. The sole member of BayCare is BayCare Health System, Inc. ("BayCare System"). BayCare System is the largest full-service community- based health care system in the Tampa Bay area. It operates 9 nonprofit hospitals and 11 ambulatory/outpatient centers in Hillsborough, Pasco and Pinellas counties. Initially organized in 1997 under a joint operating agreement between several hospitals, BayCare System's purpose has been to compete effectively in managed care operations in order to reduce the expenses of the individual organizations that are its members. In the first 5 years of operation, BayCare System saved its members a total of $90 million because of the enhanced cost efficiencies it achieved through business function consolidations and group purchasing. Its members are all not-for-profit hospitals. BayCare System's focus is on the treatment of one patient at a time. Its mission is to improve the lives of people in the community it serves, to operate effectively as a group of not-for-profit hospitals, and to provide high quality, compassionate healthcare. BayCare's application, because it provides potential for its proposal with its teaching aspects, draws significant and considerable support from USF, a national research university. USF has a College of Medicine, a College of Nursing, and a College of Public Health, collectively "USF Health." USF Health will collaborate with BayCare in the development of the hospital BayCare proposes, should it be approved and should its teaching functions come to fruition. The Agency The Agency for Health Care Administration is the state agency that administers the CON program pursuant to Section 408.034, Florida Statutes. It will make the final decisions to approve or deny the two CON applications at issue in this proceeding. Community Community Hospital is a general acute care for profit hospital with 386 beds. It is located within the City of New Port Richey in western Pasco County, Acute Care Subdistrict 5-1. With the exception of neonatal intensive care, open heart surgery and organ transplantation, Community is a full- service community hospital. It provides OB services. It is licensed for 46 adult psychiatric beds. It offers a variety of outpatient services including outpatient surgery, endoscopy, and outpatient procedures and lab testing. Its medical staff consists of approximately 400 physicians. Community serves patients without regard to ability to pay, and does not discriminate in any manner. Accredited by the Joint Commission on Accreditation of Hospital Organizations, it has received numerous awards and recognition for the quality of its health care services. Community's hospital facility is over 30 years old. Access to the campus from US 19, the closest major thoroughfare approximately 1.5 miles away, is gained via a two-lane street through a residential area. Land-locked but for the two-lane street, the campus is sandwiched between the residences and a high school. There are no medical office buildings ("MOB") owned by Community on the campus; less than 20 acres in size, it is completely built out. Community's Replacement Hospital Community has a replacement hospital facility currently under construction in Acute Care Subdistrict 5-2. Approximately five miles southeast of Community's New Port Richey location, the replacement facility is located at the intersection of Little Road and State Road 54. Expected to open in late 2010 at a cost in excess of $200 million, it is to be known as Medical Center of Trinity ("Trinity"). All current Community services will be offered at Trinity. At the same time, the new hospital will offer many advantages over the old facility. Trinity will initially be five stories in height, with fewer licensed beds, but constructed with the ability to expand. It will offer new medical equipment with the latest technology. Situated on 52 acres, with a new three-story MOB adjacent to the hospital, Trinity has plans to add a second MOB at some time in the future. Unlike existing Community Hospital, Trinity will have all private rooms. Its more efficient layout among service areas will improve efficiencies and patient satisfaction. Trinity's location is more accessible than Community's current location in New Port Richey. It is on State Road 54 (SR 54), a six-lane highway that runs east/west through Pasco County. The road has recently undergone major construction and expansion which was nearly complete at the time of hearing. Suncoast Parkway (a/k/a Veterans Expressway), furthermore, is an expressway toll road system that runs north/south from Hernando County through Pasco County to Tampa airport. From the intersection of Suncoast Parkway and SR 54, it takes approximately seven minutes to reach Trinity. Little Road runs north/south along the Trinity site, and north through Pasco County to Regional Medical Center Bayonet Point ("Bayonet Point"). Community's poor financial performance in recent years is expected to improve after the opening of Trinity. The Proposals Although both applicants propose a new hospital in roughly the same location in Subdistrict 5-2, the two are different both in scope and approach. Pasco-Pinellas' Proposal Pasco-Pinellas proposes to build an 80-bed acute care hospital on Bruce B. Downs Boulevard in the area known as Wesley Chapel in eastern Pasco County. If approved and constructed, the hospital will include 36 medical/surgical beds, 8 labor/delivery/recovery/post partum beds, 12 critical care beds, and 24 progressive care beds. The project would involve 184,000 gross square feet of new construction, at a total estimated cost of $121 million. Pasco-Pinellas proposes a typical primary service area (PSA). Five and one-half zip codes comprise the PSA; Pinellas- Pasco reasonably projects 82% of its admissions will come from the PSA. Two and one-half zip codes comprise the secondary service area (SSA). The zip code that is shared by the PSA and the SSA (33559) is split roughly in half between Pasco County and Hillsborough County. The half that is in Pasco County is in Pasco-Pinellas' PSA. The five full zip codes in the PSA are 33541, 33543, 33544, 34639, and 33576. The two full zip codes in the SSA are 33549 and 33647. Pasco-Pinellas' in-migration from outside its proposed service area (the PSA and the SSA) is forecast by Pasco- Pinellas's health planner at 12%. For a community hospital in the Wesley Chapel area without tertiary services, the in- migration percentage projected by Pasco-Pinellas is reasonable. BayCare's Proposal BayCare proposes to establish a general acute care hospital with 130 beds. The application proposes that it be collaboratively developed by BayCare System and USF Health so as to provide teaching functions associated with the USF College of Medicine and other health-related university components of USF Health. Consisting of approximately 476,000 square feet of new construction at an estimated total project cost of approximately $308 million, the hospital will have 92 medical/surgical beds, 24 critical care beds, and 14 post-partum beds. Like Pasco-Pinellas' proposal, BayCare's proposed hospital will be located on Bruce B. Downs Boulevard in the Wesley Chapel area of southeastern Pasco County. BayCare's proposed PSA is circular. The center point of the PSA is the proposed BayCare hospital site in the Wesley Chapel area. The circumference is along a series of seven-mile radii so that the diameter of the circular PSA is 14 miles. The seven-mile radius was chosen to approximate a fifteen-minute travel time by automobile from the outer edge of the circular PSA to the hospital site. BayCare's PSA includes some part of seven zip codes. Two are Wesley Chapel zip codes: 33543 and 33544. Two are Lutz area zip codes: 33549 and 33559. Two are Land O'Lakes zip codes: 34639 and 34638, and one is a zip code in Hillsborough County: 33647. Relative to typical PSAs for most proposed hospitals, the PSA proposed by BayCare's application was described at hearing by BayCare's health planner as "small." See Tr. 1855. For calendar years 2013 and 2014, BayCare projects that 19,0976 and 20,008 patient days, respectively, will be generated from within the PSA. These projections constitute a projection of 60% of all patient days projected for the two years, a percentage substantially lower than would be generated from a typical PSA. The remaining 40% of projected patient days is roughly double what would be expected from beyond a PSA under a more typical proposal. The high number of projected patient days for patients originating outside the PSA was explained at hearing by BayCare's health planner. The involvement of the USF Physician's Group and the "teaching" nature of the proposal "pumps up and provides an additive level of in-migration that would not be experienced without the USF combination with BayCare in [the] project." Tr. 1856-7. Pasco County Hospitals There are five hospitals in Pasco County. Two in western Pasco County will continue to remain in Subdistrict 5-1 in the near future: Regional Medical Center Bayonet Point, located in northwest Pasco County and Morton Plant North Bay Hospital, located in New Port Richey. Two are in eastern Pasco County, Subdistrict 5-2: Pasco Regional Medical Center in east central Pasco County, and FHZ, located in southeast Pasco. The fifth is Community/Trinity. No Need for Both Hospitals None of the parties contends there is need for both hospitals. Nor would such a contention be reasonable. Indeed, the record does not demonstrate need for both a new 80-bed community hospital as proposed by Pinellas-Pasco and a new 130- bed hospital that BayCare denominates a "teaching" hospital, each with an intended location on Bruce B. Downs Boulevard in the Wesley Chapel area of southeastern Pasco County in Subdistrict 5-2. The question remains: is there a need for one new hospital? If so, which of the two applications, if either, should be approved? Need for a New Hospital; Access Enhancement Among the counties in the Tampa Bay area, Pasco County has been the fastest growing in recent years. From 1990 to 2000, its population grew 22.6%. Three times higher than the state average, this represents tremendous growth for any locale. The Wesley Chapel area of south Pasco County roughly coincides with the PSAs of the two applicants. Dramatic growth over the last 20 years has marked the Wesley Chapel area's transformation from an agricultural area to a suburban community. North of Hillsborough County and its largest city, Tampa, improvements in the transportation network has made south Pasco County and in particular, the Wesley Chapel area, a bedroom community for workers commuting to Tampa. Claritas, a national demographic data service, is a generally accepted population projection source for CON applications. Claritas projects the growth in Pasco County to continue. For example, the projected population for Pasco- Pinellas' proposed PSA, which substantially overlaps with BayCare's proposed PSA, is 113,397 in 2011 and 118,505 in 2012. The Claritas projections are based on the most recent decennial U.S. Census, that is, 2000, and do not take into account data of impending population growth, such as new housing starts and new schools. Claritas, therefore, may understate projections in areas that have experienced more recent, rapid growth. The University of Florida Bureau of Economic and Business Research ("BEBR") also provides reliable population data by county. In the year 2000, the census for the Pasco County population was 344,765. By 2030, that population is projected by BEBR to grow to 526,100 based on low projections, 681,100 based on medium projections, and 876,900 based on high projections. For the high projection rate, this would constitute a 154% increase in population. Even assuming the low growth rate, the population would increase by 53%. According to BEBR data, the county can be expected to grow at a rate of 4.71% per year. Another source of population data relied upon by population experts is Demographics USA. The Demographics USA data shows a substantial growth in population for Pasco County. According to Demographics USA, the population for Pasco County can be expected to grow from 343,795 in the year 2000 to 440,527 in the year 2010 and then to 504,277 by the year 2015. Based on the Demographics USA data, the county can be expected to grow at a rate of 3.11% per year. The Wesley Chapel area is considered to be the area of Pasco County with the most development and development potential now and in the future. Of 175 major projects actively undergoing development in Pasco County, 76 are in the Wesley Chapel area. Between 2010 and 2012, the population in the area is projected to grow by 5,000 persons per year. With the increase in the general population in the area comes an expected increase in the need for schools. Of 37 schools identified by the Pasco County School Board to be built in the near future, 19 are to be located in the Wesley Chapel area. Whether the historic growth rate of the last few decades will continue for sure is an open question with the downturn in the economy and the housing market that commenced in Pasco County in mid-2007. Absent a major recession, however, it is reasonable to expect growth in the Wesley Chapel area to continue even if not at a rate as rapid as in the recent past. Whatever the future holds for Wesley Chapel's growth rate, there is clearly a demand for inpatient general acute care services in the Wesley Chapel area. The total non-tertiary discharges from the Pasco-Pinellas service area was 15,777, excluding newborns, for the 12-month period ending June 30, 2006. As a result, AHCA found the existing and growing population in the Wesley Chapel area warranted a new hospital. Along with significant growth in the Wesley Chapel area comes resulting traffic and healthcare and hospital access issues. Drive time analysis shows the average drive time from each of the Pasco-Pinellas PSA six area zip codes to the eight area hospitals in 2007 to be 46.11 minutes. The analysis shows that future drive time is expected to be lengthier, strengthening the need for a hospital in the Wesley Chapel area. In 2012, the average time increase is expected to 57.68 minutes. A Drive Time Study Report prepared by Diaz Pearson & Associates compared drive times to the proposed site for Pasco- Pinellas hospital to eight existing hospitals: UCH, Pasco Regional, FHZ, Tampa General, University Community Hospital on Dale Mabry in Tampa, St. Joseph's North, St. Joseph's in Tampa, and the site for Community's replacement hospital. The study concluded: The results of this travel study demonstrate that the vehicular travel times for access to the proposed PPHCHS Hospital [Pasco- Pinellas' Hospital] are consistently LESS for residents within the six Zip codes of the Primary Service Area for years 2007, 2011, and 2012 than for comparable trips to any of the eight area hospitals for alternate choice. Pasco-Pinellas 36, p. 27. Of particular note are the travel times from each of the six zip codes in Pasco-Pinellas' PSA to UCH, FHZ, and Tampa General. For example, a patient driving from the centroid point in zip code 33559 to UCH would take 24.28 minutes and to FHZ would take 37.97 minutes in 2007. This increases to 29.55 minutes and 50.94 minutes in 2012. Another example, the time it takes a patient to travel from zip code 33541 to Tampa General was 75.51 minutes in 2007. In 2012, the travel time is projected to increase approximately 20 minutes to 95.33 minutes. In contrast, a new hospital in the Wesley Chapel area would decrease travel times significantly for patients in the six zip code areas of the Pasco-Pinellas PSA. For example, in 2007, it would only take a zip code 33559 patient 11.41 minutes to reach the proposed site for Pasco-Pinellas. This represents a time savings of 12.87 minutes compared to the average driving time to UCH and 26.56 minutes compared to the average driving time to FHZ. In 2012, the reduction in time to drive to Pasco- Pinellas' proposed hospital site instead of UCH is 18.34 minutes and for FHZ, it is 39.53 minutes. The time savings for patients from the 33541 zip code traveling to Tampa General for non- tertiary services is even greater. Using Pasco-Pinellas' site in the Wesley Chapel area would save the patient 52.67 minutes in 2007 and is projected to save 63.88 minutes in 2012. Anecdotal evidence supports the need for a new hospital in the Wesley Chapel area. Dr. Niraj Patel practices obstetrics and gynecology in the Wesley Chapel area. A drive for him in good traffic is typically 20 minutes to UCH (the only hospital at which he practices because the distance between area hospitals is too great). In morning traffic during "rush" periods, the drive can exceed 40 minutes. Caught in such a drive in January of 2008, Dr. Patel missed the delivery of a patient's baby. He was required to appear before the UCH Medical Staff's credentials committee to "explain the situation . . . [because it] was the third or fourth [such] episode." Pasco-Pinellas 47, p. 11. As Dr. Patel explained in a pre- hearing deposition, "it doesn't fare well for me . . . credential and requirement wise but it doesn't fare well for the patient [who] had to be delivered by the nursing staff which [without a physician present] increases patient risk and [the chance] of complication[s]." Id. A new hospital in the Wesley Chapel area will provide residents of the Pasco-Pinellas PSA or the BayCare PSA with shorter travel time to a hospital compared to the time necessary to reach one of the eight existing hospitals in the region. In 2007, residents of the six zip codes in the Pasco-Pinellas' PSA could be expected to access Pasco-Pinellas' proposed hospital in a range of 10.9 to 21.8 minutes. For the year 2012, the time can be reasonably predicted to range from 17 to 31.4 minutes. In comparison the drive times to the eight hospitals in the region for residents of Pasco-Pinellas' PSA are significantly longer. In 2007, it took a resident in zip code 34639 approximately 55 minutes to get to UCH and 73 minutes to get to St. Joseph's Tampa. By 2012, those drive times are reasonably projected to increase to 64 minutes and 83 minutes, respectively. Simply put, travel times are expected to increase as the population increases in coming years. The site of Pasco-Pinellas' hospital is approximately one mile from the site of the proposed BayCare hospital. The travel times suggested for the residents of the Pasco-Pinellas PSA to the proposed Pasco-Pinellas hospital can be expected to be similar to travel times to the proposed BayCare hospital. Given the proximity of the two proposed sites, either will significantly reduce travel time to hospitals for patients in the Wesley Chapel area. The existence in the Wesley Chapel area of a community hospital with an emergency room and primary inpatient services will benefit doctors, patients and their families. Heightened driving concerns among elderly patients and traffic congestion and inadequate roadways that delay Emergency Medical services support the need for a Wesley Chapel area hospital. The support is based not only on 2007 travel times but also on the reasonable expectation that travel time will be greater in the future. Existing hospitals are capable of absorbing the increased need for acute care hospital services that result from the increased growth that is reasonably projected to occur in Subdistrict 5-2. If there is to be a new hospital in the subdistrict, the Wesley Chapel area is the best location for it. A new hospital in the Wesley Chapel area will enhance access to acute care services for residents of Subdistrict 5-2. Preliminary Agency Action; the SAAR The Agency determined that there is a need for a new hospital in the Wesley Chapel Area when it issued its State Agency Action Report on CONs 9975 and 9977. The Agency also determined that between the two applications, Pasco-Pinellas was superior and should therefore be approved over BayCare's. This determination was founded primarily on Pasco-Pinellas' application being more reasonable in terms of size and impacts on existing providers. The Agency maintained at hearing the position it took in it preliminary action memorialized by the SAAR. Jeffrey Gregg, Chief of AHCA's Bureau of Health Facility Regulation received in this proceeding as an expert in health planning and CON Review explained when called to the stand to testify: The proposal by [Pasco-Pinellas] was on the smaller side and gave us more comfort [than BayCare's] . . . [W]hile we . . . agree with these applicants that there is a hospital in the future of [the Wesley Chapel area], we are more comfortable with the conservative approach, the smaller approach [of Pasco- Pinellas], particularly given that should it be necessary in the future, any hospital can add beds, acute care beds, merely by notifying us. And we were more comfortable that [Pasco-Pinellas'] approach would be able to expand access and improve services for people in this area while at the same time minimally impacting all of the competitors. Tr. 1995. As detailed below, AHCA's determination that the Pasco-Pinellas application is superior to BayCare's is supported by the record even if the basis for the determination made on the state of the record is not quite the same as the basis advanced at hearing by AHCA. Size and Cost Pasco-Pinellas proposed hospital involves about 184,000 square feet of new construction at a cost of approximately $121 million dollars. It is much smaller and less costly than BayCare's proposed hospital of 476,000 square feet of new construction for about $308 million. The Pasco-Pinellas proposal is more reasonably sized to meet the needs of the Wesley Chapel area and, in turn, Subdistrict 5-2. The difference in size and cost of the two proposals, however, is a function of a major difference in approach in the applications. Pasco-Pinellas' proposal is for a typical community hospital that would start out with a bed size within a range that includes 80 beds. BayCare, on the other hand, proposes to serve not only the Wesley Chapel area and Subdistrict 5-2, but also a substantial population of patients to be drawn to the subdistrict particularly from Hillsborough County. Patients migrating to the hospital from outside the subdistrict will for the most part be the product of BayCare's affiliation with USF Health and its service to the USF College of Medicine in its proposal denominated in the application as a "teaching hospital." Need for a New Teaching Hospital "Teaching hospital" is a term defined in the Health Facility and Services Development Act, sections 408.031-408.045, Florida Statutes: "Teaching hospital" means any Florida hospital officially affiliated with an accredited Florida medical school which exhibits activity in the area of graduate medical education as reflected by at least seven different graduate medical education programs accredited by the Accreditation Council for Graduate Medical Education or the Council of Postdoctoral Training of the American Osteopathic Association and the presence of 100 or more full-time equivalent resident physicians. The Director of the Agency for Health Care Administration shall be responsible for determining which hospital meets this definition. § 408.07(45), Fla. Stat. The Agency has not determined that BayCare's proposal meets the statutory definition as directed by the statute for it to qualify as a "teaching hospital." The record indicates that the proposal is not a typical teaching hospital. For example, teaching hospitals in the United States are usually located near indigent populations to achieve the efficiency of training future practitioners with treating people who otherwise could not afford services. BayCare's proposal in a small county with a more affluent population does not serve that purpose. BayCare contends neither that it is a "statutory" teaching hospital nor that it should be determined by the Agency to meet the statutory definition of "teaching hospital." Instead it grounds its case for need in the teaching functions its proposal would fulfill for USF Health and in particular for the GME needs of the students of the USF College of Medicine and the results those teaching functions would produce. Considerable testimony was offered by BayCare at hearing with regard to GME and the needs and aspirations of the USF College of Medicine. The Dean of the College, Stephen K. Klasko, M.D., spiritedly and eloquently related a narrative of need which was supported and amplified by other witnesses including faculty members at the college. There were many elements to the narrative. Highlights include the hybrid nature of the USF College of Medicine, "acting like a research intensive medical school . . . in a community-based body" (tr. 1132)," its on-going successful striving towards becoming an academic center for world class physicians as evidenced by this year's receipt of a research grant from the National Institute for Health, "the largest . . . given to a medical school in the last four or five years," id., and the GME challenges the college faces in the Tampa Bay area such as the recent loss of its anesthesiology residency program. BayCare's opponents point out the many ways in which the proposal is not only not a statutory teaching hospital but does not fit a nationwide model for teaching hospitals. BayCare counters that its model is one of many different models for a teaching facility. Whatever the merits of the various assertions of the parties on the point, USF's need for a teaching facility will be filled at least in part by the BayCare proposal. It is not an exaggeration, moreover, to call USF's need in this regard compelling. USF's institution-specific need, however, does not fall under any of the CON review criteria. See paragraphs 167- 8, below, in the Conclusions of Law. Perhaps not unmindful of the limits of the criteria, BayCare's presented other evidence that flows from the teaching function of the BayCare proposal. Relevant to the general criterion of "need" in subsection (1) of the Statutory CON Review Criteria, the evidence relates to physician shortages. The Physician Shortage There is a shortage of physicians in the district as there is in Pasco County. The problem has statewide dimensions. The state is not doing enough to replace aging doctors in Florida with younger doctors. Nor are aging doctors providing sufficient emergency room call coverage. The physician shortage both in general and in emergency rooms in the state is likely to increase. Residents are more likely to remain and practice in the community in which they train. Residents in the Tampa Bay area, in particular, are more likely to remain in the Tampa Bay area to practice. Even 20 residents per year in training at BayCare's proposed hospital would make a difference in existing physician shortages. Should BayCare's proposed hospital be built and operated as contemplated, the teaching functions that BayCare's application proposes to offer at the hospital would serve as a step, however small, toward meeting Florida's physician shortage as well as the shortage in District V, Pasco County, Subdistrict 5-2 and the Tampa Bay area. Nonetheless, there is a feature of this case that undermines BayCare's claim that the proposal will aid the physician shortage and its denomination in the application of the proposal as a "teaching hospital." The feature is present in the agreement between USF and BayCare (the "BayCare and USF Agreement) to make the BayCare proposed hospital a University Hospital. The BayCare and USF Agreement The BayCare and USF Agreement contains a section devoted to implementation and termination. The following is excerpted from the section's six separately numbered paragraphs: The Parties [the University of South Florida Board of Trustees or USF and BayCare Health System, Inc.] shall negotiate in good faith all other terms and conditions relating to the execution and implementation of this Agreement, including, without limitation, any revisions to the provisions of the Articles of Incorporation and Bylaws of the Hospital Corporation, the terms and conditions of the Health Affiliation Agreement, the design and layout of the University Hospital . . . [etc.] and such other documents and instruments as the Parties may find necessary or desirable to implement the terms of this Agreement. In the event the Parties are unable to agree on all such terms and conditions and all such documents required to implement the terms and provisions of this Agreement despite their good faith efforts to do so, either Party shall have the option after a period of at least twenty four months from the Effective Date or six months after the final approval of the Certificate of Need for the University Hospital is received, whichever is longer, to terminate this Agreement on the terms described in this [s]ection . . . . BayCare 2, Appendix C, BayCare and USF Agreement, Section G, p. 8. (Emphasis supplied.) For USF to terminate, the terms include payment to BayCare of $500,000 and agreement that for five years after termination it will not enter into an affiliation or other agreement with any other provider for the establishment of a university hospital in Pasco County. See id. The ability of USF to terminate the agreement is not "at will." It requires good faith efforts to have been made at implementations that fail to work. Furthermore, termination is not without consequences. But the termination provision in the agreement is consistent with the lack of a condition in BayCare's application that the BayCare proposal be a teaching hospital, "one more detail that made [AHCA officials] scratch our heads about the characterization of this hospital as a teaching hospital." Tr. 2011. It is also consistent with USF's support for "legislation that would be statewide that would allow state medical schools at some point, if they chose to, to make it easier . . . to have a hospital or research hospital on campus . . . [of which] USF would be one . . . " Tr. 1190-91. Adverse Impact Providers Outside the District Evidence was produced at hearing about the adverse impact of approval of either of the two applications on providers outside the district. Objections to the evidence were taken under advisement pending consideration of post-hearing memoranda submitted by the parties. Upon consideration of the memoranda, the objections are sustained. See paragraphs 159-66, below, in the Conclusions of Law. Providers Within the District The Pasco-Pinellas proposal will have minimal impact on Community/Trinity Medical Center. Its impact on other hospitals will be minimal with the exception of its two partner hospitals--UCH and FHZ--and of those two, only FHZ is in the District. There will be no adverse impact on Community as a result of the BayCare proposal. There is little patient flow from eastern Pasco to the western Pasco hospitals. Only about 1% of the patients in eastern Pasco travel west for services at Community, Morton Plant or Bayonet Point. It is reasonable to project that there will be no material change in Community's patient draw as a result of the new Trinity Medical Center. The projections by Community's health care and financial experts of patient days that would be lost and adverse financial impact to Community/Trinity should the BayCare proposal be approved were based on faulty assumptions. The majority of the adverse impact from BayCare's proposal, as in the case of Pasco-Pinellas' proposal, will be on UCH and FHZ. Availability of Resources Nursing and Non-Nursing Staff Pasco-Pinellas should be able to recruit and retain nursing and other staff for its hospital based on the Adventist experience at FHZ. The nursing vacancy at FHZ is 1% lower than the vacancy rate reported by the Florida Hospital Association (7.5% and 8.5%, respectively.) The turn-over rate for nurses at FHZ is 12%, significantly lower than the national rate in the 18-19% range. Recruitment of nurses has been successful at FHZ particularly in the last few years. In 2007, FHZ hired 100 nurses and reduced its use of agency nursing staff by roughly 75%. Among its different recruitment tactics have been a foreign nursing program, education and training incentives, scholarships at local colleges and specialty pay programs. Pasco-Pinellas will use many of the same recruiting techniques that have been successful at FHZ. It is reasonably anticipated that the same recruitment practices employed by FHZ will work for Pasco-Pinellas. Many members of the current nursing staff at FHZ, moreover, live in the Wesley Chapel area and have expressed an interest in working at Pasco-Pinellas. Retention programs at FHZ have been aimed at retaining better nurses. These include the magnet concept and a self- governance program with "a unit based council and nursing council so nurses . . . practicing . . . at the bedside have the opportunity to help govern the practice of nursing." Tr. 225-6. Retention programs similar to those used at FHZ will be implemented at Pasco-Pinellas. Schedule 6 in Pasco-Pinellas application reflects anticipated staffing for its new hospital. The staffing model is consistent with staffing at other Adventist facilities, specifically FHZ. The average salaries and wages are based on actual salaries inflated forward to the projected date of opening. The FTEs per adjusted occupied bed are adequate and consistent with the staffing patterns at FHZ. All necessary staffing positions are accounted for and the number of FTEs and salaries are sufficient for the hospital to operate and provide high quality of care. The registered nurse FTEs, as opposed to LPNs and lower-level nursing care, in Schedule 6 offer optimal staffing to provide high quality care and positive patient safety. The nursing salaries are adequate for the time frame in which Pasco-Pinellas will open with a one-time 5% increase and a 4% increase per year from present until opening. Schedule 6 supports the reasonable expectation that Pasco-Pinellas will be able to recruit and hire nursing staff and retain an adequate staff. The proposed staffing pattern in Schedule 6 of the Pasco-Pinellas application, which includes nursing staff, moreover, is reasonable. BayCare has a comprehensive recruitment program for recruiting and retaining nursing personnel as well. The strategies include a partnership with the nursing programs at USF and St. Petersburg College. BayCare System provides additional training to its nurses and with regard to salaries has committed to remaining competitive in the market. BayCare's recruitment and retention initiatives have been successful. In the 2008 year to date at the time of hearing, BayCare System had been able to hire more experienced nurses that it did in 2007 for the same time period. Overall, the BayCare System has a turnover rate of about 15%. The RN vacancy is 10% with a 13% turnover rate. These figures are comparable to state and national figures; in some cases they are lower. With regard to non-nursing employees or team members, BayCare System also had developed recruitment initiatives that are targeted toward those individuals. BayCare System has a positive reputation in the community as a good place to work. As an example, the three St. Joseph's hospitals (St. Joseph', Women's and Children's) and South Florida Baptist received recognition among the "Best Work Places in Health Care" for the years 2005 and 2006. The award recognizes outstanding practices related to employees. BayCare has the ability to recruit and retain the staff necessary to staff the proposed BayCare SE Pasco hospital. The staffing projections in Schedule 6 of BayCare's application, which includes nursing staff, are reasonable. Physician Support Despite the physician shortage, both applicants should be able to adequately staff their hospitals with physicians as shown by the evidence with regard to physician support for the hospitals. Florida Medical Clinic (FMC), a multi-specialty physician group practice with 85 physicians, is the primary physician group that serves the Wesley Chapel area. Thirty percent of its members are family practitioners or specialists in internal medicine. The remainder of the members cover 20 or so specialties that include both secondary and tertiary specialties. FMC has determined that it will support the Pasco- Pinellas proposal through its physicians, admissions and outpatients activity. Ninety percent or more of the clinic's patients use the UCH and FHZ facilities. FMC has a long- standing relationship with the administrators, personnel, and strategic issues of FHZ and UCH and is comfortable developing future plans for a hospital facility in Wesley Chapel with the two organizations FMC is able to meet the needs of the Wesley Chapel community both today and in the future. In addition, there are numerous other individual physicians who practice in the Wesley Chapel area who "predominantly support University Community Medical Center and Florida Hospital in Zephyrhills." Tr. 63. Having relationships with physicians already in a market when a hospital is being developed is advantageous to the new hospital. Among other advantages, it minimizes resources used to recruit and move new physicians into the area. In contrast to support for the Pasco-Pinellas proposal, FMC has not made a commitment to BayCare as to its proposal because of lack of knowledge about the structure of the facility, its strategic plans and whether or not FMC's interests align with the BayCare proposal but it has not foreclosed such a commitment. The USF physicians group will be a source of many of the physicians who will staff the BayCare proposed hospital, a likely reason for FMC's lukewarm to non-existing support for BayCare's proposal. USF emergency physicians will staff the Emergency Department. The BayCare System has approximately 28 physicians with privileges at BayCare System facilities with offices in the Wesley Chapel area. The proposed BayCare hospital will be staffed by recruited physicians and USF faculty physicians. Other physicians from the Wesley Chapel area provided testimony of their support for the BayCare proposal. It is reasonable to anticipate that some local Wesley Chapel area physicians will join the medical staff of the proposed BayCare hospital. Despite the physician shortages in the subdistrict, District V and the Tampa Bay area, both Pasco-Pinellas and BayCare will be able to staff their hospitals adequately with physicians. Charity and Medicaid; Conditions Pasco-Pinellas committed to a number of conditions of its applications. These include a 12.6% commitment to charity and Medicaid; the establishment of funding for a clinic for the underserved, provision of educational programs for the community, and two neonatal transports and funding for local fire and rescue services. BayCare projects a 6.1% level of charity care, 2.4% higher than Pasco-Pinellas' charity care commitment. It projects 10.3% of its Medicaid and Medicaid HMO patients will be attributable to Medicaid and Medicaid HMO patients versus 8.9% at Pasco-Pinellas. BayCare System has a history of providing services to Medicaid and Charity Patients. In 2006, for example, as not- for-profit entities, BayCare System facilities and related entities provided a total community benefit of $135 million in uncompensated care. Approximately 50% was pure charity care. BayCare System facilities currently serve patients from the Wesley Chapel area, including, of course, Medicaid and charity patients. BayCare System facilities provide 57% of the charity care and 31% of the Medicaid in the market. St. Joseph's Children's Hospital and St. Joseph's Women's Hospital operate at approximately 50-to-60% Medicaid and un-reimbursed care. St. Joseph's Hospital currently serves approximately 20% of the patients from the Wesley Chapel area. St. Joseph's, however, provides 36% of the total charity, Medicaid, and Medicaid HMO care rendered to patients who reside in the Wesley Chapel area. Thus, the facilities within the BayCare System have a demonstrated track record of providing care without regard to a patient's resources. In light of the record, it is reasonable to expect BayCare to carry on in the same vein under the BayCare proposal. Utilization Schedule 5 relates to projected utilization after project completion. The projections in the schedule in Pasco- Pinellas' application were developed by looking at service area population, applying a use rate growth and taking a market share by individual zip code. They are based on the expectation that the hospital would be operating at approximately 70% occupancy in its third year of operation, which equates to an average census of approximately 56 patients. The assumptions contained in the schedule are reasonable. The utilization projections in Schedule 5 in Pasco- Pinellas' application are reasonable; they indicate that an 80- bed hospital is appropriate to meet the need for a new hospital in the Wesley Chapel area of the subdistrict. BayCare will able to achieve its projected utilization from its primary service area and from the 40% of its patients it expects to receive by way of in-migration. The population forecast and market share forecast for the primary service area are reasonable. While the support among local physicians is much stronger for the Pasco-Pinellas proposal, it is likely that they will admit patients to the BayCare proposed hospital since it will be in the Wesley Chapel area, the area of the subdistrict that is most suitable for a new hospital. The 40% projected in-migration from outside of the seven mile service area is a reasonable projection. It is reasonable to expect that the bulk of these admissions will come from USF physicians located at the USF north Hillsborough campus. Projected Revenues Schedule 7A governs projected revenues. The payor mix in Schedule 7A of Pasco-Pinellas' application is based on historic admission and patient days by payor class occurring in the proposed Pasco-Pinellas service area based on the most recent available AHCA data. Gross charges and net revenues were developed based on historical data from FHZ as reported to AHCA. These figures were inflated forward using a net increase over all in revenue payments of approximately 3%. The projected revenues including net revenues in Schedule 7A of Pasco- Pinellas' application are reasonable and consistent with the marketplace. The payor mix in BayCare's Schedule 7A was based on an analysis of patient discharge data from the proposed primary service area plus an analysis of the experience of other BayCare System facilities in the same market. It is a reasonable payor mix. It allows for consideration of the experience of BayCare System, including the high level of charity care and Medicaid and Medicaid HMO services and at the same time reflects that the Wesley Chapel area is more affluent and younger than other areas of Pasco and Hillsborough Counties. BayCare's revenue assumptions were based on an analysis of gross and net revenue per patient day from another BayCare System facility, South Florida Baptist. Financial class specific projected patient days were applied to derive a gross and net revenue number for each of the three pro forma years for the proposed project denominated by Schedule 7A as "Projected Operating Year 1, 2 and 3" and ending "12/31/11, 12/31/12 and 12/31/13" respectively as indicated by BayCare in the application. See BayCare 2, pp. 133-135. The 2006 South Florida Baptist gross and net revenue per patient day were trended forward for each of the three projected operating years to reach the projected revenue figures in Schedule 7A. The projected revenues in Schedule 7A of the BayCare application are reasonable. Projected Income and Expenses Schedule 8A in a CON application contains projected income and expenses for the proposal. Pasco-Pinellas' application used a methodology in Schedule 8 that its expert had used in other CON cases. The methodology is consistent with methodologies of other health care experts and has been accepted in recommended and final orders in CON cases. The projections in Schedule 8 of Pasco-Pinellas' application are appropriate and reasonable. BayCare's methodology used to project income and expenses in Schedule 8A is also appropriate and reasonable. BayCare's healthcare finance expert asked BayCare financial analysts to look at his initial projections. They recommended that expenses be increased in physical therapy, radiology lab and pharmacy and that expense be reduced in plant operations. The recommendations were accepted; the projections were adjusted. Medicare GME reimbursement in year 3 of operations was assumed to be $1.7 million. If no addition Medicare GME reimbursement were received, BayCare's proposal would still show a profit of $2.8 million by year 3. It is virtually certain, moreover, that some portion of the $1.7 million included in calculation of BayCare's income projections will be realized. However valid criticism of the inclusion of the $1.7 million, BayCare's proposal remains financially feasible in the long- term. Financial Feasibility Pasco-Pinellas proved the immediate and long-term financial feasibility of its proposal. The schedules in its application related to financial feasibility used reasonable methodologies that yielded reasonable projections. Analysis of capital costs and funding is contained in Schedules 1 through 3. Schedule 1 presents an accurate summation of total project cost. That figure, $121 million, is a reasonable and typical cost for a new 80-bed community hospital. The $149 million on Schedule 2 reflects an accurate summation of anticipated capital costs, including the hospital project and necessary capital expenditures for the first tow or three years of operation. Schedule 3 set forth the sources of funding, a combination of equity and debt financing, discussed below. Both UCH and Adventist are financially successful systems. They will have not difficulty funding the Pasco- Pinellas proposal. As of December 31, 2007, Adventist's net revenue was approximately $368 million. About $100 million in funds were available to UCH at the time of hearing to contribute to development of the project. Due to the financial strength of its members, Pasco- Pinellas will easily be able to fund the project through a combination of equity and debt. The equity, $45 million, will be provided equally by Adventist and UCH, $22.5 million each. The remaining $76 million will be financed through tax-free bonds issued by Ziegler Securities. The project is immediately financially feasible. The Pasco-Pinellas project is also financially feasible in the long-term. Schedule 8 in the application, year 3, shows the project will generate a return of approximately $5.3 million in revenue over expenses, an amount that "more than meet[s] the test for financial feasibility in the long-term." Id. Based on the sources of BayCare System, BayCare has access to the financial resources to implement its proposed hospital. Funding for the hospital will come from BayCare System on the basis of 50% debt and 50% equity investment. As of early 2008, BayCare System had approximately $1.2 billion in unrestricted cash on hand. BayCare System's financial strength will allow BayCare to obtain the financing it needs for the project. Schedule 3 of the BayCare application sets forth an accurate and reasonable statement of the sources of funds necessary to develop the project. The immediate financial feasibility of BayCare's proposal is demonstrated by the evidence presented by BayCare. By year three of the pro forma, the BayCare proposal is reasonably projected to generate a net income over expenses in the amount of $4,498,637. BayCare demonstrated that the proposal's long-term financial feasibility. Costs and Construction Methods The costs and methods of the proposed construction of the Pasco-Pinellas project are reasonable. The facility is adequately sized and programmed for the services included in the Pasco-Pinellas application. All of the departments, including central storage, fall within an appropriate benchmark range for community hospitals. The 2,300 square feet per bed is reasonable as are the construction costs when compared to similar community hospitals. The proposed Pasco-Pinellas facility meets the codes for all of the services included in the application. The design of the Pasco-Pinellas facility enable expansion. The designed expansion capabilities are reasonable, logical and appropriate to meet the needs of the Wesley Chapel community. The drawings contained in the CON application show an efficient community hospital. The departments allow for efficient intra-department circulation and department-to- department circulation. There are adequate separation of public and staff flow corridors. All of the areas and departments as shown in the Pasco-Pinellas plans are code compliant. The layout of the patient rooms is consistent with industry standards for the design of single patient rooms. The number and size of the operating rooms are adequate and appropriate for an 80-bed community hospital not offering tertiary services. The emergency department, including the trauma room, complies with code and its layout is adequate and appropriate for an 80-bed hospital. The ambulance entrance in relation to the trauma bay allows for efficient location of patients based on acuity level. The number of treatment beds, treatment bays, including observation areas, provide adequate emergency department capacity. The Schedule 1 costs set forth in the BayCare application are reasonable. These costs include projected costs associated with necessary medical equipment. The medical equipment costs set forth in Schedule 1 are reasonable and BayCare has properly accounted for the items and costs of equipment necessary to operate the hospital. The Schedule 9 construction costs of approximately $180 million are reasonable as are the construction costs per square foot ($347 versus $325 for Pasco-Pinellas). Contingencies and escalation factors have been built into the projected costs. Facilities, Sites, Related Costs At the time the UCH and Adventist joint venture was formed, UCH had a parcel of land under contract located on State Road 54 across from the Saddlebrook Resort (the "UCH Parcel"). When it filed its application, Pasco-Pinellas hoped the UCH Parcel would serve as the site of its hospital. In fact, Pasco- Pinellas touted the location of the parcel for meeting the need of the growing population in Pasco County when it represented in the application that the UCH Parcel is the center point of the Wesley Chapel area. Close to Interstate 75, the UCH Parcel is a good location for a hospital. Pasco-Pinellas' aspiration for the use of the parcel was defeated, however, when the Pasco County denied a request to re-zone the UCH Parcel for use as a hospital. After the inability to have the UCH Parcel re-zoned, Pasco-Pinellas changed the site for the hospital to a parcel owned by FHZ (the "Pasco-Pinellas Site"). Located on Bruce B. Downs Boulevard, a major north-south corridor in the Wesley Chapel area, the site is 51.5 acres. The Pasco-Pinellas Site had been purchased by FHZ in 2001 with the intention of using it for a hospital. Subject to a height variance to allow a seven-story building, the site is zoned for special use as a hospital and related medical uses. The site has good visibility and access from Bruce B. Downs Boulevard as evidenced by its compliance with the State Road 581 (Bruce B. Downs Boulevard) access management plan. It meets other regulatory requirements such as the minimum spacing criteria for Pasco County. The Pasco-Pinellas Site is governed by a development order associated with the Wiregrass Ranch Development of Regional Impact (the "Wiregrass DRI DO"). The Wiregrass DRI DO "indicates that the phasing schedule assumed 100 hospital beds would be developed within the building phase." Tr. 597. As explained at hearing by Lara Daly, Pasco-Pinellas' expert in civil engineering and property site development, there are other aspects of the Wiregrass DRI DO, "like trade-off matrices" and "entitlement advancements" that indicate "entitlements are not limited on a parcel-by-parcel basis." Tr. 598. The assumption, therefore, does not necessarily restrict the number of hospital beds on the Pasco-Pinellas Site; rather it allows impacts associated with 100 hospital beds. The number of allowable beds may be increased following action taken under other provisions of the Wiregrass DRI DO. A significant portion of the Pasco-Pinellas Site is wetlands: some of low quality, some of high quality. The higher quality wetlands, referred to in the record as "a high quality category 1 wetland as defined by Pasco County," tr. 552, (the "Category 1 Wetland") are on the north and east perimeter of the site. The project is designed so as to have no impacts on the Category 1 Wetland. The only potential impact to these high quality wetlands is if there were a county-mandated road to be built in their vicinity. The lesser quality wetlands located in the interior of the site are herbaceous in nature or an open water feature that is "an older borrow pit that naturalized over time." Tr. 552-53. These lower quality wetlands constitute roughly 11.5 acres of the site. They will be impacted by the project but it is reasonable to expect that the impacts will be permitted. As Ms. Daly put it at hearing, "[a]fter reviewing, running stormwater models, looking at the proposed wetland impacts, coming up with appropriate mitigation ratios based on our experience elsewhere on the Wiregrass site, the site will accommodate all the necessary wetland and floodplain historic basin compensation . . . ." Tr. 550. The costs contained in Schedule 1 of the application were arrived assuming the use of the UCH Parcel as the site for the Pasco-Pinellas project. The Pasco-Pinellas Site requires expenditures for site preparation and other expenditures, such as wetland mitigation, related to the site that were not required had the UCH Parcel been used. For example, three potential foundation systems have been suggested for the hospital because of the wetland and subsurface conditions on the Pasco-Pinellas Site had the UCH Parcel been the site. Using the most expensive of the three, however, would not cause Pasco- Pinellas to exceed the construction costs contained in Schedule 1 of the CON Application. The land acquisition costs were reasonably projected to be less for the Pinellas-Pasco Site than for the UCH Parcel as reflected in the application. All told, the estimated project cost using the Pasco-Pinellas site was not materially different from the cost projected in the application and presented the possibility of being less than the $121 million reflected in the application. Likewise, the equipment cost figure shown in Schedule 1 of the Pasco-Pinellas application is reasonable and achievable. The total of the costs for the project sited at the Pasco-Pinellas Site, despite the change of site that occurred after the filing of the application, should not exceed the total of the costs listed in the Pasco-Pinellas application. The preponderance of the evidence is that the Pasco- Pinellas Site should ultimately qualify as an appropriate, developable site for the Pasco-Pinellas project. The BayCare site, north of Highway 56 and bordering I-75, (the "BayCare Site") includes two parcels of 54 and 17 acres. The 54 contiguous acres will be used for the hospital, outpatient services, and a planned medical office building. The 17 acres will be used for research space, physician office space, and academic training space necessary for the research and education function at the project. BayCare has the appropriate zoning and approvals necessary to develop the hospital. The hospital will have all private beds. It will be fully digital and will rely on electronic medical records. The BayCare Site is well suited for construction of the hospital and related buildings. The available footprint and design of the hospital, which includes shelled-in space, will readily allow for future expansion of the hospital up to 300 beds. Design of the BayCare facility is based on principles of family-centered care, flexibility to allow for change and future growth, efficiency, a quality of environment for teaching, a sustainable, green building, and patient safety. A "health building" with improved environmental quality and energy efficiency, the facility will seek LEED certification given to facilities constructed to have minimal adverse environmental impact. In keeping with the teaching function intended by the application, the facility's design includes additional work space, reading areas, sleep areas and conference rooms to facilitate teaching. Overall, the BayCare facility is twice as large as the Pasco-Pinellas facility. Size has its advantages. For example, it allows for larger treatment patient areas. But the facility is much more expensive to build. It is reasonably projected to cost more than $180 million above the costs associated with the Pasco-Pinellas facility which is more than twice as much. The high expense associated with the BayCare facility is shown by its cost per bed: in excess of $2 million-- much more than the cost per bed of the Pasco-Pinellas facility.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Agency for Health Care Administration approve CON 9975, Pasco-Pinellas' application for a new hospital in AHCA Subdistrict 5-2, and deny CON 9977, BayCare's application for a new hospital in the same subdistrict. DONE AND ENTERED this 28th day of October, 2008, 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 28th day of October, 2008. COPIES FURNISHED: Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Karin M. Byrne, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Stephen K. Boone, Esquire Boone, Boone, Boone, Koda & Frook, P.A. 1001 Avenida Del Circo Post Office Box 1596 Venice, Florida 34284 Jonathan L. Rue, Esquire Parker, Hudson, Rainer & Dobbs, LLP 1500 Marquis Two Tower 285 Peachtree Center Avenue Northeast Atlanta, Georgia 30303 Robert A. Weiss, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 R. David Prescott, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551
The Issue Whether Certificate of Need (CON) Application 10457 filed by Sarasota County Public Hospital District (SCPHD), d/b/a Sarasota Memorial Hospital (SMH), seeking approval for a new 90-bed acute care hospital to be located in Venice, Florida, zip code 34275, acute care service district 8, Subdistrict 8-6, on balance, satisfies the applicable statutory and rule review criteria. Whether CON Application 10458 filed by Venice HMA Hospital, LLC, d/b/a Venice Regional Bayfront Health, a/k/a Venice Regional Medical Center (VRMC), seeking approval to replace its existing 312-bed general acute care hospital with a 210-bed hospital to be located near Venice, Florida, in zip code 34292, acute care service district 8, Subdistrict 8-6, on balance, satisfies the applicable statutory and rule review criteria. Whether Agency for Health Care Administration (AHCA) rule 59C-1.008(4) (Rule) requires a CON application for a general hospital to contain an audited financial statement and, if so, whether the Rule is an invalid exercise of delegated legislative authority upon which the substantial interests of a party have been determined, in violation of section 120.57(1)(e), Florida Statutes.1/
Findings Of Fact The Parties Agency for Health Care Administration (AHCA) AHCA is designated as the single state agency responsible for administering the CON program under the Health Facility and Services Development Act, sections 408.031-408.045, Florida Statutes. AHCA conducts its health planning and CON review based on “health planning service district[s]” defined by statute. § 408.032(5), Fla. Stat. The service district relevant to this case is district 8, consisting of: Subdistrict 8-1, Charlotte County; Subdistrict 8-2, Collier County; Subdistrict 8-3, DeSoto County; Subdistrict 8-4, Glades and Hendry Counties; Subdistrict 8-5, Lee County; and Subdistrict 8-6, Sarasota County. Fla. Admin. Code R. 59C-2.100(3)(h). Sarasota Memorial Hospital (SMH) SMH opened in 1925 as a 32-bed community hospital. It is owned and operated by SCPHD, a special taxing district created by the Legislature in 1949. SCPHD is governed by an elected board of unpaid Sarasota County (County) citizens distributed throughout the County. Through good stewardship and capable management, SMH has grown into an 829-bed public hospital and regional medical center with 5,000 staff, 900 physicians, and 650 volunteers. SMH offers a full array of health care services including specialty heart, vascular, cancer, orthopedic, child and adult psychiatric, and neuroscience programs, as well as a network of outpatient centers, urgent care centers, long-term care, and a new, dedicated rehabilitation pavilion. SMH is a comprehensive stroke center and is home to the County’s only Level II trauma center and neonatal intensive care unit (NICU). In addition, SMH offers the only behavioral health program and is the only obstetrical (OB) provider in Sarasota County. SMH is consistently recognized for excellent patient care. It is the only Florida hospital to earn a CMS (Centers for Medicare and Medicaid Services) 5-Star quality rating. It has maintained Magnet designation, the highest standard of nursing care, since 2004. SMH is a regional tertiary and quaternary safety net provider with a mandate to provide health care to Sarasota County residents regardless of ability to pay. As a result of substantial growth in its patient population; substantial market share in southern Sarasota County; the size, complexity, and congestion of the main campus; and changing standards since SMH’s patient towers were constructed, SMH is at capacity and must expand southward to continue to care for patients at its main campus, and to meet its mission of providing care to all Sarasota County residents, regardless of ability to pay or proximity to the northerly main campus. Venice Regional Medical Center (VRMC) VRMC is a 312-bed acute care and tertiary hospital located in Venice, southern Sarasota County. VRMC sees 32,000 emergency department (ED) visits annually; admits 9,000 patients a year; and has 200 open-heart surgeries a year. VRMC has received numerous awards, including several awards for its stroke and heart programs. VRMC’s current occupancy rate is about 40 percent. VRMC has an employed multispecialty physician group, Gulf Coast Medical Group, consisting of 31 primary care physicians and 41 specialists, including physicians specializing in interventional cardiology, rheumatology, pulmonology, neurology, plastics, gynecology (GYN), podiatry, and computed tomography (CT) surgery. Gulf Coast Medical Group has 25 locations in Sarasota County, with offices in North Port and near SMH’s proposed location on Laurel Road. Gulf Coast Medical Group sees over 200,000 patients a year and is responsible for about 60 percent of the patients admitted to VRMC. VRMC has experienced growth through a “hodge-podge” of renovation and expansion projects occurring between 1951 and 1985, without any master plan. For years, the capital needs of the hospital were funded through community fundraising and donated labor. In 1951, VRMC opened with 14 beds in an old boarding house. In 1957, the community raised $376,000 to add a 30-bed wing, a laboratory, a radiology unit, and surgical areas. In 1965, the community again raised a total of $700,000 to build a 33-bed addition. Over the next two decades, the growth at VRMC was funded through fundraising efforts, where the hospital only added the space it could afford based upon donations received. There were seven major additions to VRMC between 1968 and 1985, all funded and built in this piecemeal fashion. The result is a facility that lacks a coordinated, integrated plan or design. Bayfront Health Port Charlotte (BHPC) BHPC is a 254-bed acute care and tertiary hospital located in district 8, Subdistrict 8-1, near the Charlotte/Sarasota county line. In addition to the full range of acute care services, BHPC offers open-heart surgery, interventional catheterization, pediatrics, OB services, and NICU services. BHPC handles 31,000 ED visits annually, performs 8,200 surgeries a year, and has 11,000 admissions per year. BHPC’s occupancy rate is around 54 percent. Fawcett Memorial Hospital (Fawcett) Fawcett is an HCA-affiliated hospital located in Port Charlotte, Charlotte County, Florida, close to the Sarasota County border. Fawcett serves the Charlotte County communities of Port Charlotte, Punta Gorda, and South Punta Gorda; the Sarasota County of North Port; and all of DeSoto County. Fawcett provides care to all patients without regard for their ability to pay for services, and provided $5.2 million in uncompensated charity care in 2016. It received no compensation from any sources for the provision of care to indigent or under- insured patients. Fawcett has 237 beds, including 20 comprehensive medical rehabilitation beds. Fawcett provides almost all subspecialty services including cardiac surgery services, percutaneous coronary intervention (PCI), oncology, vascular surgery, general surgery, orthopedic surgery, neurosurgery, comprehensive medical rehabilitation, general medicine, interventional radiology, and compatibility-area surgery, among other services. The only services not provided at Fawcett are OB, pediatric, and transplant services. Fawcett is a high-quality provider and enjoys an outstanding reputation in the communities it serves. Fawcett is one of two hospitals in the entire state of Florida that has been recognized as a Top 100 Hospital by Healthgrades, has been named the hospital of choice and the emergency room of choice by the local newspaper for 12 consecutive years, and has garnered numerous other quality designations and certifications. The communities served by Fawcett currently enjoy broad access to hospital services due to the fact that BHPC is located directly across the street from Fawcett; Punta Gorda Hospital is four miles from Fawcett; and the SMH freestanding ED is seven miles from Fawcett. All but 10 of Fawcett’s acute care beds are semiprivate. Fawcett has two meetings per day to ensure their semiprivate beds are appropriately staffed and patients are appropriately assigned to beds. Fawcett’s 12 observation beds are housed in a dedicated observation unit that is contiguous with the ED. Fawcett’s annual in-patient occupancy is approximately 75 percent, and it experiences approximately 32,000 ED visits per year. Englewood Community Hospital (Englewood) Englewood, which has served its community for over 32 years, is an existing licensed 100-bed hospital that currently operates in AHCA Service district 8, Subdistrict 8-6, Englewood, Sarasota County. All of Englewood’s beds are semiprivate. It does not operate a separate observation unit, utilizing its licensed acute care beds for patients in observation status. As a small community hospital, Englewood offers 24/7 emergency services, robotic surgery, nephrology, PCI services, gastroenterology, pulmonology, geriatric care, urology, orthopedic surgery, and a stroke program, among other services. Englewood also offers a robust, high-quality cardiology program, complete with general cardiology services, cardioversions, transesophageal echoes, stress testing, nuclear stress testing, cardiac catheterization, angioplasty, interventional cardiology with stents, implanting of pacemakers, and more. Englewood’s cardiology program is modeled after cardiology programs at Harvard and Emory medical schools. Englewood serves approximately 21,000 patients annually, primarily the elderly, through its ED. Admissions to the hospital have remained relatively flat. Englewood serves the Englewood, Venice, and North Port areas in Charlotte and Sarasota Counties, and its administration is very active in the community. Englewood provides care to all patients without regard to their ability to pay, and provided $2.7 million in charity care in 2016. Englewood is a high-quality provider, with excellent medical and nursing staffs. It was ranked first among HCA- affiliated hospitals for quality. Englewood has been a Leapfrog A-Rated hospital for nine consecutive years and is a CMS 4-Star facility. Englewood was named by Modern Healthcare as one of the top 100 places to work, and has garnered several other quality indicators and awards. Notwithstanding Englewood’s quality and awards, it has struggled financially, experiencing a reduction in admissions and operating at an approximate annual occupancy of only 35 percent. In 2015, Englewood lost $200,000. It does not fully staff its 100 beds due to its low census, and even with a low census it has a shortage of nurses and must rely on “travelers.” The Proposals The SMH Proposal: “SMH Laurel Road” To enhance access to south Sarasota County residents, including SMH’s existing south county patients, and address its capacity constraints, SMH proposes a new 90-bed hospital (80 adult medical/surgical and 10 obstetric beds) on a 65-acre parcel that SCPHD owns at the southwest corner of Laurel Road and Interstate 75 in the southern part of Sarasota County. The project is conditioned on SMH delicensing 90 beds from its main campus, which it will remove from semiprivate rooms, converting those to single-occupancy, increasing functional capacity, and mitigating burdens presented by semiprivate rooms. The primary service area (PSA) for SMH Laurel Road includes the following North Port, Nokomis, and Venice zip codes: 34287, 34293, 34275, 34286, 34285, 34292, and 34288. The secondary service area (SSA) for SMH Laurel Road includes the remaining North Port zip codes of 34291 and 34289 in addition to Osprey and Englewood zip codes 34223, 34229, and 34224. SMH Laurel Road will focus on adult (ages 15 and older), non-specialty, non-tertiary services and will include 10 integrated labor, delivery, recovery, and postpartum (LDRP) obstetrics beds. SMH will continue to offer tertiary services at the main campus in order to provide Sarasota County residents access to those needed services. SMH also will remain the only pediatrics, NICU, trauma, and psychiatric provider in Sarasota County, and the region’s only state-certified Comprehensive Stroke Center. To address a critical gap in services in the region, a new, comprehensive oncology center is in the planning for the SMH main campus and will consume the remaining footprint of the campus that is suitable for acute patient care space. SMH Laurel Road will serve as an enabling project for these needed services and allow patients to continue accessing tertiary and specialty services at the main campus as opposed to sacrificing that space to provide lower acuity care to south- county residents forced to travel north. The majority of SMH Laurel Road service area patients currently accessing SMH’s main campus, based on 2015 market shares and discharges, are projected to shift to the new hospital. This anticipated shift is supported by existing and historical market data and trends concerning patient choice for SMH. Thus, approval of a local SMH facility, expressly conditioned on providing “needed medical care to all patients in need, regardless of ability to pay,” and providing a higher percentage of Medicaid, non-pay, self-pay, and charity care than is now being provided by south Sarasota County providers, will significantly reduce financial access barriers in the proposed service area. The Venice Regional Proposal VRMC is seeking to build a 210-bed replacement hospital four and a half miles from its current location, offering the same services currently offered at its existing facility. VRMC’s original construction began 66 years ago, and was not done in a coherent, cohesive manner. Due to its age and piecemeal construction, the facility has significant problems, such as: VRMC is undersized and has small, semiprivate rooms, inadequate and non-ADA compliant bathrooms, and significant adjacency problems; The building’s mechanical, plumbing, and electrical infrastructure are failing; The building is under negative pressure causing its cast-iron piping system to deteriorate and causing mold problems; and VRMC’s IT infrastructure is inadequate to meet current standards of care. VRMC’s facility problems are so numerous and significant that the experts who reviewed the facility all came to the same conclusion: the hospital is at the end of its useful life, and replacing it is the only sensible option. There was no contrary evidence offered to refute this conclusion. In fact, multiple witnesses called by the other parties conceded VRMC should be replaced. Statutory Review Criteria Need for the Proposed Projects: § 408.035(1)(a), Fla. Stat.; Fla. Admin. Code R. 59C-1.008(2)(e) SMH Laurel Road Capacity Constraints at SMH Main Campus SMH has an available 6213/ licensed, acute care beds; 49 adult psychiatric and 37 child psychiatric beds; 44 comprehensive medical rehabilitation beds; and 33 Level II and III NICU beds. The majority of SMH’s licensed medical/surgical beds are in four patient towers: Northwest, Waldemere, East, and Courtyard. Northwest Tower is the oldest acute care patient space at SMH at over 50 years old. The third and fourth floors have 53 licensed beds, and 40 are semiprivate. Semiprivate rooms in Northwest Tower are 11 feet, seven inches wide. The typical hospital bed is eight feet long. Placing two of these beds in a room makes it difficult for patients to navigate, especially when attempting to access the restroom. Semiprivate rooms in Northwest typically have a toilet and a sink in the common part of the room, but no shower. Bathrooms are not Americans with Disabilities (ADA) compliant. SMH nursing personnel witnessed a patient bathing in a sink in the middle of a Northwest semiprivate room while a roommate’s spouse refused to give him privacy. Another patient used a portable commode in the doorway of his room because his roommate, who had a gastrointestinal bleed, was using the toilet and the portable commode did not fit into the room. Northwest Tower acute care patient areas have one shower per floor, which is in the hallway. Small private rooms in Northwest Tower make mobility difficult: they are essentially full once the patient bed, trashcan, chair, and small table are added, and they must also accommodate large, modern equipment and larger patients. Hallways are crowded and difficult to navigate, portable work stations and equipment are frequently in hallways due to a lack of storage, showers are used as pantry space, and the nurses’ stations are inadequate for modern nurse-to-patient ratios. Today’s patients are sicker and require more nursing staff and ancillary help than the spaces were designed to accommodate, which adds to overall congestion. The design and space constraints within Northwest Tower pose significant ergonomic challenges for staff working in the units as a result of the routine shuffling of equipment, crowding, and maneuvering to access patient headwalls. Nursing staff is embarrassed to place patients in these subpar spaces compared to patients’ expectations of SMH as a CMS 5-Star hospital. The conditions in Northwest Tower impact and challenge staff ability to provide quality patient care. East Tower is the next oldest acute patient care space, built in 1972. The fifth through eighth floors have 180 licensed beds, 121 of which are semiprivate. The ninth and tenth floors previously housed rehabilitation patients. Those units were moved to a new rehabilitation pavilion, giving SMH the rare opportunity to renovate the vacant floors to add 52 private rooms. East Tower private rooms are so narrow that beds are positioned parallel to the headwall to allow footwall clearance. This makes it difficult for staff to care for a patient who codes (experiences a life-threatening emergent condition), needs a bath, or requires fresh bed linens. Architect Charles Michelson described the configuration as “not an acceptable standard of practice of medicine” because, at any time, providers require access to both sides of a patient. At least one cardiac unit cannot be used to full capacity because the nurses’ station is too small to accommodate the required cardiac monitors. Semiprivate rooms in East Tower are so small that chairs do not fit in the room when both beds are occupied, and the rooms do not have showers. Storage is so limited that equipment is stored in hallways and in the only shower available to patients in semiprivate rooms. The nursing station is too small to accommodate the required personnel, so nurses are forced to stand and complete their patient charting on rolling laptops. The cramped spaces in East Tower present safety concerns, and disruptions for staff and patients who must be moved in order to allow other patients to come and go, as well as navigate cords and objects placed along the footwall such as commodes, chairs, and trashcans. Waldemere Tower was built in 1985 and houses the majority of SMH’s medical patients in 188 beds on floors five through 10. It has many of the same deficiencies as Northwest and East Towers, including an abundance of small, semiprivate rooms with all of the previously described attendant problems, including narrow rooms. In one photo received in evidence, a weight dangles from the foot of the hall-side bed. The weight is attached to a pin through the bottom of a patient’s fractured leg to separate the patient’s muscles and tendons before surgery. In this semiprivate room, lab personnel, nurses with workstations, physicians, visitors, other patients, and possibly a stretcher, all must travel past that weight without bumping it. If bumped, the weight could fall off or displace the fracture. SMH provides the highest quality care possible in the cramped spaces, but they are challenged to do so every day. The Courtyard Tower was built in 2013, has only a few semiprivate rooms, and was presented at the final hearing as an example of what a modern patient tower should look like. The other towers are 40 to 50 years old and house most of SMH’s licensed acute care beds in semiprivate rooms. Problems common to the three older towers include insufficient utilities in patient headwalls; insufficient storage, forcing SMH to use needed functional space for storage; lack of patient showers; lack of sinks in patient bathrooms; lack of family waiting areas; lack of ADA-compliant bathrooms to allow for staff assistance; and aged electrical, mechanical, medical gas, and nurse call infrastructure. Semiprivate rooms at SMH range in size from 183 square feet in Northwest, to 222 square feet in East, and 239 square feet in Waldemere. Even in the mid-size East Tower rooms, this means patients sharing a room could, from their beds, easily hold hands. This contrasts with the 571-square-foot semiprivate and 226-square-foot private rooms in the modern Courtyard Tower. Semiprivate rooms in SMH’s older towers hold twice the beds, equipment, patients, nurses, and visitors in a room half the size of a modern patient room. Semiprivate rooms also present challenges to a hospital in terms of patient flow, logistics, infection control, and privacy. Before a patient can be placed in a semiprivate room, staff must consider gender because only same-sex patients may share a room. For efficient patient care, SMH’s acute care spaces are divided into condition or program-specific units. Thus, even if an appropriate roommate is identified for a new admission, SMH staff must consider whether the bed is on an appropriate unit. Staff must also consider space constraints; Patients are larger now than when the SMH patient rooms were built. They require larger beds and equipment, which takes up more space. Patients with infectious diseases cannot room with other patients. With mostly semiprivate rooms, this means isolation patients commonly occupy semiprivate rooms, thereby decommissioning the other bed. SMH treats patients with respiratory illnesses. Related equipment and noise make it difficult to place these patients in a room with another patient. Other types of patients whose conditions prevent use of all beds in a semiprivate room include those who: refuse shared rooms; have behavioral or substance withdrawal issues and are disruptive or frightening to a neighbor; have hearing difficulty; forensic patients; cancer patients with radiation seed implants; and patients with mobility constraints requiring bedside commodes. Semiprivate rooms compromise patient privacy by making each patient’s neighbor, and neighbor’s visitors, privy to conversations with caregivers. These are undesirable complications for all of SMH’s semiprivate rooms. Specific to the three older towers, the semiprivate rooms are so small that, to move a patient to or from the window-side bed, the hall-side bed must be moved. This disrupts the hall-side patient and it occurs at all times, regardless of whether the patient is sleeping, in pain, or clinically inappropriate for that type of motion. When a window-side patient “crashes,” the hall-side patient has to be moved from the room in order to get the crash cart in. Space constraints pose fall hazards to patients and make it difficult for families to visit, assist with patient care, or receive education on care for their loved ones upon discharge. Not surprisingly, semiprivate rooms do not contribute to patient satisfaction with their hospital experience. To combat problems with semiprivate rooms and cramped patient care areas, SMH launched the “private bed initiative,” seeking to host patients in a single occupancy room when possible. But even in its mostly semiprivate configuration, and despite what appears to be manageable average annual occupancy, SMH cannot meet the growing demand for acute care services at its main campus. Between 2013 and 2015, SMH experienced 16.9 percent growth in its total patient days, more than any other hospital in Sarasota County, higher than the district average, and more than five times the state rate. SMH experienced an even greater 22.6 percent increase in patient days from 2014 to 2016, again exceeding the state rate by more than five times. Much of that growth is from south Sarasota County, despite its remoteness from SMH’s northerly main campus. SMH projects this growth to continue. Semiprivate beds hamper SMH’s ability to actually use all of its beds, as described above. In addition, observation patients--who require the same level of care as inpatients-- commonly occupy licensed beds, but are omitted from publicly- reported occupancy data. They have become an increasingly significant component of assessing available bed capacity. On average, SMH cares for nearly 63 observation patients per day on acute care units while awaiting final determination of inpatient admission or discharge. In part, to comply with CMS regulations, placement decisions for observation patients are made by clinical personnel based on the appropriate level of care for each patient, rather than on assumptions that, until a patient is deemed to require admission, he or she warrants lesser care. SMH’s 52.4 percent average annual occupancy of licensed, acute care beds jumps to nearly 63 percent when including observation patients in licensed beds. In season, SMH’s observation population in licensed beds on an average day increases to 82 patients. The growth in observation status cases was unchallenged at the final hearing. Accordingly, it is reasonable to conclude that the AHCA acute care “occupancy percentage” must be viewed in context of this shift in the delivery of medical services. SMH’s opponents argue that this issue could be solved by simply adding observation units. But the evidence showed that SMH does not have the physical capacity on its campus to add new units to accommodate the segmenting of observation patients. Accordingly, the issue of “functional occupancy” (acute inpatients plus observation patients), represents a mitigating factor in assessing published “acute care occupancy” based on current medical care delivery. When SMH’s inpatient and observation patients are considered in light of the number of operational beds at SMH, occupancy increases to 66.3 percent. Considered in light of the private bed initiative, SMH’s average annual occupancy, including inpatient and observation patients during the 12 months ending March 2017, was 91.3 percent. Average occupancy of that level is problematic, not only because SMH utilization is increasing, but also because Sarasota County’s population is highly seasonal and hospital volumes increase dramatically in winter months. SMH volume during peak seasonal months of January to March 2017, measured against the number of licensed beds and including observation patients, was 71.5 percent. Considered in light of the beds actually available during those months, SMH’s bed occupancy was nearly 77 percent, and the occupancy of its available patient rooms assuming single-occupancy placement would have been 105.5 percent. For these reasons, Tim Cerullo, CEO of BHPC, criticized average annual occupancy as a metric for hospital capacity: “if you are just looking at the law of averages, you would not be able to judge whether a hospital was full on any given day ” From the patient’s perspective, congestion at SMH is first experienced during travel to the hospital on congested roadways. Once a patient arrives on campus, parking, valets, and traffic jams are a challenge. Patients take circuitous routes into the hospital from the parking garage. Volunteers are required to guide foot traffic inside the hospital. Elevators are overloaded and patients may wait five to 10 minutes for an elevator. Once a patient is admitted, SMH begins the process of identifying an appropriate room based on unit, gender matching, disease processes, and more. These issues are amplified during season, the resulting overcapacity problems being described by one SMH witness as SMH’s “burning platform.” To address the problem, SMH leadership initially spent $2,800,000 to develop comprehensive efficiency and capacity enhancement strategies. They hired two dedicated capacity managers, re-operationalized all beds decommissioned for storage or office space, and hired more staff. SMH created and fully staffed a logistics center with clinical and administrative personnel, transfer coordinators, and others to manage patient flow, transfers, and housekeeping to expedite room turnover. The logistics center is a command center for patient flow and throughput and includes real-time dashboards on monitors showing the status of capacity indicators at the hospital. SMH added a departure lounge where discharged patients awaiting a ride or other accommodation can comfortably wait without occupying a needed bed. SMH also looks for ways to improve its configuration and service lines to address capacity and efficiency, and to satisfy its mission to provide quality health care to all residents of Sarasota County. Those strategies include the planned addition of a cancer center with 30 licensed, inpatient beds to be pulled from existing semiprivate rooms; and relocation of rehabilitation services, which are less reliant on core hospital and critical care functions, to make room for 52 private, acute care patient rooms in East Tower. The 45 beds AHCA agreed to hold in abeyance when the outdated Retter Tower was demolished will fill most of the 52 rooms in the soon-to-be- renovated East Tower ninth and tenth floors. Despite these best efforts, the evidence on whole showed that SMH faces daily challenges with capacity, and does not realistically expect to have enough room to handle even the 2018 seasonal volume. Expansion of Main SMH Campus to Address the Problem? SMH’s existing bed towers are not capable of being renovated to modern and ADA-compliant standards while maintaining capacity and unit efficiency. The best options to address campus congestion and problems with semiprivate rooms would be to use existing semiprivate rooms as single occupancy by removing one of the two beds. This would help with decompression and efficiency because it would mean fewer patients per floor, fewer staff, decreased room turnover, and less shuffling of patients to troubleshoot semiprivate accommodations. But doing so would sacrifice patient beds in a hospital that already struggles with functional capacity limitations. For the reconfiguration to be possible, other space must be identified to allow for transfer of the lost patient beds. But with the exception of the projects SMH has currently proposed, the campus is saturated and SMH cannot increase its general medical/surgical capacity in a manner that will position it to meet patients’ needs into the future. Even if existing spaces could be renovated, SMH cannot afford to close units and lose beds while renovations are made. The parties opposing the SMH Laurel Road proposal advanced the argument that a new, nine-story tower could be constructed on the existing SMH campus. The new building, dubbed the “Tamiami Tower,” could be located on the northeast quadrant of the SMH campus, parallel to U.S. 41, Tamiami Trail, touching the SMH critical care tower, and bridging to the Courtyard Tower at scattered points on floors three through nine. According to SMH’s challengers, the Tamiami Tower would alleviate the overcapacity problems that now exist, and obviate the need for a new hospital on Laurel Road. However, the Tamiami Tower concept did not include a column layout for the open-air first and second floors, unit or programmatic specifics, space for mechanical and electrical systems, or elevators. The Tamiami Tower would obscure the SMH emergency room entrance, constrict the helipad servicing the SMH trauma center, and exacerbate congestion and wayfinding challenges both during and after construction. Moreover, the Tamiami Tower alternative is impractical from an operational perspective in that it invites public traffic into the most sensitive units of SMH, including labor and delivery, NICU, and mother/baby units, and cannibalizes needed spaces within those newly-constructed units. There were numerous caveats and assumptions noted in the Tamiami Tower architectural report offered by the Fawcett/Englewood architect. For example, the report assumes that “existing infrastructure would be sufficient or that new infrastructure could be included in the expanded construction.” The reasonableness of that assumption was not persuasively established at hearing. What is clear is that the practicality of the Tamiami Tower proposal would require extensive additional study in order to determine its feasibility. Even then, no evidence was presented to counter the operational, congestion, adjacency, and other problems the project would present. In short, the evidence failed to establish that the Tamiami Tower concept would be a reasonable and practicable solution to SMH’s functional space limitations and capacity constraints. Venice Regional Replacement Hospital VRMC is Undersized and Outdated Like many older hospitals in Florida, VRMC was not designed for the modern health care environment, where patients are larger, sicker, and require more medical equipment and staff to care for them. VRMC’s inadequate size is demonstrated by its total hospital square footage per bed, which is almost half the size of VRMC’s proposed hospital. The existing hospital has 983 square feet per bed, compared to 1,900 square feet per bed in the proposed hospital. The majority of VRMC’s existing patient rooms are semiprivate, and about half the size required by current codes. VRMC has 113 semiprivate rooms that are 160 square feet: EDmeaning patients treated in 226 of its 312 licensed beds have less than 80 square feet per bed. The private rooms are only 130 square feet, compared to today’s minimum code requirement of 300 square feet per private room. The patient bathrooms are woefully undersized, with only 10 percent being ADA compliant. Kristen Gentry, VRMC’s chief operating officer, testified that given the elderly nature of VRMC’s patients, all the bathrooms should be ADA compliant so that staff can assist patients in the bathrooms and patients can use walkers and other equipment, which is currently impossible. The surgical intensive care unit (SICU) has “swivette” toilets that swing out of cabinets, which are problematic and not code- compliant. Due to the “hodge-podge” construction, there are adjacency and patient flow issues. For example, postoperative open-heart surgery patients are transported via a small public elevator to the ICU on a different floor, increasing the risks of adverse incidents. The elevator is too small to allow the appropriate medical personnel to accompany the patient on the elevator, and balloon-pump patients must have the balloon pumps placed on their stretchers to fit in the elevator, which increases the risk of dislodging their cannulas. The operating rooms at VRMC are inadequate. All but one is less than 400 square feet, whereas today’s code requires over 600 square feet. The operating room that meets the current minimum code requirements for size is being evaluated as the place to implement a transcatheter aortic valve replacement (TAVR) operating room. However, it is undersized for that purpose, as a TAVR operating room should be 1,000 to 1,200 square feet, due to the numerous personnel in the room during the procedure. The ED is undersized and frequently relies upon hallway beds in season because there are not enough treatment bays. The ED ancillary areas are undersized and inadequate. There is no electronic tracking system to expedite the patient flow process. Mechanical, Electrical Plumbing Systems Failures VRMC’s mechanical, electrical, and plumbing systems are failing. VRMC has experienced numerous disruptions in patient care related to its deteriorating building, including: sewer and fresh water pipes breaking and exhibiting signs of rust, a rodent infestation, and mold and asbestos issues. VRMC presented experts in the fields of electrical engineering, mechanical engineering, roofing, architecture, industrial hygienic engineering, and hospital physical plant operations. The universal consensus from these experts was that VRMC’s current facility has so many problems that renovating it is not a viable option. Many of these experts testified VRMC’s physical plant was one of the worst they had seen in their careers. In 2015, VRMC had two very highly publicized concurrent incidents that resulted in a significant market shift of health care services: a sewer pipe rupture and discovery of a rodent infestation. These issues directly relate to the aged hospital facility, and are illustrative of some of the ongoing and future potential infrastructure challenges VRMC faces. The sewer pipe rupture was caused by disposable towels being flushed down the toilets and getting caught on the rusty, corroding sewer pipes, causing blockages and raising the pressure in the pipes. Unbeknownst to VRMC, a prior owner had replaced sections of the cast iron sewer piping in the interstitial space with polyvinyl chloride (PVC) piping and a PVC cap. The pressure buildup caused the PVC end cap to burst off, sending a tremendous amount of sewer waste into the interstitial space. The sewer waste seeped down through the old gravel roofing (which was the floor of the interstitial space), through the ceiling, down the walls, and onto the second story hallway floor. The sewer waste flowed down the hallway until nurses could divert its flow to an elevator shaft. VRMC hired a licensed, independent contractor specializing in cleanups of this nature to do the cleanup. Upon completion, there were no obvious signs of the sewer leak inside the hospital. However, an AHCA complaint survey conducted a month after the initial cleanup revealed that the cleanup was inadequate, leaving sewer waste that had soaked into the gravel roofing material in the interstitial space, and a small amount of sewer waste remnant in the elevator shaft. The uncleaned sewer waste was not readily detectable from the patient care areas inside the hospital. Ultimately, the entire gravel roof on the interstitial space had to be removed to thoroughly clean the sewer waste. VRMC’s investigation of the sewer pipe incident revealed additional facility problems: the vertical stacks in the North Tower were cracking and had to be replaced. The stacking project and gravel roof removal were major disruptions to VRMC’s ability to care for patients, with constant shutdowns of significant portions of the hospital, including the operating rooms at one point. The remediation impacted patients and physicians, including: unavailable operating rooms, constant vibrations due to construction, noise issues, and sewer smells. The sewer pipe cleanup, consisting of entirely removing the gravel roofing material, sealing the floor of the interstitial space, and replacing the vertical stacks in the North Tower, cost VRMC $10 million (excluding business interruption damages and consequential damages), and took two years to complete. Unfortunately, during this remediation process, there was a fresh water pipe break, which led to the discovery that the subsurface sewer drainage pipes in the South Tower also had to be replaced because the pipes had completely disintegrated, leaving only the built-up sludge in the pipes as the conduit for the sewage to flow through. With the operating rooms shut down and other facility interruptions caused by the remediation, and with patients raising concerns about the safety of the hospital (predominantly based upon the media sensationalism), many of VRMC’s general surgeons and orthopedic surgeons began taking elective cases to other hospitals. Elective surgery, and particularly orthopedic surgery, is a very profitable service line for a hospital, so this had a significant adverse financial impact on VRMC. In the aftermath of the sewer pipe incident, VRMC’s open-heart surgeon, Dr. Fong, moved his practice to SMH. After Dr. Fong left, VRMC’s open-heart surgery cases dropped from around 350 cases a year to 200 cases a year. Open-heart surgery is also a profitable service line for hospitals, and this also had a severe negative financial impact on VRMC. VRMC also lost several neurologists around this same time, including Dr. Coleman, who is now employed by SMH. Despite replacing the vertical sewer pipes in the North Tower, VRMC has continued to experience plumbing issues throughout the hospital, including in the North Tower. Many of the horizontal pipes cannot be accessed without literally tearing the entire hospital apart, and because of the deteriorated condition of the pipes, it is not appropriate to use other methods to clean out the pipes, such as jetting or rotoring, since that could cause further damage to the pipes. The rodent infestation discovered during the same AHCA complaint survey as the inadequate sewer clean up, is also indicative of the aged facility. The surveyor removed a ceiling tile in the kitchen area to check for additional sewer waste remnants in the crawlspace between the second-floor ceiling and the interstitial space floor. When he put his head into the crawlspace ceiling area, he saw and heard rodents. VRMC’s administration was not aware of the rodent infestation prior to the survey; and if they had known about it, they would have taken steps to correct it. It is likely the rodent infestation went unnoticed because of the thickness of the ceiling tiles, which are designed as fire and moisture barriers. The rodent infestation resulted in the kitchen having to be shut down, and a temporary mobile kitchen being put into place while the cleanup was done. It was subsequently discovered that the rodents were entering the kitchen ceiling through an abandoned sewer pipe that had either not been capped off at its termination or where the cap had come off over time. The rodents entered the pipe through the uncapped termination end, and because the pipes were so deteriorated, were able to eat their way through the pipes above the kitchen ceiling to gain access to the crawlspace. The rodent infestation in the kitchen has been fully remediated; however, due to the aged building, preventing future rodent infestations from occurring is a constant battle. VRMC has hired a pest control contractor to do daily rounds of the facility; searching for signs of rodents and eliminating any that are found. In addition to the serious plumbing and vermin issues at the hospital, there are also significant electrical and mechanical issues at VRMC. Hugh Nash, VRMC’s expert in hospital electrical engineering, walked through numerous problems with the mechanical and electrical systems at VRMC, and pointed out several components that were well beyond their expected useful life, some dating back to the hospital’s original construction. For example, he explained that a hospital’s transfer switches are critical components of a hospital’s electrical system because they control the generator power coming on in a power outage. A transfer switch typically has a useful life of 25 years. Many of VRMC’s transfer switches are over 30 years old. They also lack important safety features, such as being grounded or requiring manual operation to initiate the switch (something Mr. Nash testified he had never seen before in any hospital). The generators that were installed in 1969 do not have appropriate ventilation, and are located below the 100-year floodplain. Mr. Nash has rarely seen generators in hospitals that are over 30 years old; VRMC’s are 48 years old. He also testified that any significant renovation to the electrical system at VRMC would require the generators be moved above the floodplain, which would be very costly. Mr. Nash explained that one reason hospitals wait so long to replace transfer switches is because of how disruptive it is to the hospital’s operations. He also testified that given the lack of available space in the conduits and ceilings, it would be nearly impossible to make the necessary renovations to VRMC’s electrical systems; and even if it were possible, the exorbitant costs to do so would make it impractical. VRMC’s facility infrastructure problems are a constant source of irritation to the physicians that care for patients at VRMC. For example, Dr. Dreier testified: It’s falling apart around us. * * * It seems like every few weeks there is a pipe that's broken. The medical ICU has flooded several times. The surgical ICU has flooded several times. Water is not available because the water is being shut down because it's been contaminated from broken pipes. Dr. Landis compared fixing the problems at VRMC to trying to fix an old car: The damage is extensive in this hospital, and the wearing of this hospital is – as I said, it's a case of original sin. It was the way this hospital was constructed. It's not going to get any better. And you can put good money after bad, but the fact of the matter is, is that it's just not going to happen. You would have to reconstruct this entire building from the inside. And then when all is said and done, the space that this hospital has and the way it was built and what is expected by patients in 2017 this hospital doesn't have. So why would you do that? I mean, it gets to the point where you replace the trannie, you replace – you replace the alternator, you replaced the battery, but the motor sucks. And the bottom line is that's what we have here. Dr. Joseph Chebli, a bariatric surgeon, recounted having to interrupt a surgical procedure that was about to start when a sewer pipe leak occurred outside his operating room. This was after the vertical stack remediation had been completed. He summarized his frustrations saying the hospital is a “constant embarrassment” to him and his patients. The Negative Pressure Problems Prior to HMA purchasing VRMC, the prior owner, the Bon Secours Health System, identified a significant moisture intrusion problem. In 2005, HMA attempted to address the moisture intrusion problem by coating the building with an elastomer paint that would act as a barrier to moisture coming into the building. However, the hospital has severe negative pressure, which causes it to suck moisture into the building. Once the moisture gets under the coating, whether it is through roof leaks, window leaks, cracks in the elastomer coating, internal plumbing leaks, or just evaporation caused by temperature changes, it cannot escape and creates mold issues. VRMC experienced a recent mold issue in its SICU that closed the unit for several months for remediation. Nick Ganick, a mechanical engineer, testified that the “severe” negative pressure situation and moisture intrusion has been “disastrous” for the hospital, and could have caused the deterioration of the cast-iron pipes, resulting in the numerous system failures: One of the things that I look at as a mechanical engineer in healthcare is negative pressure. Building negative pressure is disastrous to hospitals. It's bad for the envelope, it's bad for mold down here in Florida, it carries bad things into the hospital that are unfiltered. * * * The reason for the condition of the pipe could have been negative pressure, it could have been some of the moisture in the building. Charles Cummings, an expert in industrial hygienic engineering, testified that negative pressure in a hospital raises safety concerns: You have to control the environment in a hospital, and the inability to do that allows humidity to run rampant, it allows airborne diseases and other infectious – mold spores, for instance, other bacteria, other things that just live inside and outside of any building, much less a hospital building, it gives them a fertile ground to grow. VRMC has attempted to correct the negative pressure issues, but this is a daunting task with such an old, porous building. The situation is compounded by the fact that there are 20 to 30 heating, ventilation, and air conditioning (HVAC) units in the interstitial space, some the size of dump trucks, that are old and not able to keep up with the porous building; however, replacing them requires disassembling the old equipment (by cutting them into small pieces with a blow torch) just to get them out, disassembling the new pieces of equipment to get them into the interstitial space, and reassembling them in the interstitial space before they can be installed. This dramatically increases the complexity and costs of replacing the HVAC equipment, and there is no guarantee that replacing the HVAC equipment would resolve the negative pressure problem. Information Technology (IT) Problems Not surprisingly, VRMC needs a complete IT overhaul. It does not have an integrated electronic medical record (EMR) system, which is the current standard of care for hospitals. Implementing an EMR system at VRMC has been considered on multiple occasions, but the building has raised such substantial obstacles it has proven nearly impossible. One significant obstacle is the lack of space to incorporate computers into the end-user work spaces--patients’ rooms, nurses’ stations, and other patient treatment areas. Some of the other problems, such as cabling or storage and charging of computers on carts, individually might be surmountable, but collectively and in light of the inability to get the computers where clinicians can access them at the points of care, becomes somewhat moot. The IT limitations of the facility go beyond the inability to implement an EMR system. Currently VRMC’s surgeons dictate medical records on folding tables stuck in corridors outside operating rooms because there are no other adjacent spaces to accommodate this function. Elective surgery is profitable and if there was any practical solution, VRMC would have already implemented it to encourage surgeons to operate there. The ED has a separate medical record system that is not integrated with the rest of the hospital. Patients admitted through the ED must have information manually re-entered, delaying admissions and increasing the potential risk of errors. Numerous physicians voiced their frustrations with VRMC’s IT issues, including, among other things: the lack of ability to communicate via cell phones and text messages in the hospital; slow computer systems; the limited ability to access patients’ full medical records from their offices; and the lack of a “true” integrated EMR system. Dr. Palmire testified: So the cell phones don't work in that hospital. You cannot call out. I cannot call out anywhere in that hospital. * * * And it’s a real – and that is – and communication, you can't be a physician and not be able to communicate with people. So you’re stuck with landlines. You know, cell phones enhance my productivity substantially because I can walk around or do something else. I’m not tied to a phone. There's only so many phones, you know, and lines. You can’t provide a phone and a line for every physician in that hospital. So this kind of communication is critical, and you cannot do it within that facility. The are no viable options to replace VRMC on site without completely disrupting hospital operations and effectively shutting the hospital down because of the limited size of the hospital campus and the surrounding existing residential uses of the adjacent parcels. Further, it would not make sense to replace VRMC onsite even if it were possible given the vulnerability of the existing site to hurricanes. SMH’s CEO, Mr. Verinder, conceded VRMC’s current location was problematic and if SMH had purchased the facility it would have filed a replacement hospital to move the location. Availability/Accessibility/Utilization of Existing Facilities; and Enhanced Access for Residents of the District: § 408.035(1)(b) and (e), Fla. Stat. SMH Laurel Road Subdistrict 8-6 is home to SMH, VRMC, Englewood, and Doctor’s Hospital of Sarasota. Adjacent Charlotte County, part of district 8, is home to Fawcett and BHPC. Except for SMH, all are private, for-profit hospitals. SMH is the Sarasota County’s safety net hospital, providing nearly 90 percent of Medicaid and charity care in Sarasota County, and more than 65 percent of the County’s uninsured care. SMH is the sole provider in Sarasota County for Medicaid-heavy service lines like OB, Level II and III NICU, pediatrics, adult and pediatric psychiatric, and trauma. Utilization at SMH has steadily increased since 2013 at a rate far greater than district, or state averages. The proposed service area for SMH Laurel Road is growing and aging faster than the rest of the County and, by 2021, will represent 60 percent of the 65 and older population of Sarasota County. In addition to growth at its main campus, from 2014 to 2016, SMH experienced 25-percent growth in its south county ambulatory care centers. SMH’s employed physicians group, with locations throughout Sarasota County, including North Port and Venice, also is growing. This established network demonstrates SMH’s commitment to providing care to south county residents. The SMH network will serve as a referral base for south county residents requiring inpatient care--including a substantial and increasing elderly population--who could be treated at SMH Laurel Road without traveling to the main campus. Many of these patients already bypass closer hospitals to travel from south Sarasota County to the SMH main campus, despite substantial distance and drive times, particularly in season. In 2015, nearly 25 percent of SMH Laurel Road service area residents chose to receive inpatient care at SMH, which captured 17.3 percent of the inpatient market share in that service area. By 2016, SMH’s inpatient market share in the SMH Laurel Road service area had increased to 21.3 percent, and 19 percent of SMH main campus patients came from that service area. SMH Laurel Road is expected to capture approximately 3,548 of what otherwise would be SMH main campus adult, non- tertiary, non-OB discharges during its first year of operations, or about 80 percent of the main campus’s 2016 proposed service area market share. As SMH’s market share in the Laurel Road service area increased, VRMC, Fawcett, and Englewood market shares declined and BHPC’s market share was essentially stagnant. SMH’s opposition argued that the presence of other providers with available beds serving the SMH Laurel Road service district weighs against need for SMH Laurel Road. To the contrary, market conditions showing faster growth at the more distant hospital more likely indicate accessibility challenges with the closer hospitals. SCPHD’s focus on avoiding hospital admissions, promoting positive outcomes, and managing chronic conditions, hinges on access to primary care and follow-up continuity of care. SCPHD was anticipated to record over 272,000 south Sarasota County ambulatory care visits in the fiscal year ending September 30, 2017, indicating strong patient-alignment with SCPHD. The top 43 attending physicians accounting for over 61 percent of SMH admissions from the SMH Laurel Road service area did not admit a single patient to VRMC, BHPC, Englewood, or Fawcett in the 12 months ending September 30, 2016. In an abstract evaluation of acute care occupancy versus actual patient flow, it could be argued that “patient convenience” should not outweigh traditional health planning need assumptions of available licensed bed capacity. But the dynamics of contemporary medical care delivery cast doubt on the traditional planning metric: The fact that SMH gained four- percent market share among residents of its proposed PSA in less than one year, likely resulted from SCPHD initiatives to promote access to primary and diagnostic services for residents of south Sarasota County. The SMH Laurel Road proposal will enhance access to inpatient services and promote continuity of care for south Sarasota county residents who have already aligned with SCPHD. This symbiosis also will ensure continued financial viability, and therefore accessibility, of SMH without the need to increase the ad valorem tax burden on county citizens. SMH Laurel Road will offer a full-service OB program, a service currently not available within the proposed service area. Currently, SMH is home to Sarasota County’s only OB, NICU, and pediatrics programs, including high risk maternal fetal medicine, 24/7 OB hospitalist coverage in-house, 24/7 neonatology coverage in-house, and a maternal neonatal transport team for high-risk transfers. The SMH NICU serves as a transfer destination and back-up NICU to several hospitals in the region. SMH already captures over 70 percent of SMH Laurel Road service area OB discharges, 85 percent of which are expected to shift to SMH Laurel Road upon opening. While BHPC’s OB market share has declined, SMH’s has increased steadily since 2013. Even in south Sarasota County zip codes closer to BHPC than SMH, SMH has a larger OB market share than BHPC. Shon Ewens, executive director of the Sarasota County Healthy Start Coalition, a support organization for mothers and children, testified via deposition that the majority of her clients are Medicaid recipients, many come from southern Sarasota County, births from that area are on the rise, and her clients receive OB services at SMH. It is burdensome for south Sarasota County OB patients to travel to the SMH main campus for OB services. As pregnancy progresses, the number of prenatal appointments increases. Mothers may be expected to visit their providers as often as twice a week, driving 45 minutes to an hour to SMH, and interrupting jobs and other obligations. These burdens cause interruptions in prenatal care to the detriment of the expectant mothers’ health. These are barriers to accessibility of OB services in Sarasota County that would be alleviated by the approval of SMH Laurel Road. Ms. Ewens testified that, for her clientele, the SMH Laurel Road OB program is needed. Her conclusion was echoed by health care planning expert, Roy Brady. The large numbers of southern Sarasota County residents, who already travel to SMH main campus for medical care, including pregnant women and the elderly, face challenging road conditions, particularly in season. Residents of the SMH Laurel Road service area who, either by necessity (unique or specialty service line, financial accessibility), or choice (previous experience, recommendation), seek care at SMH main campus do not have access to care within 30 minutes, with the exception of the northwest section of the proposed service area. With respect to the elderly, geographic challenges are exacerbated by visual impairment, hearing loss, and reduced reaction time. To compensate, elderly drivers avoid driving at night, dusk, and dawn; during rush hour, and in bad weather; plan routes that are familiar, and avoid interstates and left turns. This impedes seniors’ access to acute care services, particularly when congested I-75 and Tamiami Trail are the primary roadways to SMH main campus. Approval of SMH Laurel Road will also allow SMH to redirect some of its lower-acuity patients to a location closer to their homes, ensuring accessibility of main campus services only offered at that location. SMH’s opponents argue that SMH’s capacity and decompression argument is SMH-specific need. While this is true in that SMH is the only area provider for certain service lines and the only safety net provider in the County, had the other area hospitals established OB, pediatric, psychiatric, and trauma programs, perhaps capacity at SMH would not pose access barriers to these services within the district overall. Until then, to the extent SMH capacity constraints threaten access to otherwise unavailable services, those capacity constraints support SMH’s need argument and are not institution-specific. The undersigned considered arguments from SMH’s opposition that SMH filed an application in a prior batching cycle which was virtually identical to the CON application at issue, and was denied, suggesting that the more recent application should also be denied. However, AHCA’s representative, Marisol Fitch, noted that the addition of OB services to the application at issue was a “major change,” as was VRMC’s changed position with respect to its facility deficiencies which, in essence, altered the landscape in terms of the availability and accessibility of services in the region. Taken together, the existing capacity constraints at the SMH main campus, and issues of availability and accessibility of services described above, establishes need for the SMH Laurel Road proposal. Specifically, SMH provides the vast majority of Medicaid services to residents of the district, suggesting access barriers to these underserved patients through other providers; utilization of its existing hospital and outpatient services has increased substantially in recent years; there is a large, growing population of south Sarasota County patients, including medically underserved, elderly, and OB patients, seeking services at SMH; its proposal enhances access to needed services within the district with the inclusion of an OB program which, currently, is not accessible through any other provider; and SMH’s main campus is at capacity and requires decompression in order to ensure access to needed services for all Sarasota County residents, including many services that only SMH provides. 2. Venice Regional Replacement Hospital VRMC’s replacement hospital will positively impact subdistrict utilization rates. The utilization forecast used VRMC’s three-year historical market shares by zip code, and assumed VRMC would slowly recapture its premarket shift market shares. By year three, VRMC’s replacement hospital will be 70 percent occupied, with an average daily census of 147 patients. Currently, VRMC is only about 40-percent occupied. Thus, approval of VRMC’s replacement hospital will enhance the subdistrict utilization rates. VRMC’s relocation will bring the facility closer to residents in every zip code within its current and proposed service areas (which are the same), except its current home zip code. Residents in that zip code should not have trouble accessing VRMC’s new location, which will only be a few miles away. Further, VRMC is leaving a freestanding ED on the island to ensure emergency access. VRMC’s new site will also enhance accessibility during and after a major hurricane. VRMC is currently located on an island, very proximate to the coast, with many of its critical systems (including its generators) located below the 100-year flood plain. The building is not built to current hurricane strengthening codes. VRMC’s proposed location will be much more accessible during and after a major hurricane because it will not be on an island and will be further from the coast. Current building codes will require the hospital be built so that the generator and other crucial systems will not be impacted by hurricane flooding, and that the hospital be constructed to meet or exceed the applicable hurricane wind- resistance standards. VRMC’s current facility limits its ability to provide certain state of the art health care services, including TAVR and interventional neurology. VRMC’s replacement hospital will enhance residents’ access to these services. Structured heart procedures, including the TAVR procedure, are the wave of the future in cardiovascular surgery. TAVR reduces the need to perform open-heart surgery by performing valve replacements intravenously, which means shorter hospital stays and recovery times. TAVR requires a blended team of open-heart surgery and interventional clinicians, and the equipment used is very large and specialized. Thus, in comparison to standard operating rooms, TAVR operating rooms must be very large. VRMC is struggling with implementing TAVR capability at its existing facility. The operating rooms are too small to accommodate the TAVR equipment and team. While VRMC is trying to find ways to squeeze it in within the confines of its existing space, the ability to develop and grow the entire structured heart program is limited by the physical capacity of the facility. Approval of VRMC’s replacement hospital will allow this program to flourish, and will enhance access. Venice and North Port stroke patients will have enhanced access to neurological intervention if VRMC’s replacement hospital is approved. Sarasota County Emergency Medical Services (EMS) takes all stroke patients under 80 years old to the closest comprehensive stroke center. SMH is the only comprehensive stroke center in Sarasota County and Charlotte County. Thus, when EMS transports stroke patients from southern Sarasota County, they bypass closer hospitals to go to SMH. In stroke cases, every second of delay in reperfusion means loss of brain tissue, which results in physical and cognitive impairments. VRMC is striving to become a comprehensive stroke center and has everything in place to meet the requirements, except an interventional neurologist. According to hospital administrators, VRMC has not been able to recruit an interventional neurologist because of its aged, outdated facility. Approval of VRMC’s replacement hospital will make it easier for VRMC to recruit an interventional neurologist and become a comprehensive stroke center. When VRMC becomes a comprehensive stroke center, EMS will no longer have to bypass VRMC, and south County stroke victims who are closer to VRMC than SMH will be able to have their intervention sooner, resulting in less brain injury and impairment. VRMC’s replacement hospital will enhance access to disenfranchised former patients of VRMC. The market shift caused former VRMC patients to travel farther to receive acute care services. Replacing VRMC will shift many of these patients back to VRMC, enhancing their access to care closer to home. South Sarasota County residents will also have enhanced access to continuity of care with their primary care physicians and other established specialists. It is difficult for physicians who are not on staff to get access to information from hospitals. Shifting patients back to VRMC will fix this disconnect and enhance patients access to a coordinated system of care. The Extent to Which the Proposal Will Foster Competition that Promotes Quality and Cost Effectiveness: § 408.035(1)(g), Fla. Stat. SMH Laurel Road Approving SMH Laurel Road will add a high-quality, cost-effective, competitive alternative to existing providers. SMH has the lowest average charge for adult general acute med/surg cases compared to VRMC, Englewood, BHPC, and Fawcett. SMH has lower charges than VRBH across the board for the top 20 diagnosis related groups. Thus, introduction of SMH Laurel Road into south Sarasota County can be expected to have a positive impact on charges for patients in that market. In reaching this finding, the undersigned considered argument from SMH’s opponents that its status as a tax-supported public hospital gives it an unfair pricing advantage over private hospitals. The argument was not persuasive. SCPHD is governed by an elected Board with authority to set millage rates and levy taxes. If voters are unhappy with tax burdens, they can take corrective action. At the same time SMH’s opponents were challenging SMH’s proposal on the basis that it receives local funds, they were suing to receive those funds themselves. They prevailed and, on July 6, 2017, the Supreme Court of Florida held that the relevant special law requires Sarasota County to reimburse not just public, but also private hospitals for indigent care. Venice HMA, LLC v. Sarasota Cnty., 228 So. 3d 76 (Fla. 2017). If SMH’s access to public funds gave it a competitive advantage in pricing, the Venice HMA decision should level the playing field. The addition of SMH Laurel Road to south Sarasota County also will increase non-price competition, such as quality and service offerings, as SMH is the only CMS 5-Star rated hospital in the state. In addition to providing residents of the district a new access point for low-cost, high-quality care, SMH Laurel Road will bring new services to the area, such as OB. Historically, VRMC has had a significant competitive advantage when it comes to treating residents of southwest Sarasota County who require hospital care within a close distance of their home. The addition of SMH Laurel Road will give residents a choice and encourage VRMC to enhance its patient satisfaction and quality--all to the benefit of district residents. On balance, the record here shows that SMH Laurel Road will foster competition that promotes quality and cost- effectiveness. 2. Venice Regional Replacement Hospital Approval of VRMC’s replacement hospital would promote competition that will enhance quality and cost-effectiveness. Despite there being six hospitals that serve Sarasota County residents, SMH is the dominant provider with more than 50-percent market share. VRMC is at a distinct competitive disadvantage currently because of its aged and obsolete facility, and the numerous, highly publicized problems that have occurred. These problems have resulted in a significant market shift from VRMC to SMH. If VRMC is not replaced, the market shift will not correct itself, but if VRMC is replaced, it is likely the hospital will recapture a significant portion of its lost market share. Approval of VRMC will promote quality in several ways: It will end the constant facility problems that disrupt patient care; It will eliminate the risks to patients caused by the worn-out facility infrastructure; It will eliminate the risk of asbestos, mold, and the effects of a building that operates under “severe” negative pressure; It will eliminate risk related to the “hodgepodge” design, such as having to transport postoperative open-heart surgery patients in a small elevator to the ICU; It will enhance patient experiences with larger, private patient rooms and ADA compliant bathrooms; It will enhance the nurse call system and overall positioning of nursing units to patient rooms, so nurses can be more responsive to patients’ needs; It will reduce unnecessary emergency room bottlenecks caused by too few emergency room treatment areas, lack of appropriate ancillary space, and reentering patient data; It will add additional large operating rooms, keeping patients from having to leave their community to receive elective orthopedic surgery; It will provide VRMC with IT capacity to meet today’s standard of care by implementing an EMR; It will reduce the risk of medical errors by having more ability to safety check information in patients records and having more automated safety functions; It will reduce the physician frustration level related to the various IT inadequacies and other facility infrastructure problems; It will allow physicians better access to their patients’ medical records from their offices, enhancing post-hospital follow-up care; It will allow the expansion of services like structured heart and comprehensive stroke certification; It will provide southern Sarasota County residents with quicker access to stroke care, minimizing their brain tissue losses and resulting physical and cognitive impairments; It will lessen the number of patients that travel to receive acute care; It will enhance continuity of care for patients with their established primary care and specialty physicians; It will prevent further erosion of VRMC’s volumes and ensure adequate patient volumes to maintain existing specialty services; It will enhance VRMC’s ability to recruit top quality physicians and nurses; and It will make VRMC much more likely to be available during and after a hurricane to meet the community needs. Approval of VRMC’s replacement hospital will also result in more cost-effective care. The costs in terms of dollars and man-hours to maintain VRMC, due to its facility problems are substantial. The one sewer pipe break alone was a $6 million expense, not including business interruption and consequential damages, such as lost referral patterns. The Applicant’s Past and Proposed Provision of Health Care Services to Medicaid Patients and the Medically Indigent: § 408.035(1)(i), Fla. Stat. SMH Laurel Road SMH is the safety net provider for Sarasota County. It is mandated to ensure that all Sarasota County residents, regardless of their ability to pay, have access to needed care and services. SMH’s track record is reflective of this mission. Of the 23 general acute care facilities in district 8, SMH provided the highest number of Medicaid/Medicaid HMO patient days (21,576). Over the past three years, SMH provided in excess of 85 percent of all the Medicaid and medically indigent care to Sarasota County residents. Not surprisingly, SMH far exceeds other area hospitals with respect to the amount of Medicaid and medically indigent care it provides through its ED. Of the 93,077 total ED visits at SMH for the twelve-month period ending September 30, 2016, 43,390 visits were Medicaid or medically indigent, far exceeding all other area hospitals. Looking only at the patients from VRMC’s proposed service area (same as its existing service area) for fiscal year 2016, VRMC had 5,013 Medicaid and medically indigent ED visits (26.3 percent of VRMC’s total ED visits) compared to 11,556 Medicaid and medically indigent SMH ED visits (45.5 percent of SMH’s total ED visits). SMH’s historically high Medicaid and indigent patient volumes are explained, not only by its mission, but also by the product lines it offers. SMH provides services that are typically highly utilized by the medically underserved, such as OB, NICU, pediatrics, and behavioral health. The vast majority of hospitalized Medicaid beneficiaries are pregnant women, newborns, and young children. By offering OB and decompressing the main SMH campus, which provides all Medicaid-dominant service lines, SMH Laurel Road will improve health care access to Medicaid patients throughout Sarasota County. SMH’s historical commitment to the provision of health care services to Medicaid patients and the medically indigent is not in dispute, and the addition of SMH Laurel Road will further enhance access to inpatient care for Medicaid and medically indigent patients. SMH’s past and proposed provision of services to Medicaid patients and the medically indigent weighs in favor of approval of SMH Laurel Road. 2. Venice Regional Replacement Hospital VRMC has a history of providing care to Medicaid and indigent patients. However, VRMC’s service area residents are typically covered by Medicare. VRMC conditioned its CON on providing its current level of Medicaid and indigent care. VRMC will also be seven to ten minutes closer to North Port, which has a higher percentage of Medicaid and indigent patients. There was no credible evidence of record that VRMC denies care to Medicaid or indigent patients, or that such patients are discouraged from accessing care there. Approval of the VRMC replacement hospital is consistent with this statutory criterion. Adverse Impact SMH and VRBH are existing providers with significant market shares in their proposed service areas. Therefore, projecting adverse impact on existing providers, as would be the case with new entrant proposals, where the success of the program is reliant on capturing market share from existing providers is unlikely in this instance. Both applicants built their proposals on the assumption that they primarily would be supported by their existing patient bases resulting in minimal impact on existing providers. The only evidence presented at final hearing implicating adverse impact of VRMC’s proposal related to its market share projections, which, presumably, would require it to regain lost patient volume by taking patients from other providers. However, the evidence does not weigh in favor of denying VRMC’s application based on lost market share, particularly in light of SMH’s criticism that the projections were unrealistic. As for SMH, for nearly two decades, SCPHD has developed a south Sarasota County network of facilities and physicians to respond to patient demand. Undisputed evidence was presented that the SCPHD south County network of providers would generate over 270,000 ambulatory care visits in the fiscal year ending September 30, 2017. The result is an established base of south County patients, including those from the SMH Laurel Road service area who currently, and in increasing numbers, travel to SMH main campus for hospital services. For all inpatient services, nearly 25 percent of south County residents in the SMH Laurel Road service area already seek inpatient care at the SMH main campus. Isolating the adult non-tertiary medical/surgical patient population, it was established that SMH’s inpatient market share increased from 17.3 percent in 2015 to 21.3 percent in fiscal year 2016. This is a significant four-point increase in nine months, continuing the trend of an average quarterly increase of 0.6 percent in SMH’s inpatient market share for adult non-tertiary medical/surgical services over the last 14 quarters. SMH Laurel Road is expected to have a service area medical/surgical market share of 22 percent when it opens in 2021. With the relatively small size of its proposed hospital, and the large base of existing SMH patients, the impact of SMH Laurel Road on other providers in the area will be minimal; a combined average daily census (ADC) impact on all providers of 11.4, wholly unlike the impact of a brand new entrant to the market. SMH Laurel Road’s most significant impact will be the projected ADC loss of 5.8 at VRMC. The impact on VRMC is relatively minimal, particularly in comparison to VRMC’s forecasted market share losses, which far exceed the projected SMH Laurel Road impact. Expected impact in terms of lost adult, non-tertiary ADC for the other hospitals will be 1.6 at Fawcett, 1.4 at Englewood, and .8 at BHPC, none of which is substantial compared to overall hospital operations. These inconsequential losses will be mitigated by growth in the population, particularly among seniors, in the service area. And, the various adverse impact models presented by health planning experts for VRMC/BHPC and Fawcett/Englewood did not consider any mitigating initiatives by management that would further alleviate potential loss. SMH’s opponents argued that approving SMH Laurel Road would impact existing providers’ ability to appropriately recruit for, and staff, their facilities. But no empirical evidence was offered concerning the known, nationwide nurse and physician shortage, or how it impacts, or is projected to impact, hospitals in the district. Rather, the evidence showed that local providers already recruit from around the country, not from a limited pool of Sarasota and Charlotte County candidates who might be targeted by SMH Laurel Road. Despite staffing SMH to provide the highest level of quality and safety, SMH is able to achieve appropriate staffing levels. Witnesses for VRMC, BHPC, and Fawcett/Englewood conceded that, in spite of staffing challenges common to all hospitals, and seasonal population increases more specific to the Sarasota and Charlotte County areas, local hospitals are able to staff their facilities appropriately. In a highly seasonal area like district 8, proper staffing mandates use of contract staffing because hospitals cannot afford to maintain seasonal staffing levels on a year-round basis. BHPC and VRMC have the unique, added benefit of sharing staff with one another during times of increased need, which further mitigates their concerns regarding staffing pressures. The realities of the health care delivery system in district 8, coupled with the fact that SMH Laurel Road is a proposed transfer of existing, presently-staffed beds, rather than an addition of new beds, alleviates any concerns regarding staffing pressures that might be occasioned by the approval of SMH Laurel Road. The greatest impact of SMH Laurel Road will be on SMH’s main campus, which is expected to redirect 3,548 patients annually to SMH Laurel Road for an ADC reduction of 41.8. This patient redirection will serve the goals of decompressing the main SMH campus, and enhancing access to south Sarasota County patients. Financial experts for VRMC/BHPC and Fawcett/Englewood conceded that this volume shift would not jeopardize the financial stability of SCPHD. BHPC argued that OB volume losses will threaten its ability to maintain its NICU. Dr. Jennifer D’Abarno testified that a minimum of 1,000 births per year is required to sustain a NICU. But BHPC already operates successfully without that many births and the evidence established that the impact on BHPC resulting from an OB program at SMH Laurel Road will be minimal. In 2015, the SMH main campus captured 68 percent of the OB market share from the SMH Laurel Road service area. By 2016, that figure increased to 72.3 percent. Over the same period, BHPC’s OB discharges from the SMH Laurel Road service area dropped from 299 to 256 (over 14 percent), without the addition of an OB provider to the area. SMH main campus and SMH Laurel Road are projected to capture a combined 75 percent of the OB market share for the SMH Laurel Road service area in 2021. Of that 75 percent, 62 percent is expected to access SMH Laurel Road with the other 13 percent continuing to rely on the main campus. In other words, SMH Laurel Road’s OB market share in its proposed service area is projected to be less than the main campus’ existing share of that same market. With respect to impact on BHPC’s NICU, the evidence established that ten to 15 percent of births result in NICU placement. Approximately half of those NICU placements are identified prior to birth. SMH Laurel Road’s OB program will target only the lower risk portion of the NICU-bound population. Thus, BHPC’s minimal loss of OB discharges to SMH Laurel Road would have a nominal, if any, effect on the BHPC NICU. SMH presented the most reasonable assessment of the anticipated impact of SMH Laurel Road. That impact will be minimal, and does not justify denying the application. As with the SMH Laurel Road proposal, approval of the VRMC replacement hospital would likewise have a minimal impact on existing providers in the area. While it is true that the construction of a state-of-the art replacement hospital should enable VRMC to recapture some of the market share it has lost to competitors in recent years, that increase is likely to be gradual, and any adverse impact on existing providers will be offset by population growth, particularly in the elderly age cohort. Thus, any adverse impact caused by approval of the replacement hospital will be minimal, and does not justify denying the application. The combined effect of approving both the SMH and VRMC applications will be a net reduction in the number of licensed beds in Sarasota County, and the creation of an additional access point for acute care services.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered: approving CON Application No. 10457 filed by Sarasota County Public Hospital District, d/b/a Sarasota Memorial Hospital, subject to the conditions contained in the application; and approving CON Application No. 10458 filed by Venice HMA Hospital, LLC, d/b/a Venice Regional Bayfront Health, subject to the conditions contained in the application. DONE AND ENTERED this 8th day of May, 2018, 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 8th day of May, 2018.
The Issue Whether Certificate of Need (CON) Application No. 9992, filed by Sun City Hospital, Inc., d/b/a South Bay Hospital to establish a 112-bed replacement hospital in Riverview, Hillsborough County, Florida, satisfies, on balance, the applicable statutory and rule review criteria for approval.
Findings Of Fact The Parties A. South Bay South Bay is a 112-bed general acute care hospital located at 4016 Sun City Center Boulevard, Sun City Center, Florida. It has served south Hillsborough County from that location since its original construction in 1982. South Bay is a wholly-owned for-profit subsidiary of Hospital Corporation of America, Inc. (HCA), a for-profit corporation. South Bay's service area includes the immediate vicinity of Sun City Center, the communities of Ruskin and Wimauma (to the west and east of Sun City Center, respectively), and the communities of Riverview, Gibsonton, and Apollo Beach to the north. See FOF 68-72. South Bay is located on the western edge of Sun City Center. The Sun City Center area is comprised of the age- restricted communities of Sun City Center, Kings Point, Freedom Plaza, and numerous nearby senior living complexes, assisted- living facilities, and nursing homes. This area geographically comprises the developed area along the north side of State Road (SR) 674 between I–75 and U.S. Highway 301, north to 19th Avenue and south to the Little Manatee River. South Bay predominantly serves the residents of the Sun City Center area. In 2009, Sun City Center residents comprised approximately 57% of all discharges from SB. South Bay had approximately 72% market share in Sun City Center zip code 33573. (Approximately 32% of all market service area discharges came from zip code 33573.) South Bay provides educational programs at the hospital that are well–attended by community residents. South Bay provides comprehensive acute care services typical of a small to mid-sized community hospital, including emergency services, surgery, diagnostic imaging, non-invasive cardiology services, and endoscopy. It does not provide diagnostic or therapeutic cardiac catheterization or open-heart surgery. Patients requiring interventional cardiology services or open-heart surgery are taken directly by Hillsborough County Fire Rescue or other transport to a hospital providing those services, such as Brandon Regional Hospital (Brandon) or SJH, or are transferred from SB to one of those hospitals. South Bay has received a number of specialty accreditations, which include accreditation by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), specialty accreditation as an advanced primary stroke center, and specialty accreditation by the Society for Chest Pain. South Bay has also received recognition for its quality of care and, in particular, for surgical infection prevention and outstanding services relating to heart attack, heart failure, and pneumonia. South Bay's 112 licensed beds comprise 104 general medical-surgical beds and eight Intensive Care Unit (ICU) beds. Of the general medical-surgical beds, 64 are in semi-private rooms, where two patient beds are situated side-by-side, separated by a curtain. Forty-eight are in private rooms. Semi- private rooms present challenges in terms of infection control and patient privacy, and are no longer the standard of care in hospital design and construction. Over the years, SB has upgraded its hospital physical plant to accommodate new medical technology, including an MRI suite and state-of-the-art telemetry equipment. South Bay is implementing automated dispensing cabinets on patient floors for storage of medications and an electronic medication administration record system that provides an extra safety measure for dispensing medications. Since 2009, SB has implemented numerous programmatic initiatives that have improved the quality of care. South Bay is converting one wing of the hospital to an orthopedic unit. In 2001, South Bay completed a major expansion of its ED and support spaces, but has not added new beds. Patients presenting to the ED have received high quality of care and timely care. Since 2009, SB has improved its systems of care and triage of patients in the ED to improve patient flow and reduce ED wait times. Overall, South Bay has a reputation of providing high- quality care in a timely manner, notwithstanding problems with its physical plant and location. South Bay's utilization has been high historically. From 2006 to 2009, SB's average occupancy has been 79.5%, 80.3%, 77.2%, and 77.7%, respectively. Its number of patient discharges also increased in that time, from 6,190 in 2006 to 6,540 in 2009, at an average annual rate increase of 1.9%. (From late November until May, the seasonal months, utilization is very high, sometimes at 100% or greater.) Despite its relatively high utilization, SB has also had marginal financial results historically. It lost money in 2005 and 2007, with operating losses of $644,259 in 2005 and $1,151,496 in 2007 and bottom-line net losses of $447,957 (2005) and $698,305 (2007). The hospital had a significantly better year in 2009, with an operating gain of $3,365,113 and a bottom- line net profit of $2,144,292. However, this was achieved largely due to a reduction in bad debt from $11,927,320 in 2008 to $7,772,889 in 2009, an event the hospital does not expect to repeat, and a coincidence of high surgical volume. Its 2010 financial results were lagging behind those of 2009 at the time of the hearing. South Bay's 2009 results amount to an aberration, and it is likely that 2010 would be considerably less profitable. South Bay's marginal financial performance is due, in part, to its disproportionate share of Medicare patients and a disproportionate percentage of Medicare reimbursement in its payor mix. Medicare reimburses hospitals at a significantly lower rate than managed care payors. As noted, SB is organizationally a part of HCA's West Florida Division, and is one of two HCA-affiliated hospitals in Hillsborough County; Brandon is the other. (There are approximately 16 hospitals in this division.) Brandon has been able to add beds over the past several years, and its services include interventional cardiology and open-heart surgery. However, SB and Brandon combined still have fewer licensed beds than either St. Joseph's Hospital or Tampa General Hospital, and fewer than the BayCare Health System- affiliated hospitals in Hillsborough in total. South Bay's existing physical plant is undersized and outdated. See discussion below. Whether it has a meaningful opportunity for expansion and renovation at its 17.5-acre site is a question for this proceeding to resolve. South Bay proposes the replacement and relocation of its facility to the community of Riverview. In 2005, SB planned to establish an 80-bed satellite hospital in Riverview, on a parcel owned by HCA and located on the north side of Big Bend Road between I-75 and U.S. Highway 301. SB filed CON Application No. 9834 in the February 2005 batching cycle. The application was preliminarily denied by AHCA, and SB initially contested AHCA's determination. South Bay pursued the satellite hospital CON at that time because of limited availability of intercompany financing from HCA. By the time of the August 2007 batching cycle, intercompany financing had improved, allowing SB to pursue the bigger project of replacing and relocating the hospital. South Bay dismissed its petition for formal administrative hearing, allowing AHCA's preliminary denial of CON Application No. 9834 to become final, and filed CON Application No. 9992 to establish a replacement hospital facility on Big Bend Road in Riverview. St. Joseph's Hospital St. Joseph's Hospital was founded by the Franciscan Sisters of Allegany, New York, as a small hospital in a converted house in downtown Tampa in 1934. In 1967, SJH opened its existing main hospital facility on Martin Luther King Avenue in Tampa, Florida. St. Joseph's Hospital, Inc., a not-for-profit entity, is the licensee of St. Joseph's Hospital, an acute care hospital located at 3001 West Martin Luther King, Jr., Boulevard, Tampa, Florida. As a not-for-profit organization, SJH's mission is to improve the health care of the community by providing high- quality compassionate care. St. Joseph's Hospital, Inc., is a Medicaid disproportionate share provider and provided $145 million in charity and uncompensated care in 2009. St. Joseph's Hospital, Inc., is licensed to operate approximately 883 beds, including acute care beds; Level II and Level III neonatal intensive care unit (NICU) beds; and adult and child-adolescent psychiatric beds. The majority of beds are semi-private. Services include Level II and pediatric trauma services, angioplasty, and open-heart surgery. These beds and services are distributed among SJH's main campus; St. Joseph's Women's Hospital; St. Joseph's Hospital North, a newer satellite hospital in north Tampa; and St. Joseph's Children's Hospital. Except for St. Joseph's Hospital North, these facilities are land-locked. Nevertheless, SJH has continued to invest in its physical plant and to upgrade its medical technology and equipment. In February 2010, SJH opened St. Joseph's Hospital North, a state-of-the-art, 76-bed satellite hospital in Lutz, north Hillsborough County, at a cost of approximately $225 million. This facility is approximately 14 miles away from the main campus. This followed the award of CON No. 9610 to SJH for the establishment of St. Joseph's Hospital North, which was unsuccessfully opposed by University Community Hospital and Tampa General Hospital, two existing hospital providers in Tampa. Univ. Cmty. Hosp., Inc., d/b/a Univ. Cmty. Hosp. v. Agency for Health Care Admin., Case Nos. 03-0337CON and 03-0338CON. St. Joseph's Hospital North operates under the same license and under common management. St. Joseph's Hospital, Inc., is also the holder of CON No. 9833 for the establishment of a 90-bed state-of-the-art satellite hospital on Big Bend Road, Riverview, Hillsborough County. These all private beds include general medical-surgical beds, an ICU, and a 10-bed obstetrical unit. On October 21, 2009, the Agency revised CON No. 9833 with a termination date of October 21, 2012. This project was unsuccessfully opposed by TG, SB, and Brandon. St. Joseph's Hosp., Inc. v. Agency for Health Care Admin., Case No. 05-2754CON, supra. St. Joseph's Hospital anticipates construction beginning in October 2012 and opening the satellite hospital, to be known as St. Joseph's Hospital South, in early 2015. This hospital will be operating under SJH's existing license and Medicare and Medicaid provider numbers and will in all respects be an integral component of SJH. The implementation of St. Joseph's Hospital South is underway. SJH has contracted with consultants, engineers, architects, and contractors and has funded the first phase of the project with $6 million, a portion of which has been spent. The application for CON No. 9833 refers to "evidence- based design" and the construction of a state-of-the-art facility. (The design of St. Joseph's Hospital North also uses "evidence-based design.") St. Joseph's Hospital South will have all private rooms, general surgery operating rooms as well as endoscopy, and a 10-bed obstetrics unit. Although CON No. 9833 is for a project involving 228,810 square feet of new construction, SJH intends to build a much larger facility, approximately 400,000 square feet on approximately 70 acres. St. Joseph's Hospital Main's physical plant is 43 years old. The majority of the patient rooms are semi–private and about 35% of patients admitted at this hospital received private rooms. Notwithstanding the age of its physical plant and its semi–private bed configuration, SJH has a reputation of providing high quality of care and is a strong competitor in its market. St. Joseph's Hospital, Inc., has two facility expansions currently in progress at its main location in Tampa: a new five-story building that will house SJH neonatal intensive care unit, obstetrical, and gynecology services; and a separate, two-story addition with 52 private patient rooms. Of the 52 private patient rooms, 26 will be dedicated to patients recovering from orthopedic surgery, and will be large enough to allow physical therapy to be done in the patient room itself. The other 26 rooms will be new medical-surgical ICU beds at the hospital. At the same time that SJH expands its main location, it is pursuing a strategic plan whereby the main location is the "hub" of its system, with community hospitals and health facilities located in outlying communities. As proposed in CON Application No. 9610, St. Joseph's Hospital North was to be 240,000 square feet in size. Following the award of CON No. 9610, SJH requested that AHCA modify the CON to provide for construction of a larger facility. In its modification request, SJH requested to establish a large, state- of-the-art facility with all private patient rooms, and the desirability of private patient rooms as a matter of infection control and patient preference. AHCA granted the modification. St. Joseph's Hospital, Inc., thereafter planned to construct St. Joseph's Hospital North to be four stories in height. The plan was opposed. St. Joseph's Hospital, Inc., offered to construct a three-story building, large enough horizontally to accommodate the CON square footage modification. The offer was accepted. St. Joseph's Hospital, Inc., markets St. Joseph's Hospital North as "The Hospital of the Future, Today." The hospital was constructed using "evidence-based design" to maximize operational efficiencies and enhance the healing process of its residents –- recognizing, among other things, the role of the patient's family and friends. The facility's patient care units are all state-of-the-art and include, for example, obstetrical suites in which a visiting family member can spend the night. A spacious, sunlit atrium and a "healing garden" are also provided. The hospital's dining facility is frequented by community residents. In addition, SJH owns a physician group practice under HealthPoint Medical Group, a subsidiary of St. Joseph's Health Care Center, Inc. The group practice has approximately 19 different office locations, including several within the service area for the proposed hospital. The group includes approximately 106 physicians. However, most of the office locations are in Tampa, and the group does not have an office in Riverview, although there are plans to expand locations to include the Big Bend Road site. St. Joseph's Hospital, Inc., anticipates having to establish a new medical staff for St. Joseph's Hospital South, and will build a medical office building at the site for the purpose of attracting physicians. It further anticipates that some number of physicians on SB's existing medical staff will apply for privileges at St. Joseph's Hospital South. St. Joseph's Hospital, Inc., is the market leader among Hillsborough County hospitals and is currently doing well financially, as it has historically. For 2010, St. Joseph's Hospital Main's operating income was approximately $78 million. Organizationally, SJH has a parent organization, St. Joseph's Health Care Center, Inc., and is one of eight hospitals in the greater Tampa Bay area affiliated with BayCare. On behalf of its member hospitals, BayCare arranges financing for capital projects, provides support for various administrative functions, and negotiates managed care contracts that cover its members as a group. St. Joseph's Hospital characterizes fees paid for BayCare services as an allocation of expenses rather than a management fee for its services. In 2009, SJH paid BayCare approximately $42 million for services. St. Joseph's Hospital is one of three BayCare affiliates in Hillsborough County. The other two are St. Joseph's Hospital North and South Florida Baptist Hospital, a community hospital in Plant City. St. Joseph's Hospital South would be the fourth BayCare hospital in the county. Tampa General The Hillsborough County Hospital Authority, a public body appointed by the county, operated Tampa General Hospital until 1997. In that year, TG was leased to Florida Health Sciences Center, Inc., a non-profit corporation and the current hospital licensee. Tampa General is a 1,018-bed acute care hospital located at 2 Columbia Drive, Davis Island, Tampa, Florida. In addition to trauma surgery services, TG provides tertiary services, such as angioplasty, open-heart surgery, and organ transplantation. Tampa General operates the only burn center in the area. A rehabilitation hospital is connected to the main hospital, but there are plans to relocate this facility. Tampa General owns a medical office building. Tampa General is JCAHO accredited and has received numerous honors. Tampa General provides high-quality of care. Approximately half of the beds at TG are private rooms. Tampa General's service area for non-tertiary services includes all of Hillsborough County. Tampa General is also the teaching hospital for the University of South Florida's College of Medicine. As a statutory teaching hospital, TG has 550 residents and funds over 300 postgraduate physicians in training. Tampa General is the predominant provider of services to Medicaid recipients and the medically indigent of Hillsborough County. It is considered the only safety-net hospital in Hillsborough County. (A safety net hospital provides a disproportionate amount of care to indigent and underinsured patients in comparison to other hospitals.) A high volume of indigent (Medicaid and charity) patients are discharged from TG. In 2009, the costs TG incurred treating indigent patients exceeded reimbursement by $56.5 million. Approximately 33% of Tampa General's patients are Medicare patients and 25% commercial. Tampa General has grown in the past 10 years. It added 31 licensed acute care beds in 2004 and 82 more since SB's application was filed in 2007. In addition, the Bayshore Pavilion, a $300-million project, was recently completed. The project enlarged TG's ED, and added a new cardiovascular unit, a new neurosciences and trauma center, a new OB-GYN floor, and a new gastrointestinal unit. Facility improvements are generally ongoing. Tampa General's capital budget for 2011 is approximately $100 million. In 2010, TG's operating margin was approximately $43 million and a small operating margin in 2011. AHCA AHCA is the state agency that administers the CON law. Jeff Gregg testified that during his tenure, AHCA has never preliminarily denied a replacement hospital CON application or required consideration of alternatives to a replacement hospital. Mr. Gregg opined that the lack of alternatives or options is a relevant consideration when reviewing a replacement hospital CON application. T 468. The Agency's State Agency Action Report (SAAR) provides reasons for preliminarily approving SB's CON application. During the hearing, Mr. Gregg testified, in part, that the primary reasons for preliminary approval were issues related to quality of care "because the facility represents itself as being unable to expand or adapt significantly to the rapidly changing world of acute care. This is consistent with what [he has] heard about other replacement hospitals." T 413. Mr. Gregg also noted that SB focused on improving access "[a]nd as the years go by, it is reasonable to expect that the population outside of Sun City Center, the immediate Sun City Center area, will steadily increase and improve access for more people, and that's particularly true because this application includes both a freestanding emergency department and a shuttle service for the people in the immediate area. And that was intended to address their concerns based upon the fact that they have had this facility very conveniently located for them in the past at a time when there was little development in the general south Hillsborough area. But the applicant wants to position itself for the expected growth in the future, and we think has made an excellent effort to accommodate the immediate interests of Sun City Center residents with their promises to do the emergency, freestanding emergency department and the shuttle service so that the people will continue to have very comfortable access to the hospital." T 413-14. Mr. Gregg reiterated "that the improvements in quality outweigh any concerns that [the Agency] should have about the replacement and relocation of this facility; that if this facility were to be forced to remain where it is, over time it would be reasonable to expect that quality would diminish." T 435. For AHCA, replacement hospital applications receive the same level of scrutiny as any other acute care hospital applications. T 439-40. South Bay's existing facility and site South Bay is located on the north side of SR 674, an east-west thoroughfare in south Hillsborough County. The area around the hospital is "built out" with predominantly residential development. Sun City Center, an age-restricted (55 and older) retirement community, is located directly across SR 674 from the hospital as well as on the north side of SR 674 to the east of the hospital. Other residential development is immediately to the west of the hospital on the north side of SR 674. See FOF 3-6. Sun City Center is flanked by two north-south arterial roadways, I-75 to the west and U.S. Highway 301 to the east, both of which intersect with SR 674. The community of Ruskin is situated generally around the intersection of SR 674 and U.S. 41, west of I-75. The community of Wimauma is situated along SR 674 just east of U.S. Highway 301. South Bay is located in a three-story building that is well–maintained and in relatively good repair. The facility is well laid out in terms of design as a community hospital. Patients and staff at SB are satisfied with the quality of care and scope of acute care services provided at the hospital. Notwithstanding current space limitations, and problems in the ICU, see FOF 77-82, patients receive a high quality of care. One of the stated reasons for replacement is with respect to SB's request to have all private patient rooms in order to be more competitive with St. Joseph's Hospital South. South Bay's inpatient rooms are located within the original construction. The hospital is approximately 115,800 square feet, or a little over 1,000 square feet per inpatient bed. By comparison, small to mid-sized community hospitals built today are commonly 2,400 square feet per inpatient bed on average. All of SB's patient care units are undersized by today's standards, with the exception of the ED. ICU patients, often not ambulatory, require a higher level of care than other hospital patients. The ICU at SB is not adequate to meet the level of care required by the ICU patient. SB's ICU comprises eight rooms with one bed apiece. Eight beds are not enough. As Dr. Ksaibati put it at hearing: "Right now we have eight and we are always short . . . double . . . the number of beds, that's at least [the] minimum [t]hat I expect we are going to have if we go to a new facility." T 198-99 (emphasis added). The shortage of beds is not the only problem. The size of SB's ICU rooms is too small. (Problems with the ICU have existed at least since 2006.) Inadequate size prohibits separate, adjoining bathrooms. For patients able to leave their beds, therefore, portable bathroom equipment in the ICU room is required. Inadequate size, the presence of furniture, and the presence of equipment in the ICU room creates serious quality of care issues. When an EKG is conducted, the nurse cannot be present in the room. Otherwise, there would be no space for the EKG equipment. It is difficult to intubate a patient and, at times, "extremely dangerous." T 170. A major concern is when a life-threatening problem occurs that requires emergency treatment at the ICU patient's bedside. For example, when a cardiac arrest "code" is called, furniture and the portable bathroom equipment must be removed before emergency cardiac staff and equipment necessary to restore the function of the patient's heart can reach the patient for the commencement of treatment. Comparison to ICU rooms at other facilities underscores the inadequate size of SB's ICU rooms. Many of the ICU rooms at Brandon are much larger -- more than twice the size of SB's ICU rooms. Support spaces are inadequate in most areas, resulting in corridors (at times) being used for inappropriate storage. In addition, the hospital's general storage is inadequate, resulting in movable equipment being stored in mechanical and electrical rooms. Of the medical-surgical beds at SB, 48 are private and 64 are semi-private. The current standard in hospital design is for acute care hospitals to have private rooms exclusively. Private patient rooms are superior to semi-private rooms for infection control and patient well-being in general. The patient is spared the disruption and occasional unpleasantness that accompanies sharing a patient room –- for example, another patient's persistent cough or inability to use the toilet (many of SB's semi-private rooms have bedside commodes). Private rooms are generally recognized as promoting quality of care. South Bay's site is approximately 17.5 acres, bordered on all sides by parcels not owned by either SB or by HCA- affiliated entities. The facility is set back from SR 674 by a visitor parking lot. Proceeding clockwise around the facility from the visitor parking lot, there is a small service road on the western edge of the site; two large, adjacent ponds for stormwater retention; the rear parking lot for ED visitors and patients; and another small service road which connects the east side of the site to SR 674, and which is used by ambulances to access the ED. Dedicated parking for SB's employees is absent. A medical office building (MOB), which is not owned by SB, is located to the north of the ED parking lot. The MOB houses SB's Human Resources Department as well as medical offices. Most of SB's specialty physicians have either full or part-time offices in close proximity to SB. Employee parking is not available in the MOB parking lot. Some of SB's employees park in a hospital-owned parking lot to the north of the MOB, and then walk around the MOB to enter the hospital. South Bay's CEO and management employees park on a strip of a gravel lot, which is rented from the Methodist church to the northeast of the hospital's site. In 2007, as part of the CON application to relocate, SB commissioned a site and facility assessment (SFA) of the hospital. The SFA was prepared for the purpose of supporting SB's replacement hospital application and has not been updated since its preparation in 2007. The architects or engineers who prepared the SFA were not asked to evaluate proposed options for expansion or upgrade of SB on-site. However, the SFA concludes that the SB site has been built out to its maximum capacity. On the other hand, the SFA concluded that the existing building systems at SB met codes and standards in force when constructed and are in adequate condition and have the capacity to meet the current needs of the hospital. The report also stated that if SB wanted to substantially expand its physical plant to accommodate future growth, upgrades to some of the existing building systems likely would be required. Notwithstanding these reports and relative costs, expansion of SB at its existing site is not realistic or cost- effective as compared to a replacement hospital. Vertical expansion is complicated by two factors. First, the hospital's original construction in 1982 was done under the former Southern Standard Building Code, which did not contain the "wind-loading" requirements of the present-day Florida Building Code. Any vertical expansion of SB would not only require the new construction to meet current wind-loading requirements, but would also require the original construction to be retrofitted to meet current wind-loading requirements (assuming this was even possible as a structural matter). Second, if vertical expansion were to meet current standards for hospital square footage, the new floor or floors would "overhang" the smaller existing construction, complicating utility connections from the lower floor as well as the placement of structural columns to support the additional load. The alternative (assuming feasibility due to current wind-loading requirements) would be to vertically stack patient care units identical to SB's existing patient care units, thereby perpetuating its undersized and outdated design. Vertical expansion at SB has not been proposed by the Gould Turner Group (Gould Turner), which did a Master Facility Plan for SB in May 2010, but included a new patient bed tower, or by HBE Corporation (HBE). Horizontal expansion of SB is no less complicated. The hospital would more than double in size to meet the modern-day standard of 2,400 square feet per bed, and its site is too small for such expansion. It is apparent that such expansion would displace the visitor parking lot if located to the south of the existing building, and likely have to extend into SR 674 itself. South Bay's architectural consultant expert witness substantiated that replacing SB is justified as an architectural matter, and that the facility cannot be brought up to present-day standards at its existing location. According to Mr. Siconolfi, the overall building at SB is approximately half of the total size that would normally be in place for a new hospital meeting modern codes and industry standards. The more modest expansions offered by Gould Turner and HBE are still problematic, if feasible at all. Moreover, with either proposal, SB would ultimately remain on its existing 17.5-acre site, with few opportunities to expand further. Gould Turner's study was requested by SB's CEO in May 2010, to determine whether and to what extent SB would be able to expand on-site. (Gould Turner was involved with SB's recent ED expansion project area.) The resulting Master Facility Plan essentially proposes building a new patient tower in SB's existing visitor parking lot, to the left and right of the existing main entrance to SB. This would require construction of a new visitor parking lot in whatever space remained in between the new construction and SR 674. The Master Facility Plan contains no discussion of the new impervious area that would be added to the site and the consequential requirement of additional stormwater capacity, assuming the site can even accommodate additional stormwater capacity. This study also included a new 12-bed ICU and the existing ICU would be renovated into private patient rooms. For example, "[t]he second floor would be all telemetry beds while the third floor would be a combination of medical/surgical, PCU, and telemetry beds." In Gould Turner's drawings, the construction itself would be to the left and to the right of the hospital's existing main entrance. Two scenarios are proposed: in the first, the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 114 licensed beds (including two new beds), all private; in the second, some of the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 146 licensed beds (adding 34 beds), of which 32 would be semi-private. South Bay did not consider Gould Turner's alternative further or request additional, more detailed drawings or analysis, and instead determined to pursue the replacement hospital project, in part, because it was better not to "piecemeal" the hospital together. Mr. Miller, who is responsible for strategic decisions regarding SB, was aware of, but did not review the Master Facility Plan and believes that it is not economically feasible to expand the hospital. St. Joseph's Hospital presented testimony of an architect representing the hospital design/build firm of HBE, to evaluate SB's current condition, to provide options for expansion and upgrading on-site, and to provide a professional cost estimate for the expansion. Mr. Oliver personally inspected SB's site and facility in October 2010 and reviewed numerous reports regarding the facility and other documents. Mr. Oliver performed an analysis of SB's existing physical plant and land surrounding the hospital. HBE's analysis concluded that SB has the option to expand and upgrade on-site, including the construction of a modern surgical suite, a modern 10-bed ICU, additional elevators, and expansion and upgrading of the ancillary support spaces identified by SB as less than ideal. HBE's proposal involves the addition of 50,000 square feet of space to the hospital through the construction of a three-story patient tower at the south side of the hospital. The additional square footage included in the HBE proposal would allow the hospital to convert to an all-private bed configuration with either 126 private beds by building out both second and third floors of a new patient tower, or to 126 private beds if the hospital chose to "shell in" the third floor for future expansion. Under the HBE proposal, SB would have the option to increase its licensed bed capacity 158 beds by completing the second and third floors of the new patient tower (all private rooms) while maintaining the mix of semi-private and private patient rooms in the existing bed tower. The HBE proposal also provides for a phased renovation of the interior of SB to allow for an expanded post-anesthesia care unit, expanded laboratory, pharmacy, endoscopy, women's center, prep/hold/recovery areas, central sterile supply and distribution, expanded dining, and a new covered lobby entrance to the left side of the hospital. Phasing of the expansion would permit the hospital to remain in operation during expansion and renovation with minimal disruption. During construction the north entrance of the hospital would provide access through the waiting rooms that are currently part of the 2001 renovated area of the hospital with direct access to the circulation patterns of the hospital. The HBE proposal also provides for the addition of parking to bring the number of parking spaces on-site to 400. The HBE proposal includes additional stormwater retention/detention areas that could serve as attractive water features and, similar to the earlier civil engineering reports obtained by SB, proposes the construction of a parking garage at the rear of the facility should additional parking be needed in the future. However, HBE essentially proposes the alternative already rejected by SB: construction of a new patient tower in front of the existing hospital. Similar to Gould Turner, HBE proposes new construction to the left and right of the hospital's existing lobby entrance and the other changes described above. HBE's proposal recognizes the need for additional stormwater retention: the stand of trees that sets off the existing visitor parking lot from SR 674 would be uprooted; in their place, a retention pond would be constructed. Approval of the Southwest Florida Water Management District (SWFWMD) would be required for the proposal to be feasible. Assuming the SWFWMD approved the proposal, the retention pond would have to be enclosed by a fence. This would then be the "face" of the hospital to the public on SR 674. HBE's proposal poses significant problems. The first floor of the three-story component would be flush against the exterior wall of the hospital's administrative offices, where the CEO and others currently have windows with a vista of the front parking lot and SR 674. Since the three-story component would be constructed first in the "phased" construction, and since the hospital's administration has no other place to work in the existing facility, the CEO and other management team would have to work off-site until the new administrative offices (to the left of the existing hospital lobby entrance) were constructed. The existing main entrance to the hospital, which faces SR 674, would be relocated to the west side of the hospital once construction was completed in its entirety. In the interim, patients and visitors would have to enter the facility from the rear, as the existing main entrance would be inaccessible. This would be for a period of months, if not longer. For the second and third floors, HBE's proposal poses two scenarios. Under the first, SB would build the 24 general medical-surgical beds on the tower's second floor, but leave the third floor as "shelled" space. This would leave SB with a total of 106 licensed beds, six fewer than it has at present. Further, since HBE's proposal involves a second ICU at SB, 18 of the 106 beds are ICU beds, leaving 88 general medical-surgical beds. By comparison, SB currently has 104 general medical- surgical beds, meaning that it loses 16 general medical-surgical beds under HBE's first scenario. In the second scenario, SB would build 24 general medical-surgical beds on the third floor as well, and would have a total of 126 licensed beds. Since 18 of those beds would be ICU beds, SB would have 108 general medical-surgical beds, or only four more than it has at present. Further, the proposal does not make SB appreciably bigger. The second and third floors in HBE's proposal are designed in "elongated" fashion such that several rooms may be obscured from the nursing station's line of sight by a new elevator, which is undesirable as a matter of patient safety and security. Further, construction of the second and third floors would be against the existing second and third floors above the lobby entrance's east side. This would require 12 existing private patient rooms to be taken out of service due to loss of their vista windows. At the same time, the new second and third floors would be parallel to, but set back from, existing semi- private patient rooms and their vista windows along the southeast side of the hospital. This means that patients and visitors in the existing semi-private patient rooms and patients and visitors in the new private patient rooms on the north side of the new construction may be looking into each other's rooms. HBE's proposal also involves reorganization and renovation of SB's existing facility, and the demolition and disruption that goes with it. To accommodate patient circulation within the existing facility from the ED (at the north side of the hospital) to the new patient tower (at the south side of the hospital), two new corridors are proposed to be routed through and displace the existing departments of Data Processing and Medical Records. Thus, until the new administrative office space would be constructed, Data Processing and Medical Records (along with the management team) would have to be relocated off-site. Once the new first floor of the three-story component is completed, the hospital's four ORs and six PACU beds will be relocated there. In the existing vacated surgical space, HBE proposes to relocate SB's existing cardiology unit, thus requiring the vacated surgical space to be completely reconfigured (building a nursing station and support spaces that do not currently exist in that location). In the space vacated by the existing cardiology unit, HBE proposed expanding the hospital's clinical laboratory, meaning extensive demolition and reconfiguration in that area. The pharmacy is proposed to be relocated to where the existing PACU is located, requiring the building of a new pharmacy with a secure area for controlled substances, cabinets for other medications, and the like. The vacated existing pharmacy is in turn proposed to be dedicated to general storage, which involves still more construction and demolition, tearing out the old pharmacy to make the space suitable for general storage. HBE's proposal is described as a "substantial upgrade" of SB, but it was stated that a substantial upgrade could likewise be achieved by replacing the facility outright. This is SB's preference, which is not unreasonable. There have been documented problems with other hospital expansions, including patient infection due to construction dust. South Bay's proposal South Bay proposes to establish a 112-bed replacement hospital on a 39-acre parcel (acquired in 2005) located in the Riverview community, on the north side of Big Bend Road between I-75 and U.S. Highway 301. The hospital is designed to include 32 observation beds built to acute care occupancy standards, to be available for conversion to licensed acute care beds should the need arise. The original total project cost of $215,641,934, calculated when the application was filed in October 2007 has been revised to $192,967,399. The decrease in total project cost is largely due to the decrease in construction costs since 2007. The parties stipulated that SB's estimated construction costs are reasonable. The remainder of the project budget is likewise reasonable. The budgeted number for land, $9,400,000, is more than SB needs: the 39-acre parcel is held in its behalf by HCA Services of Florida, Inc., and was acquired in March 2005 for $7,823,100. An environmental study has been done, and the site has no environmental development issues. The original site preparation budgeted number of $5 million has been increased to $7 million to allow for possible impact fees, based on HCA's experience with similar projects. Building costs, other than construction cost, flow from the construction cost number as a matter of percentages and are reasonable. The equipment costs are reasonable. Construction period interest as revised from the original project budget is approximately $4 million less, commensurate with the revised project cost. Other smaller numbers in the budget, such as contingencies and start-up costs, were calculated in the usual and accepted manner for estimated project costs and are reasonable. South Bay's proposed service area (PSA) comprises six zip codes (33573 (Sun City Center), 33570 (Ruskin), 33569 (Riverview), 33598 (Wimauma), 33572 (Apollo Beach), and 33534 (Gibsonton)) in South Hillsborough County. These six zip codes accounted for 92.2% of SB's discharges in 2006. The first three zip codes, which include Riverview (33569), accounted for 76.1% of the discharges. Following the filing of the application in 2007, the U.S. Postal Service subdivided the former zip code 33569 into three zip codes: 33569, 33578, and 33579. (The proposed service area consists of eight zip codes.) The same geographic area comprises the three Riverview zip codes taken together as the former zip code 33569. In 2009, the three Riverview zip codes combined accounted for approximately 504 to 511/514 of SB's discharges, with 589 discharges in 2006 from the zip code 33569. Of SB's total discharges in 2009, approximately 8 to 9% originated from these three zip codes. In 2009, approximately 7,398 out of 14,424 market/service-area discharges, or approximately 51% of the total market discharges came from the three southern zip codes, 33573 (Sun City Center), 33570 (Ruskin), and 33598 (Wimauma). Also, approximately 81% of SB's discharges in 2009 originated from the same three zip codes. (The discharge numbers for SB for 2009 presented by St. Joseph's Hospital and SB are similar. See SB Ex. 9 at 11 and SJH Ex. 4 at 8-9. See also TG Ex. 4 at 3-4.) In 2009, SB and Brandon had an approximate 68% market share for the eight zip codes. See FOF 152-54 and 162-65 for additional demographic data. St. Joseph's Hospital had an approximate 5% market share within the service area and using 2009-2010 data, TG had approximately 6% market share in zip code 33573 and an overall market share in the three Riverview zip codes of approximately 19% and a market share of approximately 23% in zip code 33579. South Bay's application projects 37,292 patient days in year 1; 39,581 patient days in year 2; and 41,563 patient days in year 3 for the proposed replacement hospital. The projection was based on the January 2007 population for the service area as reflected in the application, and what was then a projected population growth rate of 20.8% for the five-year period 2007 to 2012. These projections were updated for the purposes of hearing. See FOF 246-7. The application also noted a downturn in the housing market, which began in 2007 and has continued since then. The application projected a five-year (2007-2012) change of 20.8% for the original five zip codes. At hearing, SB introduced updated utilization projections for 2010-2015, which show the service area population growing at 15.3% for that five-year period. South Bay's revised utilization projections for 2015- 2017 (projected years 1-3 of the replacement hospital) are 28,168 patient days in year 1; 28,569 patient days in year 2; and 29,582 patient days in year 3. The lesser utilization as compared with SB's original projections is partly due to slowed population growth, but predominantly due to SB's assumption that St. Joseph's Hospital will build its proposed satellite hospital in Riverview, and that SB will accordingly lose 20% of its market share. The revised utilization projections are conservative, reasonable, and achievable. With the relocation, SB will be more proximate to the entirety of its service area, and will be toward the center of population growth in south Hillsborough County. In addition, it will have a more viable and more sustainable hospital operation even with the reduced market share. Its financial projections reflect a better payor mix and profitability in the proposed location despite the projection of fewer patient days. Conversely, if SB remains in Sun City Center, it is subject to material operating losses even if its lost market share in that location is the same 20%, as compared to the 30 to 40% it estimates that it would lose in competition with St. Joseph's Hospital South. South Bay's medical staff and employees support the replacement facility, notwithstanding that their satisfaction with SB is very high. The proposal is also supported by various business organizations, including the Riverview Chamber of Commerce and Ruskin Chamber of Commerce. However, many of the residents of Sun City Center who testified opposed relocation of SB. See FOF 210-11. South Bay will accept several preconditions on approval of its CON application: (1) the location of SB on Big Bend Road in Riverview; (2) combined Medicaid and charity care equal to 7.0% of gross revenues; and (3) operating a free- standing ED at the Sun City location and providing a shuttle service between the Sun City location and the new hospital campus ("for patients and visitors"). SB Ex. 46, Schedule C. In its SAAR, the Agency preliminarily approved the application including the following: This approval includes, as a component of the proposal: the operation of a freestanding emergency department on a 24-hour, seven-day per week basis at the current Sun City location, the provision of extended hours shuttle service between the existing Sun City Center and the new campuses to transport patients and visitors between the facilities to locations; and the offering of primary care and diagnostic testing at the Sun City Center location. These components are required services to be provided by the replacement hospital as approved by the Agency. Mr. Gregg explained that the requirement for transport of patients and visitors was included based on his understanding of the concerns of the Sun City Center community for emergency as well as routine access to hospital services. Notwithstanding the Agency statement that the foregoing elements are required, the Agency did not condition approval on the described elements. See SB Ex. 12 at 39 and 67. Instead, the Agency only required SB, as a condition of approval, to provide a minimum of 7.0% of the hospital's patient days to Medicaid and charity care patients. (As noted above, SB's proposed condition says 7.0% of gross revenues.) Because conditions on approval of the CON are generally subject to modification, there would be no legal mechanism for monitoring or enforcement of the aspects of the project not made a condition of approval. If the Agency approves SB's CON application, the Agency should condition any approval based on the conditions referenced above, which SB set forth in its CON application. SB Ex. 12 at 39 and 67. See also T 450 ("[The Agency] can take any statement made in the application and turn that into a condition," although conditions may be modified.1 St. Joseph's Hospital and Tampa General are critical of SB's offer of a freestanding ED and proposed shuttle transportation services. Other than agreeing to condition its CON application by offering these services, SB has not evaluated the manner in which these services would be offered. South Bay envisions that the shuttle service (provided without charge) would be more for visitors than it would be for patients and for outpatients or patients that are ambulatory and able to ride by shuttle. Other patients would be expected to be transported by EMS or other medical transport. As of the date of hearing, Hillsborough County does not have a protocol to address the transport of patients to a freestanding ED. South Bay contacted Hillsborough County Fire Rescue prior to filing its CON application and was advised that they would support SB's establishment of a satellite hospital on Big Bend Road, but did not support the closure and relocation of SB, even with a freestanding ED left behind. See FOF 195-207. At hearing, SB representatives stated that SB would not be closed if the project is denied. Compliance with applicable statutory and rule criteria Section 408.035(1): The need for the health care facilities and health services being proposed The need for SB itself and at its current location is not an issue in this case. That need was demonstrated years ago, when SB was initially approved. For the Agency, consideration of a replacement hospital application "diminishes the concept of need in [the Agency's] weighing and balancing of criteria in this case." There is no express language in the CON law, as amended, which indicates that CON review of a replacement hospital application does not require consideration of other statutory review criteria, including "need," unless otherwise stipulated. Replacement hospital applicants, like SB, may advocate the need for replacement rather than expansion or renovation of the existing hospital, but a showing of "need" is still required. Nevertheless, institution-specific factors may be relevant when "need" is considered. The determination of "need" for SB's relocation involves an analysis of whether the relocation of the hospital as proposed will enhance access or quality of care, and whether the relocation may result in changes in the health care delivery system that may adversely impact the community, as well as options SB may have for expansion or upgrading on-site. In this case, the overall "need" for the project is resolved, in part, by considering, in conjunction with weighing and balancing other statutory criteria, including quality of care, whether the institution-specific needs of SB to replace the existing hospital are more reasonable than other alternatives, including renovation and whether, if replacement is recommended, the residents of the service area, including the Sun City Center area, will retain reasonable access to general acute care hospital services. The overall need for the project has not been proven. See COL 360-70 for ultimate conclusions of law regarding the need for this project. Section 408.035(2): The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant The "service district" in this case is acute care subdistrict 6-1, Hillsborough County. See Fla. Admin. Code R. 59C-2.100. The acute care hospital services SB proposes to relocate to Big Bend Road are available to residents of SB's service area. Except as otherwise noted herein with respect to constraints at SB, there are no capacity constraints limiting access to acute care hospital services in the subdistrict. The availability of acute care services for residents of the service area, and specifically the Riverview area, will increase with the opening of St. Joseph's Hospital South. All existing providers serving the service area provide high quality of care. Within the service district as a whole, SB proposes to relocate the existing hospital approximately 5.7 linear miles north of its current location and approximately 7.7 miles using I-75, one exit north. South Bay would remain in south Hillsborough County, as well as the southernmost existing health care facility in Hillsborough County, along with St. Joseph's Hospital South when it is constructed. The eight zip codes of SB's proposed service area occupy a large area of south Hillsborough County south of Tampa (to the northwest) and Brandon (to the northeast). Included are the communities of Gibsonton, Riverview, Apollo Beach, Ruskin, Sun City Center, and Wimauma. The service area is still growing despite the housing downturn, with a forecast of 15.3% growth for the five-year period 2010 to 2015. The service area's population is projected to be 168,344 in 2015, increasing from 145,986 in 2010. The service area is currently served primarily by SB, which is the only existing provider in the service area, and Brandon. For non-tertiary, non-specialty discharges from the service area in 2009, SB had approximately 40% market share, including market share in the three Riverview zip codes of approximately 10% (33569), 6% (33578), and 16% (33579). Brandon had approximately 28% of the market in the service area, and a market share in the three Riverview zip codes of approximately 58% (33569), 46% (33578), and 40% (33579). Thus, SB and Brandon have approximately a 61% market share in the Riverview zip codes and approximately a 68% market share service area-wide. The persuasive evidence indicates that Riverview is the center of present and future population in the service area. It is the fastest-growing part of the service area overall and the fastest-growing part of the service area for patients age 65 and over. Of the projected 168,334 residents in 2015, the three Riverview zip codes account for 80,779 or nearly half the total population. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County. At the same time, it will be between seven and eight minutes farther away from Sun City Center. In conjunction with St. Joseph's Hospital South when constructed, SB's proposed relocation will enhance the availability and accessibility of existing health care facilities and health services in south Hillsborough County, especially for the Riverview-area residents. However, it is likely that access will be reduced for the elderly residents of the Sun City Center area needing general acute care hospital services. St. Joseph's Hospital and Tampa General contend that: (1) it would be problematic to locate two hospitals in close proximity in Riverview (those being St. Joseph's Hospital South and the relocated SB hospital) and (2) SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. St. Joseph's Hospital seems to agree that the utilization projections for SB's replacement hospital are reasonable. Also, St. Joseph's Hospital expects St. Joseph's Hospital South to reach its utilization as projected in CON Application No. 9833, notwithstanding the decline in population growth and the proposed establishment of SB's proposed replacement hospital, although the achievement of projected utilization may be extended. There are examples of Florida hospitals operating successfully in close proximity. The evidence at hearing included examples where existing unaffiliated acute care hospitals in Florida operate within three miles of each another; in two of those, the two hospitals are less than one-half mile apart. These hospitals have been in operation for years. However, some or all of the examples preceded CON review. There are also demographic differences and other unique factors in the service areas in the five examples that could explain the close proximity of the hospitals. Also, in three of the five examples, at least one of the hospitals had an operating loss and most appeared underutilized. One such example, however, is pertinent in this case: Tallahassee Memorial Hospital and Capital Regional Medical Center (CRMC) in Tallahassee, which are approximately six minutes apart by car. CRMC was formerly Tallahassee Community Hospital (TCH), a struggling, older facility with a majority of semi-private patient rooms, similar to South Bay. Sharon Roush, SB's current CEO, became CEO at TCH in 1999. As she explained at hearing, HCA was able to successfully replace the facility outright on the same parcel of land. TCH was renamed CRMC and re-opened as a state-of-the-art hospital facility with all private rooms. The transformation improved the hospital's quality of care and its attractiveness to patients, better enabling it to compete with Tallahassee Memorial Hospital. St. Joseph's Hospital and Tampa General also contend that SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. When the application was filed in 2007, Sun City Center residents in zip code 33573 accounted for approximately 52% of all acute care discharges to SB and SB had a 69% market share. By 2009, Sun City Center residents accounted for approximately 57% of all SB discharges and SB had approximately 72% market share. Approximately half of the age 65-plus residents in the service area reside within the Sun City Center area. This was true in 2010 and will continue to be true in 2015. The projected percentage of the total population in the Sun City Center zip code over 65 for 2009-2010 is approximately 87%. This percentage is expected to grow to approximately 91% by 2015. Sun City Center also has a high percentage of residents who are over the age of 75. Demand for acute care hospital services is largely driven by the age of the population. The age 65-plus population utilizes acute-care hospital services at a rate that is approximately two to three times that of the age 64 and younger population. South Bay plans to relocate its hospital from the Sun City Center zip code 33573 much closer to an area (Riverview covering three zip codes) that has a less elderly population. Elderly patients are known to have more transportation difficulties than other segments of the population, particularly with respect to night driving and congested traffic in busy areas. Appropriate transportation services for individuals who are transportation disadvantaged typically require door-to- door pickup, but may vary from community to community. At the time of preliminary approval of SB's proposed relocation, the Agency was not provided and did not take into consideration data reflecting the percentage of persons in Sun City Center area who are aged 65 or older or aged 75 and older. The Agency was not provided data reflecting the number of residents within the Sun City Center area who reside in nursing homes or assisted living facilities. In general, the 2010 median household incomes and median home values for the residents of Sun City Center, Ruskin, and Gibsonton are materially less than the income and home values for the residents from the other service areas. Freedom Village is located near Sun City Center and within walking distance to SB. Freedom Village is comprises a nursing home, assisted living, and senior independent living facilities, and includes approximately 120 skilled nursing facility beds, 90 assisted living beds, and 30 Alzheimer's beds. Freedom Village is home to approximately 1,500 people. There are additional skilled nursing and assisted living facilities within one to two miles of SB comprising approximately an additional 400 to 500 skilled nursing facility beds and approximately 1,500 to 2,000 residents in assistant or independent living facilities. Residents in skilled nursing facilities and assisted living facilities generally require a substantial level of acute- care services on an ongoing basis. Many patients 65 and older requiring admission to an acute-care facility have complex medical conditions and co-morbidities such that immediate access to inpatient acute care services is of prime importance. Area patients and caregivers travel to SB via a golf cart to access outpatient health care services and to obtain post-discharge follow-up care. Although there are some crossing points along SR 674, golf carts are not allowed on SR 674 itself, and the majority of Sun City Center residents who utilize SB in its existing location do not arrive by golf cart -– rather, they travel by automobile. The Sun City Center area has a long–established culture of volunteerism. Residents of Sun City Center provide a substantial number of man-hours of volunteer services to community organizations, including SB. Among the many services provided by community volunteers is the Sun City Center Emergency Squad, an emergency medical transport service that operates three ambulances and provides EMT and basic life support transport services in Sun City Center 24-hours a day, seven days a week. The Emergency Squad provides emergency services free of charge, but charges patients for transport which is deemed a non-emergency. Most patients transported by the Emergency Squad are taken to the SB ED. It is customary for specialists to locate their offices adjacent to an acute-care hospital. Most of the specialty physicians on the medical staff of SB have full-time or part-time offices adjacent to SB. The location of physician offices adjacent to the hospital facilitates access to care by patients in the provision of care on a timely basis by physicians. The relocation of SB may result in the relocation of physician offices currently operating adjacent to SB in Sun City Center, which may cause additional access problems for local residents. In 2009, the SB ED had approximately 22,000 patient visits. Approximately 25% of the patients that visit the South Bay ED are admitted for inpatient care. South Bay recently expanded its ED to accommodate approximately 34,000 patient visits annually. The average age of patients who visit the South Bay ED is approximately 70. Patients who travel by ambulance may or may not experience undue transportation difficulties as a result of the proposed relocation of SB; however, patients also arrive at the South Bay ED by private transportation. But, most patients are transported to the ED by automobile or emergency transport. In October 2010, the Board of Directors of the Sun City Center Association adopted a resolution on behalf of its 11,000 members opposing the closure of SB. The Board of Directors and membership of Federation of Kings Point passed a similar resolution on behalf of its members. Residents of the Sun City Center area currently enjoy easy access to SB in part because the roadways are low-volume, low-speed, accessible residential streets. SR 674 is the only east-west roadway connecting residents of the Sun City Center area to I-75 and U.S. Highway 301. The section of SR 674 between I-75 and U.S. Highway 301 is a four-lane divided roadway with a speed limit of 40-45 mph. To access Big Bend Road from the Sun City Center area, residents travel east on SR 674 then north on U.S. Highway 301 or west on SR 674 then north on I-75. U.S. Highway 301 is a two-lane undivided roadway from SR 674 north to Balm Road, with a speed limit of 55 mph and a number of driveways and intersections accessing the roadway. (Two lanes from Balm Road South, then widened to six lanes from Balm Road North.) U.S. Highway 301 is a busy and congested roadway, and there is a significant backup of traffic turning left from U.S. Highway 301 onto Big Bend Road. A portion of U.S. Highway 301 is being widened to six lanes, from Balm Road to Big Bend Road. The widening of this portion of U.S. Highway 301 is not likely to alleviate the backup of traffic at Big Bend Road. I-75 is the only other north-south alternative for residents of the Sun City Center area seeking access to Big Bend Road. I-75 is a busy four-lane interstate with a 70 mph speed limit. The exchange on I-75 and Big Bend Road is problematic not only because of traffic volume, but also because of the unusual design of the interchange, which offloads all traffic on the south side of Big Bend Road, rather than divide traffic to the north and south as is typically done in freeway design. The design of the interchange at I-75 in Big Bend Road creates additional backup and delays for traffic seeking to exit onto Big Bend Road. St. Joseph's Hospital commissioned a travel (drive) time study that compared travel times to SB's existing location and to its proposed location from three intersections within Sun City Center. This showed an increase of between seven and eight minutes' average travel time to get to the proposed location as compared to the existing location of SB. The study corroborated SB's travel time analysis, included in its CON application, which shows four minutes to get to SB from the "centroid" of zip code 33573 (Sun City Center) and 11 minutes to get to SB's proposed location from that centroid, or a difference of seven minutes. The St. Joseph's Hospital travel time study also sets forth the average travel times from the three Sun City Center intersections to Big Bend Road and Simmons Loop, as follows: Intersection Using I-75 Using U.S. 301 South Pebble Beach Blvd. and Weatherford Drive 12 min. 17 secs. 14 min. 19 secs. Kings Blvd. and Manchester Woods Drive 15 min. 44 secs. 20 min. 39 secs. North Pebble Beach Blvd. and Ft. Dusquesna Drive 13 min. 15 secs. 15 min. 41 secs. The average travel time from Wimauma (Center Street and Delia Street) to Big Bend Road and Simmons Loop was 15 minutes and 16 seconds using I-75 and 13 minutes and 52 seconds using U.S. Highway 301, an increase of more than six minutes to the proposed site. The average travel time from Ruskin (7th Street and 4th Avenue SW) to Big Bend Road and Simmons Loop was 15 minutes and 22 seconds using U.S. 41 and 14 minutes and 15 seconds using I-75, an increase of more than five minutes to the proposed site. Currently, the average travel time from Sun City Center to Big Bend Road using U.S. Highway 301 is approximately to 16 minutes. The average travel time to Big Bend Road via I-75 assuming travel with the flow of traffic is approximately 13 minutes. The incremental increase in travel time to the proposed site for SB for residents of the Sun City Center area, assuming travel with the flow of traffic, ranges from nine to 11 minutes. For residents who currently access SB in approximately five to 10 minutes, travel time to Big Bend Road is approximately 15 to 20 minutes. As the area develops, traffic is likely to continue to increase. There are no funded roadway improvements beyond the current widening of U.S. Highway 301 north of Balm Road. Most of the roadways serving Sun City Center, Ruskin, and Wimauma have a county-adopted Level of Service (LOS) of "D." LOS designations range from "A" to "F", with "F" considered gridlock. Currently, Big Bend Road from Simmons Loop Road (the approximate location of SB's propose replacement hospital) to I-75 is at LOS "F" with an average travel speed of less than mph. Based on a conservative analysis of the projected growth in traffic volume, SR 674 east of U.S. Highway 301 is projected to degrade from LOS "C" to "F" by 2015. By 2020, several additional links on SR 674 will have degraded to LOS "F." The LOS of I-75 is expected to drop to "D" in the entirety of Big Bend Road between U.S. Highway 301 and I-75 is projected to degrade to LOS "F" by 2020. The Hillsborough County Fire Rescue Department (Rescue Department) opposes the relocation of SB to Big Bend Road. The Rescue Department supports SB's establishment of a satellite hospital on Big Bend Road, but does not support the closure of SB in Sun City Center. The Rescue Department anticipates that the relocation of SB will result in a reduction in access to emergency services for patients and increased incident response times for the Rescue Department. The Rescue Department would support a freestanding ED should SB relocate. David Travis, formerly (until February 2010) the rescue division chief of the Rescue Department, testified against SB's proposal. The basis of his opposition is his concern that relocating the hospital from Sun City Center to Riverview would tend to increase response times for rescue units operating out of the Sun City Center Fire Station. The term response time refers to the time from dispatch of the rescue unit to its arrival on the scene for a given call. Mr. Travis noted that rescue units responding from the Sun City Center Fire Station would make a longer drive (perhaps seven to eight minutes) to the new location in Riverview to the extent that hospital services are needed, and during the time of transportation would necessarily be unavailable to respond to another call. However, Mr. Travis had not specifically quantified increases in response times for Sun City Center's rescue units in the event that SB relocates. Further, SB is not the sole destination for the Rescue Department's Sun City Center rescue units. While a majority of the patients were transported to SB, out of the total patient transports from the greater Sun City Center area in 2009, approximately one-third went to other hospitals other than SB, including St. Joseph's Hospital, Tampa General, and Brandon. The Rescue Department is the only advanced life support (ALS) ground transport service in the unincorporated areas of Hillsborough County responding to 911 calls. The ALS vehicles provide at least one certified paramedic on the vehicle, cardiac monitors, IV medications, advanced air way equipment, and other services. The Rescue Department has two rescue units in south Hillsborough County - Station 17 in Ruskin and Station 28 in Sun City Center. (Station 22 is in Wimauma, but does not have a rescue unit.) Stations 17 and 28 run the majority of their calls in and around the Sun City Center area, with the majority of transports to the South Bay ED. The Rescue Department had 3,643 transports from the Sun City Center area in 2009, with 54.5% transports to SB. If SB is relocated to Big Bend Road, the rescue units for Stations 17 and 28 are likely to experience longer out-of- service intervals and may not be as readily available for responding to calls in their primary service area. The Rescue Department seeks to place an individual on the scene within approximately seven minutes, 90% of the time (an ALS personnel goal) in the Sun City Center area. Relocation of SB out of Sun City Center may make it difficult for the Rescue Department to meet this response time, notwithstanding the proximity of I-75. A rapid response time is critical to providing quality care. The establishment of a freestanding ED in Sun City Center would not completely alleviate the Rescue Department's concerns, including a subset of patients who may need to be transported to a general acute care facility. There are other licensed emergency medical service providers in Hillsborough County, with at least one basic life support EMS provider in Sun City Center. The shuttle service proposed by SB may not alleviate the transportation difficulties experienced by the patients and caregivers of Sun City Center. Also, SB has not provided a plan for the scope or method of the provisional shuttle services. Six residents of Sun City Center testified against SB's proposed relocation to Riverview, including Ed Barnes, president of the Sun City Center Community Association. Mr. Barnes and two other Sun City Center residents (including Donald Schings, president of the Handicapped Club, Sun City Center) spoke in favor of St. Joseph's Hospital's proposed hospital in Riverview at a public land-use meeting in July 2010, thus demonstrating their willingness to travel to Riverview for hospital services. Mr. Barnes supported St. Joseph's Hospital's proposal for a hospital in Riverview since its inception in 2005, when St. Joseph's Hospital filed CON Application No. 9833 and thought that St. Joseph's Hospital South would serve the Sun City Center area. There are no public transportation services per se available within the Sun City Center area. Volunteer transportation services are provided. In part, the door-to-door services are provided under the auspices of the Samaritan Services, a non-profit organization supported by donations and staffed by Sun City Center volunteers. It is in doubt whether these services would continue if SB is relocated. There is a volunteer emergency squad using a few vehicles that responds to emergency calls within the Sun City Center area, with SB as the most frequent destination. Approval of SB's project will not necessarily enhance financial access to acute care services. The relocation of SB is more likely than not to create some access barriers for low- income residents of the service area. The relocation would also be farther away from communities such as Ruskin and Wimauma as there are no buses or other forms of public transportation available in Ruskin, Sun City Center, or Wimauma. However, it appears that the Sun City Center residents would travel not only to Riverview, but north of Riverview for hospital services following SB's relocation, notwithstanding the fact that Sun City Center residents are transportation- disadvantaged. The Hillsborough County Board of County Commissioners recently amended the Comprehensive Land-Use Plan and adopted the Greater Sun City Center Community Plan, which, in part, lists the retention of an acute care hospital in the Sun City Center area as the highest health care planning priority. For Sun City Center residents who may not want to drive to SB's new location, SB will provide a shuttle bus, which can convey both non-emergency patients and visitors. South Bay has made the provision of the shuttle bus a condition of its CON. As noted herein, the CON's other conditions are the establishment of the replacement hospital at the site in Riverview; combined Medicaid and charity care in the amount of 7.0% of gross revenues; and maintaining a freestanding ED at SB. SB Ex. 46, Schedule C. Section 408.035(3): The ability of the applicant to provide quality of care and the applicant's record of providing quality of care South Bay has a record of providing high quality of care at its existing hospital. It is accredited by JCAHO, and also accredited as a primary stroke center and chest pain center. In the first quarter of 2010, SB scored well on "core measures" used by the Centers for Medicare and Medicaid Services (CMS) as an indicator of the quality of patient safety. South Bay received recognition for its infection control programs and successfully implemented numerous other quality initiatives. Patient satisfaction is high at SB. AHCA's view of the need for a replacement hospital is not limited according to whether or not the existing hospital meets broad quality indicators, such as JCAHO accreditation. Rather, AHCA recognizes the degree to which quality would be improved by the proposed replacement hospital -– and largely on that basis has consistently approved CON applications for replacement hospitals since at least 1991. See FOF 64-66. South Bay would have a greater ability to provide quality of care in its proposed replacement hospital. Private patient rooms are superior in terms of infection control and the patient's general well-being. The conceptual design for the hospital, included in the CON application, is the same evidence- based design that HCA used for Methodist Stone Oak Hospital, an award-winning, state-of-the-art hospital in San Antonio, Texas. Some rooms at SB are small, but SB staff and physicians are able, for the most part, to function appropriately and provide high quality of care notwithstanding. (The ICU is the exception, although it was said that patients receive quality of care in the ICU. See FOF 77-82.) Most of the rooms in the ED "are good size." Some residents are willing to give up a private room in order to have better access of care and the convenience of care to family members at SB's existing facility. By comparison, the alternative suggested by St. Joseph's Hospital does not use evidence-based design and involves gutting and rearranging roughly one-third of SB's existing interior; depends upon erecting a new patient tower that would require parking and stormwater capacity that SB currently does not have; requires SB's administration to relocate off-site during an indeterminate construction period; and involves estimated project costs that its witnesses did not disclose the basis of, claiming that the information was proprietary. South Bay's physicians are likely to apply for privileges at St. Joseph's Hospital South. Moreover, if SB remains at its current site, it is reasonable to expect that some number of those physicians would do less business at SB or leave the medical staff. Many of SB's physicians have their primary medical offices in Brandon, or otherwise north of Sun City Center. Further, many of the specialists at SB are also on staff at Brandon. St. Joseph's Hospital South would be more convenient for those physicians, in addition to having the allure of a new, state-of-the-art hospital. South Bay is struggling with its nursing vacancy rate, which was 12.3% for 2010 at the time of the hearing and had increased from 9.9% in 2009. The jump in nursing vacancies in 2010 substantially returned the hospital to its 2008 rate, which was 12.4%. As with its physicians, SB's nurses generally do not reside in the Sun City Center area giving its age restrictions as a retirement community; instead, they live further north in south Hillsborough County. In October 2007 when the application was filed, SB had approximately 105 employees who lived in Riverview. It is reasonable to expect that SB's nurses will be attracted to St. Joseph's Hospital South, a new, state-of-the-art hospital closer to where they live. Thus, if it is denied the opportunity to replace and relocate its hospital, SB could also expect to lose nursing staff to St. Joseph's Hospital South, increasing its nursing vacancy rate. Section 408.035(4): The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation The parties stipulated that Schedule 2 of SB's CON application was complete and required no proof at hearing. South Bay will not have to recruit nursing or physician staff for its proposed replacement hospital. Its existing medical and nursing staff would not change, and would effectively "travel" with the hospital to its new location. Conversely, the replacement hospital should enhance SB's ability to recruit specialty physicians, which is currently a challenge for SB in its existing facility. The parties stipulated to the reasonableness of SB's proposed staffing for the replacement hospital as set out in Schedule 6A, but SJH and TG contend that the staffing schedule should also include full-time equivalent positions (FTEs) for the freestanding ED that SB proposes to maintain at its existing hospital. This contention is addressed in the Conclusions of Law, concerning application completeness under section 408.037, at COL 356-57. South Bay has sufficient funds for capital and operating expenditures for project accomplishment and operation. The project cost will be underwritten by HCA, which has adequate cash flow and credit opportunities. It is reasonable that SB's project will be adequately funded if the CON is approved. Section 408.035(5): The extent to which the proposed services will enhance access to health care for residents of the service district The specific area that SB primarily serves, and would continue to serve, is the service area in south Hillsborough County as identified in its application and exhibits. The discussion in section IV.B., supra, is applicable to this criterion and incorporated herein. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County; will be available to serve Sun City Center, Ruskin, and Wimauma; and will be between seven and eight minutes farther away from Sun City Center than it is at present. However, while the relocated facility will be available to the elderly residents of the Sun City Center area, access for these future patients will be reduced from current levels given the increase in transportation time, whether it be by emergency vehicle or otherwise. Section 408.035(6): The immediate and long-term financial feasibility of the proposal Immediate or "short-term" financial feasibility is the ability of the applicant to secure the funds necessary to capitalize and operate the proposed project. The project cost for SB's proposed replacement hospital is approximately $200 million. The costs associated with the establishment and operation of the freestanding ED and other services were not included in the application, but for the reasons stated herein, were not required to be projected in SB's CON application. South Bay demonstrated the short-term financial feasibility of the proposal. The estimated project cost has declined since the filing of the application in 2007, meaning that SB will require less capital than originally forecast. While Mr. Miller stated that he does not have authority to bind HCA to a $200 million capital project, HCA has indicated that it will provide full financing for the project, and that it will go forward with the project if awarded the CON. Long-term financial feasibility refers to the ability of a proposed project to generate a profit in a reasonable period of time. AHCA has previously approved hospital proposals that showed a net profit in the third year of pro forma operation or later. See generally Cent. Fla. Reg. Hosp., Inc. v. Agency for Health Care Admin. & Oviedo HMA, Inc., Case No. 05-0296CON (Fla. DOAH Aug. 23, 2006; Fla. AHCA Jan. 1, 2007), aff'd, 973 So. 2d 1127 (Fla. 1st DCA 2008). To be conservative, SB's projections, updated for purposes of hearing, take into account the slower population growth in south Hillsborough County since the application was originally filed. South Bay also assumed that St. Joseph's Hospital South will be built and operational by 2015. The net effect, as accounted for in the updated projections, is that SB's replacement hospital will have 28,168 patient days in year 1 (2015); 28,569 patient days in year 2 (2016); and 29,582 patient days in year 3 (2017). That patient volume is reasonable and achievable. With the updated utilization forecast, SB projects a net profit for the replacement hospital of $711,610 in 2015; $960,693 in 2016; and $1,658,757 in 2017. The financial forecast was done, using revenue and expense projections appropriately based upon SB's own most recent (2009) financial data. Adjustments made were to the payor mix and the degree of outpatient services, each of which would change due to the relocation to Riverview. The revenue projections for the replacement hospital were tested for reasonableness against existing hospitals in SB's peer group, using actual financial data as reported to AHCA. St. Joseph's Hospital opposed SB's financial projections. St. Joseph's Hospital's expert did not take issue with SB's forecasted market growth. Rather, it was suggested that there was insufficient market growth to support the future patient utilization projections for St. Joseph's Hospital South and SB at its new location and, as a result, they would have a difficult time achieving their volume forecasts and/or they would need to draw patients from other hospitals, such as Brandon, in order to meet utilization projections. St. Joseph's Hospital's expert criticized the increase in SB's projected revenues in its proposed new location as compared to its revenues in its existing location. However, it appears that SB's payor mix is projected to change in the new location, with a greater percentage of commercial managed care, thus generating the greater revenue. South Bay's projected revenue in the commercial indemnity insurance classification was also criticized because SB's projected commercial indemnity revenues were materially overstated. That criticism was based upon the commercial indemnity insurance revenues of St. Joseph's Hospital and Tampa General, which were used as a basis to "adjust" SB's projected revenue downward. St. Joseph's Hospital and Tampa General's fiscal-year 2009 commercial indemnity net revenue was divided by their inpatient days, added an inflation factor, and then multiplied the result by SB's year 1 (2015) inpatient days to recast SB's projected commercial indemnity net revenue. The contention is effectively that SB's commercial indemnity net revenue would be the same as that of St. Joseph's Hospital and Tampa General. There is no similarity between the three hospitals in the commercial indemnity classification. The majority of SJH's and TG's commercial indemnity net revenue comes from inpatients rather than outpatient cases; whereas the majority of SB's commercial indemnity net revenue comes from outpatient cases rather than inpatients. This may explain why SB's total commercial indemnity net revenue is higher than SJH or TG, when divided by inpatient days. The application of the lower St. Joseph's Hospital-Tampa General per-patient-day number to project SB's experience does not appear justified. It is likely that SB's project will be financially feasible in the short and long-term. Section 408.035(7): The extent to which the proposal will foster competition that promotes quality and cost-effectiveness South Bay and Brandon are the dominant providers of health care services in SB's service area. This dominance is likely to be eroded once St. Joseph's Hospital South is operational in and around 2015 (on Big Bend Road) if SB's relocation project is not approved. The proposed relocation of SB's facility will not change the geography of SB's service area. However, it will change SB's draw of patients from within the zip codes in the service area. The relocation of SB is expected to increase SB's market share in the three northern Riverview zip codes. This increase can be expected to come at the expense of other providers in the market, including TG and SJH, and St. Joseph's Hospital South when operational. The potential impact to St. Joseph's Hospital may be approximately $1.6 million based on the projected redirection of patients from St. Joseph's Hospital Main to St. Joseph's Hospital South, population growth in the area, and the relocation of SB. Economic impacts to TG are of record. Tampa General estimates a material impact of $6.4 million if relocation is approved. Notwithstanding, addressing "provider-based competition," AHCA in its SAAR noted: Considering the current location is effectively built out at 112 beds (according to the applicant), this project will allow the applicant to increase its bed size as needed along with the growth in population (the applicant's schedules begin with 144 beds in year one of the project). This will shield the applicant from a loss in market share caused by capacity issues and allow the applicant and its affiliates the opportunity to maintain and/or increase its dominant market share. SB Ex. 12 at 55. AHCA's observation that replacement and relocation of SB "will shield the applicant from a loss in market share caused by capacity issues" has taken on a new dimension since the issuance of the SAAR. At that time, St. Joseph's Hospital did not have final approval of CON No. 9833 for the establishment of St. Joseph's Hospital South. It is likely that St. Joseph's Hospital South will be operational on Big Bend Road, and as a result, SB, at its existing location, will experience a diminished market share, especially from the Riverview zip codes. In 2015 (when St. Joseph's Hospital proposes to open St. Joseph's Hospital South), SB projects losing $2,669,335 if SB remains in Sun City Center with a 20% loss in market share. The losses are projected to increase to $3,434,113 in 2016 and $4,255,573 in 2017. It follows that the losses would be commensurately more severe at the 30% to 40% loss of market share that SB expects if it remains in Sun City Center. St. Joseph's Hospital criticized SB's projections for its existing hospital if it remains in Sun City Center with a 20% loss in market share; however, the criticism was not persuasively proven. It was assumed that SB's expenses would decrease commensurately with its projected fewer patient days, thus enabling it to turn a profit in calendar year 2015 despite substantially reduced patient service revenue. However, it was also stated that expenses such as hospital administration, pharmacy administration, and nursing administration, which the analysis assumed to be variable, in fact have a substantial "fixed" component that does not vary regardless of patient census. South Bay would not, therefore, pay roughly $5 million less in "Administration and Overhead" expenses in 2015 as calculated. To the contrary, its expenses for "Administration and Overhead" would most likely remain substantially the same, as calculated by Mr. Weiner, and would have to be paid, notwithstanding SB's reduced revenue. The only expenses that were recognized as fixed by SJH's expert, and held constant, were SB's calendar year 2009 depreciation ($3,410,001) and short-term interest ($762,738), shown in the exhibit as $4,172,739 both in 2009 and 2015. Other expenses in SJH's analysis are fixed, but were inappropriately assumed to be variable: for example, "Rent, Insurance, Other," which is shown as $1,865,839 in 2009, appears to decrease to $1,462,059 in 2015. The justification offered at hearing, that such expenses can be re-negotiated by a hospital in the middle of a binding contract, is not reasonable. St. Joseph's Hospital's expert opined that SB's estimate of a 30 to 40% loss of market share (if SB remained in Sun City Center concurrent with the operation of St. Joseph's Hospital South) was "much higher than it should be," asserting that the loss would not be that great even if all of SB's Riverview discharges went to St. Joseph's Hospital South. (Mr. Richardson believes the "10 to 20 percent level is likely reasonable," although he opines that a 5 to 10% impact will likely occur.) However, this criticism assumes that a majority of the patients that currently choose SB would remain at SB at its existing location. The record reflects that Sun City Center area residents actively supported the establishment of St. Joseph's Hospital South, thus suggesting that they might use the new facility. Further, SB's physicians are likely to join the medical staff of St. Joseph's Hospital South to facilitate that utilization or to potentially lose their patients to physicians with admitting privileges at St. Joseph's Hospital South. Tampa General's expert also asserted that SB would remain profitable if it remained in its current location, notwithstanding the establishment of St. Joseph's Hospital South. It was contended that SB's net operating revenues per adjusted patient day increased at an annual rate of 5.3% from 2005 to 2009, whereas the average annual increase from 2009 to 2017 in SB's existing hospital projections amounts to 1.8%. On that basis, he opined that SB should be profitable in 2017 at its existing location, notwithstanding a loss in market share to St. Joseph's Hospital South. However, the 5.3% average annual increase from 2005 to 2009 is not necessarily predictive of SB's future performance, and the evidence indicated the opposite. Tampa General's expert did not examine SB's performance year-by-year from 2005 to 2009, but rather compared 2005 and 2009 data to calculate the 5.3% average annual increase over the five-year period. This analysis overlooks the hospital's uneven performance during that time, which included operating losses (and overall net losses) in 2005 and 2007. Further, the evidence showed that the biggest increase in SB's net revenue during that five-year period took place from 2008 to 2009, and was largely due to a significant decrease in bad debt in 2009. SB Ex. 16 at 64. (Bad debt is accounted for as a deduction from gross revenue: thus, the greater the amount of bad debt, the less net revenue all else being equal; the lesser the amount of bad debt, the greater the amount of net revenue all else being equal.) The evidence further showed that the 2009 reduction in bad debt and the hospital's profitability that year, is unlikely to be repeated. Overall, approval of the project is more likely to increase competition in the service area between the three health care providers/systems. Denial of the project is more likely to have a negative effect on competition in the service area, although it will continue to make general acute care services available and accessible to the Sun City Center area elderly (and family and volunteer support). Approval of the project is likely to improve the quality of care and cost-effectiveness of the services provided by SB, but will reduce access for the elderly residents of the Sun City Center area needing general acute care hospital services who will be required to be transported by emergency vehicle or otherwise to one of the two Big Bend Road hospitals, unless needed services, such as open heart surgery, are only available elsewhere. For example, if a patient presents to SB needing balloon angioplasty or open heart surgery, the patient is transferred to an appropriate facility such as Brandon. The presence of an ED on the current SB site may alleviate the reduction in access somewhat for some acute care services, although the precise nature and extent of the proposed services were not explained with precision. If its application is denied, SB expects to remain operational so long as it remains financially viable. Section 408.035(8): The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the costs and methods of the proposed construction, including the costs and methods of energy provision, were reasonable. St. Joseph's Hospital and Tampa General did not stipulate concerning the availability of alternative, less costly, or more effective methods of construction, and take the position that SB should renovate and expand its existing facility rather than replace and relocate the facility. Whether section 408.035(8) requires consideration (weighing and balancing with other statutory criteria) of potential renovation costs as alternatives to relocation was hotly debated in this case. For the reasons stated herein, it is determined that this subsection, in conjunction with other statutory criteria, requires consideration of potential renovation versus replacement of an existing facility. St. Joseph's Hospital offered expert opinion that SB could expand and upgrade its existing facility for approximately $25 million. These projected costs include site work; site utilities; all construction, architectural, and engineering services; chiller; air handlers; interior design; retention basins; and required movable equipment. This cost is substantially less than the approximate $200 million cost of the proposed relocation. It was proven that there are alternatives to replacing SB. There is testimony that if SB were to undertake renovation and expansion as proposed by SJH, such upgrades would improve SB's competitive and financial position. But, the alternatives proposed by SJH and TG are disfavored by SB and are determined, on this record, not to be reasonable based on the institutional- specific needs of SB. Section 408.035(9): The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Approval of SB's application will not significantly enhance access to Medicaid, charity, or underserved population groups. South Bay currently provides approximately 4% of its patient days to Medicaid beneficiaries and about 1% to charity care. South Bay's historic provision of services to Medicaid patients and the medically indigent is reasonable in view of its location in Sun City Center, which results in a disproportionate share of Medicare in its current payor mix. South Bay also does not offer obstetrics, a service which accounts for a significant degree of Medicaid patient days. South Bay proposes to provide 7% of its "gross patient revenue" to Medicaid and charity patients as part of its relocation. South Bay's proposed service percentage is reasonable. Section 408.035(10): The applicant's designation as a Gold Seal Program nursing facility pursuant to s. 400.235, when the applicant is requesting additional nursing home beds at that facility The parties stipulated that this criterion is not applicable.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered denying CON Application No. 9992. DONE AND ENTERED this 8th day of August, 2011, in Tallahassee, Leon County, Florida. S CHARLES A. STAMPELOS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of August, 2011.
The Issue Whether there is need for a new 60-bed general acute care hospital in Seminole County? If so, to which of two applicants should a CON be awarded to construct and operate the hospital: Orlando Regional Healthcare System, Inc. (CON 9496), or Adventist Health System/Sunbelt, Inc., d/b/a Florida Hospital (CON 9497)?
Findings Of Fact The Battleground: District 7 At the heart of the conflict in this proceeding is that the two corporate combatants are the dominant providers of hospital services in major metropolitan Orlando and both are providers of very high quality acute care hospital services. Each seeks authority to construct and operate a 60-bed general acute care hospital in the fast-growing community of Oviedo, Florida. The Agency for Health Care Administration, arbiter of the conflict, has introduced a quarrel of its own by its determination that there is no need for the hospital in Oviedo, a determination with which the hospitals decidedly take issue. Oviedo is an incorporated area in east Seminole County. Seminole County, in turn, is a county that with two other counties makes a contribution by suburb or city center to the conurbation in and around Orlando, Florida's largest non-coastal city. Seminole County is also one of four counties that comprise District 7, one of eleven health service planning districts into which the Legislature has partitioned the state. See Section 408.032(5), Florida Statutes. The other three counties in the District are Orange, Osceola and, removed from the controversy in this case, Brevard. The four counties are each considered by rule of AHCA to constitute a sub-district of District 7. Brevard is Sub-district 1; Orange, sub-district 2; Seminole, sub-district 3; and, Osceola, sub-district 4. The parties consider parts of Seminole and Osceola Counties to constitute the major metropolitan area of the City of Orlando together with, of course, parts of Orange County, the county that contains incorporated Orlando. As indicated above and by its irrelevance to this proceeding, no part of Brevard County is considered by the parties to make up any of metropolitan Orlando. There is also one county outside District 7 about which the parties introduced evidence, Lake County in District 3. Nonetheless, District 7 remains the primary battleground with a focus on sub-district 3 as the site of the CON sought by the parties. The Parties AHCA The Agency for Health Care Administration is the state agency responsible for the administration of the CON program in Florida pursuant to the Health Facility and Services Development Act, Sections 408.031-408.045, Florida Statutes. ORHS One of the two dominant health care providers in the Orlando area, Orlando Regional Healthcare System, Inc., is a Florida not-for-profit corporation that owns and operates eight facilities in the four-county area of Orange, Seminole, Osceola and Lake Counties, "the only market" (tr. 22) that it serves. Half of ORHS's facilities are in Orange County. These four facilities are: Orlando Regional Medical Center, a 517-bed general acute care hospital that provides tertiary services in addition to routine acute care hospital services and that is the site of a trauma center; Arnold Palmer Hospital for Children and Women, a 281-bed specialty hospital that provides women's and children's services including neonatal services; Orlando Regional Sand Lake Hospital, a 153-bed general acute care facility that provides comprehensive medical rehabilitation services; and Orlando Regional Lucerne Hospital, a 267-bed general acute care hospital that provides comprehensive medical rehabilitation and skilled nursing unit services. In Seminole County, ORHS wholly owns and operates Orlando Regional South Seminole Hospital ("South Seminole"), a 206-bed general acute care facility that provides adult/child psychiatric and adult substance abuse services as well as general acute care services. In Osceola County, ORHS owns Orlando Regional St. Cloud Hospital, an 84-bed general acute care facility. In Lake County, ORHS jointly owns and operates two health care facilities under joint venture business arrangements: South Lake Hospital, a 68-bed general acute care facility and Leesburg Regional Medical Center, a 294-bed general acute care facility. The wholly owned facilities operate under a single license and are accredited by the Joint Commission on Accreditation of Health Care Organizations ("JCAHO"). One of six statutory teaching hospitals in the state, ORHS has been in continuous existence since 1918. Its mission is to be a local, unaffiliated health care provider, providing health care services to the citizens of Central Florida. Recognized as one of the top 100 hospitals in the United States by US News and World Report, ORHS has been the recipient of numerous awards and recognitions. As but one example, it was the winner of a Consumer Choice Award from the National Research Corporation for the years 1999 through 2001. Orlando Regional Healthcare System provides outstanding health care of the highest quality to patients at its eight facilities in three of the four counties in AHCA's Health Care Planning District 7. Florida Hospital The other dominant health care provider in the Orlando area is Florida Hospital. Founded as a sanitarium, Florida Hospital has been in existence and a presence in the Orlando medical community since 1908. Florida Hospital is part of the Adventist Health System, a not-for-profit hospital organization that operates hospitals throughout the country. In the Orlando area, Florida Hospital has seven acute care campus systems operated under a single license in a three- county area: Orange, Seminole and Osceola Counties. The original and main campus is located in downtown Orlando. A second campus is in East Orlando. The five other facilities are in Altamonte Springs, to the northwest of Orlando; Apopka, further northwest; Winter Park, just north of Orlando; and Celebration and Kissimmee, both southwest of the city. Florida Hospital also operates Florida Hospital Waterman under a separate license in Lake County in District 3. The seven campuses in District 7 are unified by more than just licensure. Consistent with their operation under a single license, all seven operate under a single provider number with Medicare/Medicaid. They have a single medical staff and a single accreditation with JCAHO. The seven Florida Hospital campuses operate under a single leadership structure; all policies, procedures and matters that pertain to the operation of the hospital are part of the single body of operational guidelines and procedures that are provided by the organization. The seven campuses also operate under a single price structure, a single charge master that runs across the entire organization. The goal of operating the seven campuses in a unified manner is to maintain continuity and promote one standard of care so that when a patient enters any of the facilities, the patient can rely on receiving the same high standard of care as would be received at any other Florida Hospital facility. Operation under a single structure also provides a patient with the coverage of physicians and staff throughout the system to cover any and all needs of the patient. From its inception, the mission of Florida Hospital has been to extend a religious ministry of healing to the community consistent with Adventist principles. Among these principles are awareness of the eternal nature of the moment at which care is extended to the patient as well as recognition of each patient as a child of God, entitled to the highest possible quality of care embodied in "whole person health" (tr. 876) composed of physical, mental and spiritual well-being. Florida Hospital carries out its mission with "a strong sense of stewardship for providing care in the communities that [the hospital] serve[s] . . . ." (Tr. 875). The success of Florida Hospital's philosophy of care is evident in recognition bestowed by others. For example, Florida Hospital was recognized as being among the top 50 hospitals in the country for nine specialties in the July 2002 edition of U.S. News & World Report's "America's Best Hospitals." To take but one of the nine, "Heart & Heart Surgery," Florida Hospital is ranked 12th in the nation in the company of those ranked just above: Cleveland Clinic, Mayo Clinic (Rochester), Massachusetts General, Brigham and Women's Hospital, Duke University Medical Center, Johns Hopkins, Texas Heart Institute-St. Luke's in Houston, Emory University Hospital, Stanford University Hospital, Barnes-Jewish Hospital in St. Louis and the UCLA Medical Center. Well-Matched Applicants In its state agency action report ("SAAR"), AHCA noted that ORHS and Florida Hospital are two large, well-matched hospital systems. Both operate over 1,500 beds in the Orlando area. Both generate approximately two billion dollars of gross charges annually. Both deliver over 300,000 patient days of patient care. Together, they are the overwhelmingly dominant providers of health care in the major metropolitan Orlando area. In the SAAR, the Agency discussed distinctions between the two applicants. Had AHCA determined that there was need for the facility, it would have had a difficult time deciding which corporation should be awarded the CON. None of the distinctions between the two were found by AHCA to be substantial enough to serve as a basis for choosing either applicant over the other. Other District 7 Hospitals Besides the two applicants, the dominant providers of hospital services in District 7 by virtue of number of facilities (13 hospitals in the District and three hospitals in Lake County immediately adjacent to the District), among other reasons, there are three other hospitals in the District. Health Central is a hospital operated by a statutorily created tax district in the City of Ocoee, in Orange County. Central Florida Regional Hospital is owned and operated by Hospital Corporation of America ("HCA") located in the City of Sanford in Seminole County. It is approximately 14 miles from the proposed locations of the applicant's facilities. Osceola Regional Medical Center, another HCA facility, is located in Kissimmee in Osceola County, not far from Florida Hospital's Kissimmee and Celebration facilities. Stipulation The parties stipulated to the following: The applicable fixed-need is zero. Both applications complied with the requirements of Sections 408.037, 408.038 and Subsections (1), (2) and (3) of Section 408.039, Florida Statutes, and the requirements of Rules 59C-1.008 and 59C-1.010, Florida Administrative Code. Both applications meet the review criteria contained in Subsections 408.035 (3),(6),(8),(10) and (11), Florida Statutes and the review criteria in Subsections 408.035(4),(5) and (12), Florida Statutes, are not applicable in this case. The statutory review criteria at issue in this case are Subsections 408.035(1), (2), (7) and (9), Florida Statutes. Numeric Need Numeric need for general acute care beds is determined pursuant to Agency rule, Rule 59C-1.038, Florida Administrative Code. The rule's methodology for the calculation of numeric need for general acute care beds is by sub-district. Since "there really is no longer a future projection methodology in the rule . . . it was stricken out two or three years ago," Gene Nelson, one of ORHS' experts in health planning, refers to the rule as containing a "retrospective occupancy model." (Tr. 619). Under the methodology, additional beds are not normally approved in any sub-district where historic occupancy is less than 75%. If occupancy exceeds 75%, beds will be awarded to bring occupancy down to 75%. In other words, instead of projecting forward as it once did to determine need, the rule looks back to occupancy. If occupancy in the sub- district has met the threshold, then positive numeric need is established. Criticism has been leveled at the methodology. Not taking into account future population growth or occupancy rates at times other than midnight, are but two examples. Criticism, however, of the rule is of little moment in this case since the case is a challenge to agency action not to the rule that contains the methodology. Whatever the appropriateness or validity of the criticism, the calculations pursuant to the methodology have not yielded a fixed-need pool above zero for any of the many sub- districts in the eleven districts of the state for some years now. Nor is numeric need for general acute care beds expected by the Agency to exceed zero anywhere in the state for the foreseeable future. During this time of numeric need "drought," AHCA, nonetheless has awarded CONs for new general acute care beds and even new hospitals on a number of occasions. For example, "[d]espite the fact that there was an applicant proposing to relocate beds within the subdistrict, which wouldn't have affected the bed inventory at all, the state elected to approve [another] applicant . . . that applied for a brand-new 60 bed hospital" (tr. 635) in the community of Lady Lake in District 3. The application in that instance had been filed in the fall of 1998. In a second example, in the fall of 2001, a few years later, Osceola Regional and Florida Hospital Celebration were each approved to add beds to existing facilities despite the fact that there was no numeric need and the hospitals did not meet the statutory occupancy levels for additional beds. Mr. Nelson also testified about a third recent example where a new hospital was built when the subdistrict occupancy was low, the facts of which compare favorably, in his view, with the facts in this case. As he tells it, these three cases, compared to this case, produce inconsistency: In the fall of 1999, Sacred Heart Hospital applied to build a new 60-bed hospital in the southern portion of Walton County. That particular subdistrict is actually a two-county subdistrict consisting of Okaloosa and Walton counties, has some existing hospitals, current subdistrict occupancy in that area is 56.3 percent. Despite . . . the low occupancy . . . the state recognized the validity of the arguments about a growing population, about accessibility, many of the same issues that you have here and approved Sacred Heart to build a new 60-bed hospital in that location. * * * I am not criticizing any of these approvals. I . . . am criticizing [that the state was] presented with a similar set of circumstances in this case [and] the applications were all denied. And I think there is an inconsistency here. (Tr. 637-8). During the same period, moreover, beds have been added to existing hospitals without CON review, accomplished by way of Section 408.036(n), Florida Statutes. The statute allows 10 beds or 10% of licensed bed capacity to be added to a hospital's acute bed inventory upon certification "that the prior 12-month average occupancy rate for the category of licensed beds being expanded at the facility meets or exceeds 80% . . . ." Section 408.036(n)(1)a., Florida Statutes. See also Rule 59C-1.038(5), Florida Administrative Code. The bed additions made with and without CON review contribute to current numeric need determinations of "zero" and the continued reasonable expectation that AHCA's methodology for determining acute care bed numeric need will not yield numeric need in excess of zero for years to come. Most pertinently to this case, these additions erode AHCA's position advanced in hearing in this case for a preference to keep open the option for a future competitor, a competitor other than one of the two dominant providers, presumably when numeric need has been determined to exist, a condition not likely to come into play for the foreseeable future. However the future plays itself out and the effect on AHCA's current methodology, there remains one point central to consideration in this case. In light of a numeric need of "zero" for the applicable batching cycle, for a CON to be awarded as a result of this proceeding, as a first step, the applicants must demonstrate the existence of "not normal" circumstances that support an award. The two applicants attempt that step in tandem. Both ORHS and Florida Hospital contend that rapid population growth, problems of access to acute care and emergency services in the Oveido area, and mal-distribution of beds in the sub-district and district constitute circumstances that justify need for their proposed facilities. In other words, they are "not normal" circumstances. Not Normal Circumstances - Population Growth A rural farm community not long ago with a population of about 7,500, the City of Oviedo, in the last 15 years, has grown into an Orlando bedroom community. The population increase within the city limits is proof of the city's metamorphosis from countryside to suburb. During this period of time, the municipal population has nearly quadrupled to 28,000 with no end in sight to continued growth in the area as explained by ORHS' expert, Dr. Rond: The special circumstances . . . that drive this application are, first, the unprecedented population growth. As we have seen, we are experiencing population growth in excess of a hundred percent in the east Seminole area. In the adjacent Winter Springs area, we are experiencing a rate in excess of 51 percent. We are talking about a population that is going to reach almost 200,000 people by the year 2006. (Tr. 377-8). The area is projected for an additional 18.2% growth by 2006, when as testified to by Dr. Rond, the population will reach nearly 200,000. The municipal population is not the only population of a political entity in the area to quadruple in modern memory. Over the past three decades Seminole County has grown fourfold - from 83,692 in 1970 to 365,196 in 2000. As a result, the county is the third most densely populated of the state's 67 counties. Until the mid-1990's, population growth was concentrated in the western half of the county as Orlando area development spread north into Seminole County along the I-4 and U.S. Highway 17/92 corridors. Since then the rate of population growth has been dramatic in east Seminole County in part because of the opening of another major transportation corridor, the "Greenway," Highway 417. Between 1990 and 2001, east Seminole County more than doubled in size (24,840 to 51,287; a 107% increase) while West Seminole grew by only 22%. East Seminole County is expected to remain the fastest growing portion of the county into the foreseeable future. With approximately 43% of the total land area of the county but only about 16% of the population, it remains much less densely populated than the remainder of the county, affording greater opportunities for future growth. Seminole County is unique in the state from the perspective of bed-to-population ratios. The three hospitals in Seminole County with a combined total of 575 licensed beds, yield a ratio of 1.55 beds per 1,000 population; tied for lowest bed to population ratio of the sub-districts in the state. The only area with a comparable ratio is Sub-district 8-4, comprised of Glades and Hendry Counties, located southwest of Lake Okeechobee, "a very rural area." (Tr. 625). While these two sub-districts are similar in bed to population ratio, they are at opposite extremes in terms of population density. The population of Seminole County, at 371,000 is nearly nine times the combined populations of Glades and Hendry Counties at slightly more than 42,000. Sub-district 8-4 is "totally unlike Seminole County from the standpoint of population demographics; and yet in terms of resource availability, . . . it has a comparable amount of resources per thousand population." (Id.) Thus, Seminole County occupies a unique place in the state for its low bed-to- population ratio considering its overall population. Population forecasts for the next five-year period support the expectation of continued strong growth in east Seminole County. For example, the downtown area of Oviedo plans a residential area with a density up to 50 dwellings per acre, at least one of the highest in the County. In the City of Oviedo vicinity, median densities are increasing from 4 homes per acre to 10, to allow for townhouses. East Seminole County is reasonably expected to have 60,597 residents by the year 2006, an 18.2% increase over 2001. By comparison, West Seminole County is expected to experience only a 6.3% rate of growth. Projected growth in the City of Oviedo, moreover, is in all likelihood understated due to significant residential developments currently underway that alone are expected to add up to 6,238 new residents to the city's population. One need only look to actual growth in the area for support for such a prediction. Actual growth has consistently outpaced projected growth governed by methodologies that have repeatedly failed to reflect the reality of population growth in Oviedo. Related to population growth are utilization projections by the applicants' health planning experts for an Oviedo hospital. Judy Horowitz, Florida Hospital's expert health care planner, explained Florida Hospital's: [W]e looked at historically what had come out of the service area as we defined it. We projected that that volume would grow in proportion to population growth. We looked at a subset of services, those that were likely to be provided at a community hospital as was being proposed by Florida Hospital Oviedo. We looked at what we thought a reasonable market share would be; and our overall forecast is that within two years of opening this facility, that we would reach 77 percent occupancy at a 60-bed facility. So our year two, which is the 12 months ending June of 2007, . . . . we would already be at 77 percent occupancy. Then our first year we would be at approximately 68 percent occupancy. * * * [T]here is clearly sufficient demand to support the hospital as proposed; and the fact that we are projecting a relatively high utilization very quickly shows the magnitude of that demand. (Tr. 1352, 1353). With the high level of population growth and the demand for hospital services that such growth generates, the citizens of Oviedo expect access to hospital care within the community. In keeping with citizen expectation, the City of Oviedo has adopted a resolution that urges AHCA to approve a new hospital in the Oviedo community. It has been joined in its resolve by the Board of County Commissioners for Seminole County through a resolution of its own. To underscore the force of the two resolutions, the corporate parties presented the testimony of representatives of both the City Council and the County Commission. Grant Malloy, the County Commissioner for County District I who grew up in the area with fond childhood memories of "being overcome by the orange blossom smells, they were so intense," (tr. 802) described the growth observed first-hand by him during his lifetime as "phenomenal." (Tr. 806). In answer to the question whether his constituents would benefit by a new 60-bed hospital, Commissioner Malloy testified I do believe so. There is . . . the growth that's occurring there. And I heard . . . discussion about getting to some of the other hospitals. And once you get out of Seminole County . . . the roads are very, very difficult to travel on especially getting into Orlando. Especially rush hour . . . . . . . [T]he growth . . . would support such a facility. I know our board passed a resolution, along with the City of Oviedo[.] [O]ur board, and all the commissioners are unanimously supportive of a hospital in the area. I haven't heard from any residents or constituents that have said it was a bad idea. . . . [P]eople are pretty excited about it. (Tr. 807-8). Tom O'Hanlon, Chairman of the City Council, in the company of three other members of the council, unequivocally backed up Commissioner Malloy's appeal for a new hospital. The changes he has seen in Oviedo, he described as: Dramatic changes. When I moved there, [Oviedo] was a very rural area, and it is no longer . . .; it’s a highly compacted urban area. [W]e are working on a new master plan for downtown, which will have higher densities than we have in our city today. (Tr. 812). Chairman O'Hanlon went on to describe how the pace of the growth continuously outstrips population projections that are the product of the City's best efforts to follow appropriate methodologies for making such projections: [T]he city continually makes population projections. I have always been involved with them[.] [T]here are guidelines . . .; and everytime we make them, the city grows far in excess of th[e] projections. The area is such a dynamic area because we have got the University of Central Florida there, which is just growing as fast as the city is, maybe even faster. You have the Research Park there and you have got excellent schools. And for that combination . . . everybody wants to move there. (Tr. 812-3). The university is just south of the city limits. It has minimal dormitory facilities on campus. The result is that "a vast majority [of students] live off campus in housing and apartments [and they are impacting all the services that must be provided in Oviedo.]" (Tr. 814). Following this testimony of Chairman O'Hanlon, the following colloquy ensued between him and counsel for ORHS: Q Is it fair to say, Councilman O'Hanlon, that the City of Oviedo and surrounding area is in growing urban area that has everything but a hospital? A That is a true statement. Q Are you familiar, Councilman O'Hanlon, with the proposals of Orlando Regional Healthcare System and Florida Hospital to locate a 60-bed hospital in the City of Oviedo? A Yes. Q Do you support that effort? A A hundred percent. Q Do you believe, Councilman O'Hanlon, it would be of benefit to your constituents to have that [hospital] in the city of Oviedo? A Absolutely. People approach me every week wanting to know where our hospital is. Q Can't understand why it's not there already?A Well what they understand is that there is a tremendous need for a hospital and they don't understand why it's not in the process. (Tr 816-7). Residents of Oviedo also do not understand why they have to drive for such a long time to reach a hospital particularly when their goal is the emergency department. This concern about which Councilman O'Hanlon hears from a constituent "at least once a month" (tr. 819) also made its way into the resolutions of the two political bodies in the form of an identical introductory clause, as follows: "WHEREAS, there are increasing problems with timely access to care especially for emergencies," (Joint ORHS/Florida Hospital Nos. 8 and 10). It is, moreover, a concern that takes up the second prong of the applicants' case for "not normal" circumstances: issues of access. - Access The Oviedo Service Area Although similarities exist between the two, the Oviedo Service Areas defined by the two applicants are somewhat different. The service area selected by ORHS is larger than the service area selected by Florida Hospital. The Primary Service Area ("PSA") for ORHS' proposed hospital is composed of four zip codes: 32765, 32732, 32766, and 32708. Of the four, the first three are in eastern Seminole County, that is, east of Highway 417, the Greenway, and south of Lake Jessup. The fourth, 32708 in the Winter Springs area, is just west of the Greenway. The Winter Springs zip code was included in ORHS' PSA in part because it is adjacent to the Greenway. It has also experienced tremendous population growth and is very close to the proposed site for ORHS' hospital. A secondary service area proposed by ORHS is composed of a zip code in Seminole County north of Lake Jessup, 32773, and three zip codes in Orange County, 32817, 32820, and 32826. Located in the midst of the three Orange County zip codes is zip code 32816. It appears on ORHS exhibits as part of the secondary service area. As the zip code for the University of Central Florida, it has a very low residential population so that there are only a few students who might live in a dorm that would list it as their residence when receiving hospital services. There are actually "very few" (tr. 302) discharges from zip code 32816. If one does not include zip code 32816 then ORHS' service area is a comprised of eight zip codes. The April 1, 2001, population for the primary and secondary service areas or the service area designated by ORHS is 170,774. This service area has more than doubled in population over the last decade. Over the next five years, the service area is expected to reach 193,408 residents, of which 45% will be of prime child bearing age (15-44), "a dominant position for that age cohort within the population." (Tr. 315). The Oviedo service area is defined by Florida Hospital as four zip codes in Seminole County, 32708, 32732, 32765, and 32766 and one in Orange County: 32826 (all zip codes in ORHS' service area) with a population of more than 100,000. Florida Hospital's service area does not include Zip Code 32773 (the zip code north of Lake Jessup) that is in ORHS' service area nor, with the exception of 32826, does it include any of the Orange County zip codes that are in ORHS' service area. Thus, there are five zip codes in what Florida Hospital regards as the Oviedo Service Area and eight in what ORHS regards as the Oviedo Service Area if zip code 32816 is excluded. Although somewhat different, for purposes of examining travel distance and time between Oviedo and area hospitals, the Oviedo Service Areas of the two applicants are similar enough to be considered to be the same. Or, as William E. Tipton, an expert in traffic transportation and civil engineering, testified at hearing, the results of his study entitled "Travel Time Analysis Proposed ORHS Oviedo Campus, Oviedo, Florida" (ORHS Ex. 14) would not be substantially different if he had focused on the Florida Hospital site instead of the ORHS site. Travel Time Analysis Mr. Tipton prepared a travel time analysis to evaluate the differences in travel time that could be anticipated with the development of a hospital campus in Oviedo. Mr. Tipton's study concluded that there would be a reduction of average daily travel time from the ORHS PSA to a hospital by 64% or 18 minutes. The maximum reduction will be 75% of the time or 21 minutes. In the critical peak afternoon hour, there will be a maximum reduction of 79% or 22 minutes in time from that which exists today. The reductions in drive distance for Oviedo area residents if a hospital were in Oviedo would be significant especially in the arena of emergency services. Emergency Services Access to emergency services at a hospital emergency department ("ED") is one of the most important factors in making sure people have reasonable access to community hospitals. "[Y]ou really need . . . immediate care for emergencies, and so it's important to be able to get to the emergency department quickly and to receive care rapidly once you get there." (Tr. 336). Between 1997 and 2001, the hospitals experiencing the highest percentage of ED visit increase, other than Health Central, were Florida Hospital East in Orange County and South Seminole Hospital in Seminole County. During the period between 1997 and 2001, although the population of Seminole County grew less than Orange County, Seminole County had a larger percentage of ED visits. Specifically, the population of Seminole County grew 12% but its ED visits increased 23%, twice its population growth. During the same period, the population of Orange County grew by 15% but its ED visits only increased by 17%. Closer examination of these statistics reveals that ED visits in the downtown area of Orlando, to include Orlando Regional Medical Center and Florida Hospital, were below the county average. However, suburban hospitals, or those in outlying areas, particularly near Oviedo, had much greater ED visit growth: ED visits grew 27% at Florida Hospital Apopka and 37% at Florida Hospital East. Florida Hospital East is the closest hospital in Orange County to the Oviedo area. Of the hospitals in Seminole County, South Seminole was the most severely affected by ED visit increase with a 38% increase of ED visits between 1997 and 2001. (ED visits in excess of 27,000 by area residents are projected in 2006.) In the Oviedo area there are unfortunate but not uncommon delays in emergency transport. More than 20% of emergency transports involve delays of in excess of 45 minutes after arrival at the hospital. These delays are serious because patient outcomes decline dramatically if definitive care is not delivered within the "golden hour," a concept that: reflects the fact that patient outcomes decline [dra]matically in terms of . . . mortality rates if definitive care is not delivered within one hour of the traumatic injury that has been sustained. In cardiology, they tend to . . . say "time is muscle," * * * the longer it takes for a patient to get definitive care following a major cardiovascular event, the more muscle mass is likely to be damaged. . . . [Y]ou can go on and talk about stroke victims, cerebral vascular patients and just a whole array of patients who [fare] much better in terms of morbidity and mortality if they receive definitive care within an hour of the episode. (Tr. 336). Part of the delay for patients in need of prompt emergency services is due to ambulance standing time. Standing time is the time a patient waits in the ambulance or hallway of the emergency department before the patient is seen by medical staff. This standing time does not include the time it takes the ambulance to respond to the call or the time the EMS personnel spend at the scene to stabilize the patient. Nor does it include the travel time to the hospital from the scene. Ambulance standing time for patients from the Oviedo area on average is between 42 and 47 minutes. When average travel times established in Mr. Tipton's study are combined with the standing times, there is not one existing provider of emergency services that can provide a patient from Florida Hospital's Oviedo Service Area or ORHS' PSA with emergency care within the "golden hour." This combination, moreover, as stated above, does not take into account the dispatch time and time of the ambulance at the scene. The typical types of emergency calls EMS personnel see in Oviedo include difficulty breathing, auto accidents, kids falling off bicycles, heart attacks, and drug overdoses. The largest majority of calls would go to a local community hospital as opposed to trauma center in downtown Orlando. Jeffrey M. Gregg, Chief of the Bureau of Health Facility Regulation, which includes the Certificate of Need Program for the Agency for Health Care Administration, testified that emergency room access is a problem that has gotten worse over time. Mr. Gregg also stated that a new hospital in the area will improve emergency access for people in the immediate area. A new hospital in Oviedo service area would also benefit and improve emergency access for patients in Orange County emergency rooms by lessening the emergency patient loads they experience. Wayne Martin, Fire Chief, Emergency Management Director, City of Oviedo, testified that the standing times and delays at the area hospital emergency rooms tie up Oviedo area ambulance services for an extended period of time. Emergency Medical Service ("EMS") staff must stay with their patient until the patient is taken into the emergency room and given medical care by emergency department staff. Because of these delays, EMS staff are out of their service area for extended periods of time. This decreases the level of service for the residents of the Oviedo area. One aspect of the problem influences another so as to create a compounding effect. Dr. Robert A. Schamberger, a family practitioner in Oviedo, testified that recently a patient went to the emergency room at an area hospital and it took 16 hours from the times she arrived until she was seen by the emergency room personnel. Dr. Schamberger tried to admit another patient of his in an area hospital on a recent Friday and was informed there were no beds. The hospital said they would call when they had an available bed. The patient was finally admitted on Monday. Emergency room waiting times across the entire community are several hours, which is an unacceptable care standard. Dr. Zulma Cintron practices internal medicine in Oviedo. Dr. Cintron testified that there is a "huge need" for a hospital in the Oviedo area. "We definitely need the beds." Dr. Cintron has had patients with chest pains who ended up waiting in the emergency room for four, five, and six hours before receiving care. Patients with less imminent needs have waited 12, 16 even 24 hours. Dr. Cintron's testimony for Florida Hospital was confirmed by the testimony produced by ORHS of Scott Greenwood, M.D., a cardiologist who heads a cardiology group. The evidence provided by Drs. Schamberger, Cintron And Greenwood, anecdotal though it may be, supports the existence of a problem with emergency services access in the Oviedo area that is shown by the analysis provided by the combination of Mr. Tipton's traffic study and ambulance standing time. So does projected volume for ED visits. Projected volume at Florida Hospital Oviedo in year two would be in excess of 27,000 visits. The Oviedo area has a population that "is adequate to support a hospital at high utilization levels within [a] short period of time and also will generate a significant number of emergency visits." (Tr. 1355). A new hospital facility in the Oviedo service area would help to alleviate the delays currently being experienced in the area hospital emergency departments. The Agency is not unaware of the problem and the solution that an Oviedo hospital would provide. The issue for AHCA is "[w]ould the improvement that would result for some people justify the construction of an new hospital?" (Tr. 726). The applicants claim that the three existing Seminole County hospitals are not appropriately located to provide emergency services required by the growing population of Oviedo. Put another way, within the sub-district and District 7, ORHS and Florida Hospital assert there is a mal-distribution of beds. Mal-distribution of Beds While population growth has increased dramatically in east Seminole the opening of health care facilities in the east part of the county has lagged behind; the area has more than 100,000 people but no hospital. The three acute care hospitals in Subdistrict 7-4 are all located in the western portion of Seminole County. People tend to use hospitals closest to them especially for emergency services. Because of the north/south nature of the road corridors in Seminole County and the congestion and distances involved in east/west travel in the county, the Oviedo area population's access to existing hospital service in the district is problematic. The population has better access to resources in Orange County, a different subdistrict, and, in fact, 66% of the Oviedo population take advantage of that better access. Consistent with the pattern of transportation development in Seminole County, all three hospitals in Seminole County are located between I-4 and U.S. Highway 17-92. Florida Hospital Altamonte is situated along the 436 corridor, whereas South Seminole Hospital is located further to the north on State Road 434, while Central Florida Regional Hospital is situated at the northern border of the county along the U.S. Highway 17-92 corridor. Dr. Rond had this to say about the locations of the three Seminole County hospitals in relation to the population in east Seminole County: The resources in the western part of the county are not situated in such a way that they are being utilized effectively by residents of [ORHS'] service area. Instead, they seek to move along the north/south corridor, primarily the Greenway, to utilize the services located in Orange County or … they take other routes of access to reach Winter Park Hospital, which is . . . in Orange County. (Tr. 319). The problem of distribution of hospitals is not restricted simply to inside the county. There is a mal- distribution in District 7 as well. Overall in the district, there are 2.3 beds per thousand. Orange County enjoys a ratio that is very high when compared to Seminole County's. Orange County's bed to population ratio is 2.7 beds per thousand, whereas Seminole County's is only 1.55 beds per thousand. The average bed ratio in Florida is 2.85 per thousand. Whether measured against the state ratio or the Orange County ratio, general acute care hospital beds per thousand population in Seminole County is low. The ratio comparison between Orange County and Seminole County will improve with an Oviedo Hospital although it makes the overall ratio only "a little closer; so that Orange County has beds per thousand and Seminole County would have 1.6 beds per thousand." (Tr. 316). The applicants intend to make that improvement with their proposed projects. The Proposed Projects ORHS' Orlando Regional proposes to construct a new 60-bed acute care hospital in the City of Oviedo. The location was described at hearing by Karl W. Hodges, ORHS vice president of Business Development: [T]he hospital [will be built] within a two- mile radius of . . . Highway 426, also called Loma and Mitchell Hammock Road which is also called Red Bug Road. [The CON Application] further stipulates we'll be east of 417. (Tr. 20). Within that area, ORHS proposes to build a three-story 155,000 square foot facility on approximately 35 acres of land. Although a site has not yet been purchased, there is at least one parcel of 35 acres of land available in the area that can be acquired by ORHS at a price of $7,000,000 or less, as indicated in its application. The bed complement of the proposed facility will be eight ICU beds, ten labor-delivery-recovery and post-partum ("LDRP") beds serving the obstetrics department, 15 telemetry monitored beds, and 27 medical/surgical acute care beds. The proposal will add 30 beds to the inventory of beds in the sub-district but it will not add beds to the inventory of District 7. The 60 beds will be transferred by ORHS from two facilities. Thirty of the beds will come from South Seminole Hospital (in Seminole County). By itself, moving the 30 beds within the sub-district "for the stated goal of enhancing access . . . is a non-controversial project" (tr. 627) that is not subject to a certificate of need methodology but that still requires CON review and approval. The other thirty beds will come from Orlando Regional Lucerne Hospital in Orange County. However attractive for its minimization of controversy, all 60 beds could not have been transferred from South Seminole because to do so would have raised its occupancy above 80%, "an untenable result." (Tr. 630). For the additional 30 beds, "Lucerne seemed like a logical choice, given its bed size and its utilization." (Tr. 628). The design of the proposed hospital is based on another ORHS facility: South Lake Hospital, a replacement facility that opened in January of 2000. Florida Hospital's Florida Hospital also proposes to construct a 60-bed acute care hospital in the City of Oviedo. Unlike ORHS, Florida Hospital owns the site, 15 acres at 8000 Red Bug Lake Road near an intersection with the Greenway. The site currently includes a two-story, 41,000 square foot medical office building and a one- story, 6,000 square foot urgent care center. A two-story, 161,000 square foot facility is proposed to be constructed on the remaining vacant space at the site that has been approved under the Development of Regional Impact process for a 120-bed hospital. Ownership of a DRI-approved site will save Florida Hospital time and expense entailed by permitting requirements. All 60 beds will be part of an innovative design referred to as a "universal room and universal care delivery model." For the present, Florida Hospital does not intend to provide obstetrics at the Oviedo facility but "all of the universal patient rooms are capable of being LDRP rooms" (tr. 1181) should Florida Hospital decide in the future to provide obstetric services at the hospital. Florida Hospital will transfer 60 beds from Orange County facilities so that Florida Hospital's proposal will increase the sub-district's bed inventory by 60 beds, 30 more than the increase that will be affected by ORHS' proposal. Just as with ORHS, Florida Hospital's proposal will not increase the bed inventory in District 7. Fifty beds will be transferred from Florida Hospital's Winter Park facility and 10 beds will transferred from Florida Hospital's Apopka facility. AHCA's View of the Proposals The Agency's conclusion that the applications did not demonstrate "not normal" circumstances was reached with difficulty. Review of the applications taxed the agency's decision-making process because of the challenging circumstances presented by the applicants. As Jeffrey Gregg testified for the Agency, when there is "no fixed-need pool," AHCA look[s] at applicants in terms of a unique set of circumstances that they present . . . and in this instance, The circumstances . . . in this case challenge the system, make it more difficult for [the Agency] to make a sound decision in the tradition of the CON program. (Tr. 723). However much in keeping or not with the tradition of the CON program, the determination that there were no "not normal" circumstances to justify need afforded a benefit to the Agency; it would not have to make the difficult choice between the applications. While it could have granted both applications, an option considered by the Agency (see tr. 729), no party contended in this proceeding that circumstances justify two new 60-bed hospitals in Oviedo. If need is proven for but one hospital, then a selection must be made. Yet, at every turn, AHCA has found one advantage held by an applicant to be defeated by another held by its opponent or one set of circumstances that would normally be an advantage neutralized by other considerations. For example, in view of the nature of the Orlando market, AHCA reasonably did not give much weight to ORHS' proposal to add fewer beds than Florida Hospital to the sub- district despite the fact that usually there would be advantage to a mere intra-sub-district move. In the absence of fixed need, for example, such a move would not have to be supported by "not normal" circumstances. To the contrary, however, from the point of view of practicality, it makes more sense "to take beds from a more urban setting [in Orange County, a different sub-district] where they are not being used [as proposed by Florida Hospital] and move them to a new rapidly growing area where there are not hospital beds." (Tr. 739). A sense of practicality guided AHCA throughout its CON review in this case. The Agency, in fact, approached the applications by "trying to be as practical as possible." (Id.) As explained by Mr. Gregg, again on behalf of AHCA: [The Agency] do[es] not give much weight to the fact that [the applicants] would be crossing subdistrict lines here and that one of them [ORHS] is in a position to . . . add fewer beds to the planning area. That's noted in the SAAR, but practically speaking, we are talking about a metropolitan area here. We are talking about in both cases large systems wanting to move beds from one part of their system to another part. So in many ways, . . . once again, [ORHS and Florida Hospital] are really well-matched and difficult to distinguish. (Tr. 724, emphasis supplied). The difficulty inherent in distinguishing between the applicants was repeatedly emphasized by the Agency. The point was brought home once more in questioning of Mr. Gregg by counsel at hearing: Q [W]ith regard to the minute distinctions between the applicants, at your deposition, some of the statements you made in that regard included [that ORHS and Florida Hospital] are both good citizens. All of these things in this case, coming up so close and so equal, that . . . in terms of CON analysis, it becomes very difficult . . . to make a distinction between the two of them. They are both just that good. And then also [the Agency] think[s] they compare very favorably, and very evenly, noting again and again and again that they are very, very close, very, very comparable. Is that still your position here today? A Yes. (Tr. 766-7). However close the Agency regards the two, there are differences in the applications. While some may not be of great benefit to a decision, others may serve to sustain a principled choice. Differences in the Applications Obstetrics The leading reason for hospitalization among area residents is the need for obstetrical services with births running at more than 2,000 per year. During the 12-month period ending June 2000, for example, childbirths accounted for 2,041 discharges. Of the top ten DRGs for discharges among area residents, uncomplicated vaginal delivery accounts for the most discharges, cesarean section ranks third and vaginal delivery with complications is seventh. In keeping with the demand for obstetrical services, the utilization patterns of the population in the Oviedo Service Area and the area's age composition, upon the opening of its facility, ORHS proposes to provide obstetrical services. The proposal is also due, in part, in response to the closing of the obstetric program at Florida Hospital East in May of 2001. There is physician support for ORHS' proposed obstetric services. Robert Bowles, M.D., testified by deposition that his group practice, Physician Associates of Florida, comprised of 14 obstetricians and gynecologists would cover obstetrics at an Oviedo hospital. While Dr. Bowles would not personally admit obstetrics patients at the new hospital, three of his partners would. Florida Hospital does not propose to provide obstetrics upon opening although it has designed its physical plant to provide an OB unit so that Florida Hospital would have the capability of initiating that service without a problem. In other words, Florida Hospital's proposed facility would be "OB- ready." (Tr. 725). Unlike ORHS, Florida Hospital does not have physician support for providing obstetric services at its proposed facility, a part of the reason for not offering OB. The basis for Florida Hospital's lack of physician support is a malpractice insurance crisis for obstetricians. Florida Hospital's proposed facility is not projected to open for another three years. If, during that time, the malpractice crisis eases and there is greater physician coverage availability, Florida Hospital could open obstetric services at the same the hospital opens since it will be OB-ready. Another reason that Florida Hospital has decided against offering obstetrics upon opening is that most maternity patients are more comfortable delivering babies in a setting that has neonatal intensive care services available. Two such settings are ORHS-Arnold Palmer and Florida Hospital's main campus. Indeed, a significant number of maternity patients from Oviedo are choosing to travel past multiple hospitals that offer obstetric services to have their babies delivered at one or the other of these two hospitals. Arnold Palmer, in fact, is the leading provider of obstetrical services to the residents of the Oviedo area's two most populous zip codes: 32708 and 32765, both more than 30 minutes driving time away from the hospital. Medicaid and Charity Care Conditions Approval of ORHS' CON is conditioned on a minimum of 7% of total annual patient days for Medicaid patients and 1% for charity care. Florida Hospital's application offers no conditions with regard to Medicaid or charity care. Like ORHS, Florida Hospital is one of the top ten providers in the State of indigent care, and a disproportionate share Medicaid provider. The Agency's view of the difference between ORHS' provision of indigent care conditions and Florida Hospital's decision to not condition its application was explained by Mr. Gregg: Conditions [such as those for indigent care] are important when it allows us to distinguish between applicants. They are less important when we have competing applicants, both of whom has such strong track records as these two do. . . . [W]e look at evidence of past performance relative to indigent care . . . . [I]n a case like this . . . both of these applicants have such good records in th[e] area [of indigent care]. They are both in the top ten statewide. . . . [A] promise of this condition or that condition [does not] give us particular concern one way or the other. They are both very good in that area [of Medicaid and charity care] and very tough to distinguish between. (Tr. 735-6). Architectural Design and Site The architectural plans of both applicants meet all codes that apply to a new hospital in the state of Florida. The ORHS design is tried and proven at ORHS' South Lake facility and will work on a 35-acre site. The size of Florida Hospital's site, 15 acres much smaller than ORHS', led to criticism of the site from ORHS experts. But the site is large enough to incorporate growth in the future. It can accommodate 320 beds and ancillary services. The design, moreover, takes these expansion capabilities into account. Related to the size of the site, the site's conservation area, comprised of wetlands and a forested upland buffer that will remain undeveloped indefinitely also produced criticism that the site is too cramped for a new hospital. But the conservation area, with its mature tree canopy, presents advantages. The hospital was designed to incorporate the view of the conservation area from hospital rooms because such a view is beneficial to the healing process. Furthermore, the conservation area can be used to satisfy water retention requirements. Florida Hospital's site is DRI-approved and part of a DRI master storm water plan that connects many ponds and wetlands. Surrounded by three roads, it has excellent access from existing roadways. Vehicular circulation is split to provide different public, service and emergency entrances. Innovation by Florida Hospital Unlike traditional hospital care models where the patient is moved from room to room depending on type and intensity of care, all care and services are provided to the patient in one "universal" room under the "universal delivery of care model." The model was developed by Florida Hospital. "The nursing leadership of the universal room design . . . was under the direction of Connie Hamilton." (Tr. 1080). Ms. Hamilton, accepted as an expert in nursing and nursing administration, explained at hearing that under the model, the room is designed to provide any type of care the patient might need. Whether the patient is admitted in acute care and then moves to intermediate care or med-surg, all care is provided within one "universal" room. Not only does the patient stay in one place, but as Ms. Hamilton testified, "[t]he nurses stay in one place in providing that care to [the patient] and the families know where the patient is and the physician knows where the patient is [at all times]." (Tr. 933). The universal care model streamlines the interactive processes of care of a patient. The care and attention of physicians, nursing staff and families devoted to moving the patient from room to room and keeping track of the patient as type and intensity of care changes is reduced to nearly zero if not eliminated entirely. The time, energy and resources formerly devoted to all that is entailed with changes in the patient's room is then free to be re-directed to care and attention paid to the patient. The result is enhancement of Florida Hospital's ability to provide "whole person" care consistent with Adventist principles of health care. The universal care delivery model is an innovative approach to the delivery of healthcare. Pioneered by Florida Hospital at Celebration Health, the universal care delivery model has been shown there to reduce medical error, reduce length of stay, reduce pharmacy costs, reduce nursing workload, reduce housekeeping work, and probably to reduce infection rates. Following the universal care model employed at Celebration Health, Florida Hospital has designed its proposed Oviedo hospital facility with universal rooms. Consistent with the universal care delivery model, the rooms are designed to improve the healing experience during hospitalization and minimize the patient's feeling of being in a hospital setting. Another benefit of the universal care model is high physician satisfaction due to continuity of nursing care and other factors. The physicians know where the patient is, that is, in the same location every day. Physicians, moreover, are not called at all hours of the day and night to effectuate patient transfers to other rooms. Kathleen Mitchell has studied the universal care model and published and submitted articles on the model to nursing journals. She has consulted with hospitals around the country interested in the model as well as the "health care arm of the Department of Defense, Air Force, Army, Navy, Veteran's Administration." (Tr. 1084). Ms. Mitchell, accepted as an expert in nursing amplified the testimony of Ms. Hamilton. With regard to the problem the universal care delivery model is designed to address, Ms. Mitchell testified: [T]ransferring patients for different levels of care . . . fractures continuum of care. It is . . . disruptive to everyone . . . involved . . . to the patient and their families . . ., to nursing, pharmacy, the physicians . . . . It creates a great deal of anxiety for patient and the families . . . even [those] who are getting better and moving to a lower acuity of care. One of the most significant things about transferring patients for different levels of care is it involves a great deal of work. Not only bundling the patient up, but the documentation and all the communication that goes along with securing a new location for the patient and expediting a transfer. And moving patients around creates a risk of medical error. The length of stay in hospitals has gotten so short and everybody is focused on reducing the length of stay that in the traditional model of care, nurses are turning over more than half their patient assignment daily . . . . [T]here is the confusion and risk that goes along with that. (Tr. 1086-1088). The benefits of the reduction and elimination of transfers produced by the universal care model were listed by Ms. Mitchell: increase in the continuity of care, reduction in nurse workload, high physician satisfaction, reduction in emergency room waiting time, family satisfaction, connectivity between patient, family and staff. Others were elaborated on by Ms. Mitchell. For example, reduction in pharmacy costs, probable reduction in infection and reduction in housekeeping costs: When you are meeting the needs of the patient in one location, you are not leaving medications behind or sending them to the wrong place, and there is work that nurses and pharmacists do with calling each other with ['] where is it, I can't find it, I sent it[',] all that goes away. We are demonstrating a low incidence of nosocomial infections because we expose our patients to one environment of organisms. This is a very difficult one to prove; even though we have a low incidence of nosocomial infections, we also have a fairly new facility [at Celebration], but it makes common sense that if you are reducing the transfer of the patient and the exposure . . . to different environments, you are reducing their exposure to organisms and will have a lower . . . infection rate. . . . [W]e don't strip linens off the beds and clean the beds where the bed was just made three hours ago, with all the patient transfers that are involved. So there is a reduction in . . . housekeeping work and . . . linen expense. (Tr. 1089-1090). Like the housekeeping efficiencies, the nursing staff benefits from the efficiencies associated with supplies. All of the supplies the nurse needs to care for the patient are close by, so the nurse saves time otherwise retrieving supplies from down the hall or in other areas of a hospital wing. Another benefit of the design is "connectivity to the outside world. The rooms have large windows . . . patients feel connected to the outside world . . . . " (Tr. 1091). This design feature will make use of the conservation area on the Florida Hospital site and the soothing vista it will provide to the patient, and assist in the healing process. Other Design Features Design drawings are a living and continually evolving process. The planning process of Florida Hospital for the design of its new Oviedo hospital involved specialty department experts and ancillary representatives discussing delivery of quality care for a patient throughout the system. The specialty experts and ancillary representative include radiology, emergency department, lab, pharmacy, and respiratory. The involvement of these people assures optimal patient flow throughout the system. In Florida Hospital's design plans, the patient flow and interaction between departments are well designed and well laid out so as to minimize the opportunity for confusion. In order to maximize efficiency, a larger number of beds in one nursing unit works better than smaller pockets. Florida Hospital's design plans have one 40-bed unit and one 38- bed unit. This design gives more flexibility and can expand or shrink more easily as needed. You don't have to open up another unit and staff it so often, when adding only one or two patients. Florida Hospital designed its facility specifically to take advantage of the economies of scale that being a satellite hospital in a larger system provide. For example, Florida Hospital's general storage, central lab, and other areas were purposely designed smaller than one would typically find because Florida Hospital operates a system-wide central warehouse, thus greatly reducing the need for central storage areas. Likewise, Florida Hospital operates a system-wide central clinical lab, thus minimizing the space necessary within a hospital like Oviedo for lab space. ORHS did not design its facility to take advantage of the economies scale of being part of a system. Presence in Oviedo Florida Hospital has had a presence in the Oviedo community since the 1970's, when it purchased land in the Red Bug corridor area. In the 1980's, Florida Hospital built a medical office facility in Oviedo and began to recruit and encourage physicians to practice in the area. When Florida Hospital acquired Winter Park Hospital, its commitment to the community of Oviedo increased by virtue of the fact that the Winter Park Hospital organization already had property and outpatient facilities in Oviedo. The result of Florida Hospital's early presence in Oviedo is that it has a high degree of physician support in place in the Oviedo community. Many of the primary care physicians in Oviedo refer their surgical cases to Florida Hospital. Florida Hospital purchased Winter Park Hospital on or about July 1, 2000. With that purchase, Florida Hospital acquired the hospital site in Oviedo. With the purchase of Winter Park Hospital, Florida Hospital also "purchased" Winter Park's plan to build a hospital in Oviedo. The Florida Hospital site has long been recognized as the "Hospital Site" in Oviedo. Immediately after purchasing Winter Park Hospital, Florida Hospital went to work on developing a plan to build a hospital in Oviedo. Florida Hospital began meeting with Oviedo city leaders in the fall of 2000 and early 2001; Florida Hospital also assembled a team of people from all areas of Florida Hospital including radiology, clinical services, marketing, finance, facilities, and engineering to work toward the development of a Certificate of Need application for a hospital on its site in Oviedo. Florida Hospital's two existing medical office buildings in Oviedo contain over 60,000 square feet of medical office space, in which are housed physicians practicing in a wide range of areas including Family Practice, Internal Medicine, General Surgery, Orthopedic Surgery, Urology, Radiology, Gastroenterology, Ear, Nose and Throat, OB/GYN, and Dental and Psychological Practitioners as well. These physicians are all currently on the staff of Florida Hospital. Also included in these facilities are a Florida Hospital owned and operated radiology center, outpatient rehabilitation center, and outpatient lab. The radiology center offers general radiology services, including CT scanning and ultrasound. The larger of the two medical facilities that Florida Hospital owns in Oviedo is located on the site where the new hospital will be located. This is the facility that includes the outpatient radiology, rehabilitation and laboratory services. An urgent care center is also located on the site. As a result, residents of Oviedo are used to coming to Florida Hospital's site for medical services and already recognize it as a medical facility site. The fact that Florida Hospital has such a significant presence in the Oviedo Community, and that a large number of staff physicians are already in place in Oviedo, is a great benefit because of the existing referral patterns in place between the physicians at the existing Florida Hospital facilities in Oviedo and specialists and sub-specialists on Florida Hospital's staff. In contrast, ORHS had an outpatient surgery center in Oviedo; however, it has been closed due to lack of physician support. Likewise, ORHS originally offered radiology diagnostics at its Oviedo office building, but has since sold that business to the radiologists. Finally, ORHS does not own the medical office building in Oviedo anymore, having sold it two weeks before this final hearing commenced. Dr. Joseph Portoghese, a Board Certified Surgeon, practicing in the Orlando area for over 13 years and president- elect of the Florida Hospital medical staff, testified that his group, Surgical Associates, which is made up of six surgeons, derives approximately 20% of their patients from the Oviedo area. In his opinion, Florida Hospital knows the Oviedo population best as evidenced by its "major presence" in Oviedo with its two facilities. Dr. Portoghese also testified that his group knows most of the primary care physicians in the Oviedo area and that a good many of them send their surgical cases to his group. Dr. Portoghese is on the staff of Florida Hospital, but not on the staff of Orlando Regional. Dr. Schamberger, a family practitioner who has practiced in Oviedo for 16 years and whose patients come primarily from the Oviedo, Chuluota, Winter Springs and East Orlando area testified that Florida Hospital has the best infrastructure for the provision of medical care in the Oviedo area. "The physicians who provide a great bulk of the care for that Oviedo, Chuluota, Winter Springs area practice at Florida Hospital. Their referral patterns are to Florida Hospital. Florida Hospital provides us with all the specialty and sub- specialty care we need for our patients." Dr. Schamberger is on the staff of Florida Hospital, but he is not on the staff of Orlando Regional. Dr. Schamberger further testified to the disruption in continuity of care that would occur for many Oviedo area patients whose physicians are on the staff at Florida Hospital if Orlando Regional were to be the only applicant approved to build a hospital in Oviedo: "[I]ts a negative impact for continuity of care. If I have been attending a patient for many years, the first thing that happens to a patient when they get in the hospital is that they have a history and physical examination done to establish what their underlying medical conditions are. I know a lot more about that from my patients than someone who doesn't see them and doesn't know them." (Tr. 1318) Dr. Cintron, a physician practicing in the area of Internal Medicine, whose main office is in Oviedo at the Florida Hospital site, testified that she has approximately 3,000 active files and 75% to 80% of those are in the Oviedo area. She has been practicing in Oviedo since 1994. Dr. Cintron testified that approximately 85% of her patients that get admitted to a hospital are admitted to one of Florida Hospital's facilities. Also, when she makes a referral to a specialist or a sub-specialist, approximately 85% of those patients go to a Florida Hospital facility. Competition "[T]he U.S. health care system is a competitively driven market . . . with some regulatory components and based on a managed care model." (Tr. 485). Rather than every insurance plan having a contract with every provider, the managed care model uses selective contracting. Competing health insurance plans select providers with which to contract for the provision of health care services to their subscribers. The ability of the competing insurance plans to engage in selective contracting requires providers such as the two hospitals in this case to compete along a number of dimensions including price. When successful, this competitive price model holds down price and maintains quality. The State of Florida has a "fairly well developed and active managed care sector." (Tr. 507). "[M]anaged care in and of itself [however] is not really able to save much money for consumers. . . . [T]he key ingredient in the ability of managed care plans to control health care cost increases is the competitiveness of the hospital market, the structure of the market in which they are negotiating on behalf of their health plan subscribers." (Tr. 500). The parties define the "market" differently. Florida Hospital uses the Elzinga-Hogarty ("EH") Test. The test, along with appropriate supplemental information, indicates that the market is all of Orange and Seminole Counties or the tri-county area that also includes Osceola County. Whether a two county or tri-county market, Florida Hospital refers to its market as the metropolitan Orlando market or the "overall Orlando market." Orlando Regional identified a smaller area as the relevant market, one that is more local to Oviedo. The reason for this more local market was explained by Glenn Alan Melnick, Ph.D., and an expert in health care economics who testified for ORHS: [I]n order for [managed care plans] to attract subscribers, they have to have a health plan that's attractive to people. And one of the features that people look for in their health plans is the availability of local hospital services. . . . [I]n order to make their products marketable, they have to include reasonably accessible hospitals . . . [I]f there is limited local competition, then the opportunities for them to generate price competition by leveraging competitive conditions . . . are very limited and [the managed care] model will not be successful. (Tr. 489). Dr. Melnick used the five and eight zip code Oviedo Service Areas as defined by the applicants as the market. He calculated Herfandahl-Hershman Index ("HHI") valuations for each zip code in the two Oviedo Service Areas. He also calculated HHI valuations for another seven zip codes in Orange County "to provide background to [his] understanding of the allocations in [the] area . . . . ." (Tr. 516). Dr. Melnick's calculations showed that Florida Hospital has a market share between 60 and 69% for the five zip codes in Florida Hospital's Oviedo Service Area and it showed a market share of between 25% and 59% for the three zip codes in ORHS' Oviedo Service Area that were not included in Florida Hospital's Oviedo Service Area. In each of the seven zip codes in the area outside the Oviedo Service Area, Florida Hospital's market share was higher: in excess of 70%. The analysis led Dr. Melnick to conclude that the market is highly concentrated in favor of Florida Hospital. Using the zip codes in the Oviedo Service (and it appears from the record the seven not in either applicant's Oviedo Service Area that Dr. Melnick had analyzed for background purposes), Dr. Melnick concluded that if the CON is awarded to Florida Hospital "[i]t would make an already concentrated market much more concentrated." (Tr. 524). Florida Hospital's relative market share would rise from 65.8% to 85.7%. Orlando Regional's would drop from 27.4% to 11.5%. The award of the CON to Florida Hospital would, moreover, "seal its already existing market power into the future." (Id.) Conversely, awarding the CON to ORHS led Dr. Melnick to conclude that the market as he defined it would be more competitive; Florida Hospital relative market share would drop to 51% and ORHS' would rise to 44%. What Dr. Melnick's relative market shares would have been had he not used the seven zip codes he selected outside the Oviedo Service Areas of the two applicants does not appear to have been shown by ORHS. Including the seven zip codes outside the Oviedo Service Areas for determining the relative market share that led to Dr. Melnick's conclusions runs counter to his premise that the market should be a local one, that is, an Oviedo market. It is not clear what relevance these seven zip codes had to his analysis since their inclusion runs counter to the underpinnings of his approach to the issue. If the overall Orlando market used by Florida Hospital is considered the market, the conclusion is that, whether a CON for an Oviedo hospital is awarded to ORHS or Florida Hospital, the impact on relative market share is minimal. As for pricing, there has been no significant pricing difference between Florida Hospital and ORHS for Oviedo residents. Furthermore, both Florida Hospital and ORHS contract with managed care companies on a system-wide basis; Florida Hospital, moreover, uses a single master charge structure for all of its Orlando area campuses. It is not likely that the presence of a hospital in Oviedo would enable either Florida Hospital or ORHS to control pricing.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency enter a final order on the basis of the facts found in this order concluding that "not normal" circumstances exist for the construction and operation of a new 60-bed hospital in Oviedo and that Florida Hospital's CON application be approved and ORHS' be denied. DONE AND ENTERED this 18th day of November, 2002, in Tallahassee, Leon County, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 18th day of November, 2002. COPIES FURNISHED: Lealand McCharen, Agency Clerk Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 Valda Clark Christian, General Counsel Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 James M. Barclay, Esquire Ruden, McClosky, Smith, Schuster & Russell, P.A. 215 South Monroe Street, Suite 815 Tallahassee, Florida 32301 Steven R. Bechtel, Esquire Mateer & Harbert, P.A. Post Office Box 2854 225 East Robinson Street, Suite 600 Orlando, Florida 32802 Stephen K. Boone, Esquire Boone, Boone, Boone, Hines & Koda, P.A. 1001 Avenida del Circo Post Office Box 1596 Venice, Florida 34284 Michael P. Sasso, Esquire Agency for Health Care Administration 525 Mirror Lake Drive, North Suite 310G St. Petersburg, Florida 33701
Findings Of Fact Donald Davis is the promoter behind the formation of Community Hospital of Collier, Inc. He is a health care management consultant and a principal of the firm Health Research and Planning Associates, Inc. In his profession he concentrates on the promotion and development of health care facilities. He has engaged previously in the business of forming corporations for the purpose of submitting applications and obtaining Certificates of Need. He also provides consulting services to health service corporations. Neither Davis nor the other principals of the applicant corporation, including his wife, have any experience or expertise in constructing or operating hospitals, and Davis admitted that the sole purpose for forming the entity known as Community Hospital of Collier, Inc. was for the purpose of submitting an application and prosecuting it in order to obtain a Certificate of Need for an acute care hospital for District VIII. Mr. Davis' own company, Health Research and Planning Management Associates, Inc. was paid $15,000 by Community Hospital of Collier, Inc. to develop the Certificate of Need application at issue. Community has "a couple of thousand dollars" in its own bank account. The officers and directors of Health, Research and Planning Management Associates, Inc. are the same as those of Community Hospital of Collier, Inc. On June 15, 1983, after having previously filed a letter of intent, Mr. Davis filed an application for a Certificate of Need for a 152-bed acute care hospital on behalf of Community Hospital of Collier, Inc. Mr. Davis is an officer and director of that corporation. The articles of incorporation for Community Hospital of Collier, Inc. which gave it its de jure status were not signed until July 29, 1983 and were not filed with the Secretary of State until August 19, 1983. Be that as it may, Mr. Davis maintains that the Board of Directors of Community ratified the filing of the application. That authorization found at page 44 of the application, however, refers to the Board of Directors of Community Health Care of Okaloosa/Walton. The resolution was dated June 7, 1983 and Mr. Davis testified that the use of the name Community Health Care of Okaloosa/Walton in the caption of that Board of Director's resolution was a "typographical error." In any event, the applicant corporation had no legal existence at the time the application was filed on June 15, 1983, however, by its later acts in filing and prosecuting the application it implicitly, at least, ratified the action of its promoter, Mr. Davis, in filing the application since the officers and directors consisted of Mr. Davis, his wife and a third individual. Be that as it may, Community negotiated a stock purchase agreement with National Medical Enterprises (NME) on August 15, 1984. Pursuant to this agreement, NME is obligated to purchase all capital stock of Community if a Certificate of Need for 100 beds or more is awarded. In return for the sale of the stock of the applicant corporation to NME, Mr. Davis and the other two board members of Community will receive a total of $600,000 in addition to the $15,000 Mr. Davis has already received for his efforts in preparing and prosecuting the Certificate of Need application. The only asset of Collier is the inchoate Certificate of Need. Upon consummation of the stock purchase agreement, Mr. Davis will resign from the Board of Directors and presumably NME will appoint its own board. Community has given full authority to NME to prosecute the application as it sees fit, including making certain changes NME deemed appropriate to the application, including seeking 150 beds instead of 152 and changing the method and means of financing the project (mostly equity instead of debt). Additional changes in NME's approach to prosecution of the application include the proposed method of recruitment of personnel and management of the hospital. Community has no agreements with any other group, entities or individuals to provide financial, personnel and other resources necessary to construct, manage and operate an acute care hospital and did not demonstrate that it has any such resources in its own right. Mr. Frank Tidikis, Vice-President for Operations for the eastern region for National Medical Enterprises, testified concerning the financial and management resources and staffing arrangement NME proposes for the new hospital should it be authorized. He enumerated many medical specialties that NME intends to place on the staff of the hospital, but neither Community nor NME have done any studies revealing what types of medical specialties are presently available in the Collier County area, how many physicians in those specialties are available and what ratio exists or is appropriate for various types of physicians to the community population. The proposed staffing pattern, sources and method of recruitment was predicated solely on NME's past experience in obtaining hospital staff in other areas of the nation, and not upon any study or other investigation showing the availability of appropriate types of trained staff people in reasonable commuting distances of the proposed hospital, which would be located in northern Collier County. If NME consummates the purchase agreement, the hospital would be locally managed by a board of directors consisting of 51 per cent of the hospital's own medical staff and 49 per cent lay members chosen from the community at large. FINANCING Mr. Michael Gallo was Community/NME's expert in the area of health care finance, being NME's Vice-President for Finance. It was thus established that the total cost of the project, if approved, would be approximately $23,600,000. This amount would be financed by NME which proposes to make a 35 per cent equity contribution in the amount of approximately $8,500,000 and which will finance the balance of the project cost at a rate of approximately 13 per cent interest for 20 years. NME projects that an average daily patient census of 45 would be necessary to "break even." A daily census of 45 would yield 6,425 patient days per year, with the facility projected to break even in its first year of operation. NME projects that by the third year of operation, a return on investment of 10 to 12 per cent would be achieved. NME's projections are based on an assumed average length of stay per patient of 5.6 days. NME allocated two and sone-half per cent of its projected gross revenues for indigent patient care, and four per cent of projected gross revenues allocated to bad debt, that is, uncollectible hospital bills, not necessarily related to indigent patients. The $600,000 which NME must pay Community Hospital of Collier and Mr. Davis in order to acquire the assets of that corporation (i.e. the CON) will be treated as a project cost and will be depreciated as though it were a part of the buildings. Community/NME projects its total revenue per adjusted patient admission to amount to $4,843, with projected total revenue per adjusted patient day at $865. It predicts these figures will increase by about five per cent for successive years as a factor of inflation. The proposed hospital site consists of approximately 12 acres, available at a price of $30,000 to $50,000 per acre. The application itself originally proposed a location in the central or southern portion of Collier County. However, after NME entered into the agreement with the applicant corporation for the stock purchase and became involved in the prosecution of the application, the location was changed. Thus, it was discovered at the outset of the hearing that indeed, the proposed location of Community of Collier's hospital would be in the northern portion of Collier County in close proximity to Lee County. 1/ The proposed $360,000 to $600,000 land cost would of course, be added to the total cost of Community's proposed project. It has not been demonstrated what use would be made of the entire 12 acres, nor that the entire 12 acres is required for the hospital, its grounds, parking and ancillary facilities. STAFFING One of the reputed benefits of Community's proposed project is that it would afford a competitive hospital in the Collier County health services market to counter what Community contends is a virtual monopoly held by Naples Community Hospital, as well as to promote the attraction of more qualified medical staff to that "market". In this context, Community contends that its facility, by being built and operating as an alternative acute care hospital, would attract more physicians to the Collier County area and thus, arguably, render health services more readily available. Community thus decries the supposed "closed staff" plan of Naples, contending that Community offers an "open" staffing plan, which would serve to attract more physicians to the geographical area involved and enhance Community's ability to appropriately staff its hospital. Naples Community Hospital, on the other hand, experiences numerous physicians vacationing in the area requesting staff privileges. Many of these physicians apparently do not have any intention of permanently locating in the Naples/Collier County area, however, and therefore in order to determine which physicians are seriously interested in locating there, Naples has a screening procedure which includes an interview with the Chief of Staff, the Assistant Director for Staff Development, and the chief of the service for which a physician is applying for privileges. This preliminary screening procedure is not tantamount to a closed staffing situation, which only exists where a fixed number of physicians are permitted on a hospital staff, with others waiting until an opening occurs. In the open staff situation, as exists at Naples, no matter how rigorous the screening process, there is not a finite number of staff physicians available. Any physician who qualifies under the hospital bylaws and assures the screening committee of his intention to locate in the area served by the hospital is admitted to the staff. Thus, the staffing pattern for physicians at Naples Community Hospital augurs just as well for the attraction of physicians to the Collier County vicinity as does the staffing method proposed by Community. In that vein Naples has granted privileges to 13 new physicians in the preceding calendar year and had 8 applications pending at the time of hearing. Only one applicant was denied privileges during that year. Additional factors which must be considered in the context of staffing such a hospital concern the ability of the applicant to provide quality of care and appropriate, available resources including health care and management personnel to operate the facility. Aside from demonstrating that NME, through the stock purchase agreement, may obligate itself to provide ample funds and other resources to fund, staff and operate the project, and that it has successfully staffed and operated hospitals in numerous locales, Community did not demonstrate what likely sources would be drawn upon for nurses and other staff members to staff its hospital in order to avoid recruiting most of them from nearby facilities, including Naples Community, which could precipitate a diminution in the quality of health care at these other facilities. In short, other than showing that NME's management has the financial resources and experience to accomplish the staffing and operation of the hospital, there was no demonstration by Community which would establish the availability of sufficient health care personnel to operate and manage its hospital at adequate levels of care. COMPETITION Community contends that its facility should be built in order to foster competition in the provision of health care services in Collier County. It took the position, through its expert witness, Dr. Charles Phelps, that the Naples hospital holds a monopolistic position in Collier County inasmuch as it is the only hospital in the county. It should be pointed out somewhat parenthetically, however, that this "County market area" theme ignores the fact that this application is for an acute care hospital in District VIII, which is not subdivided by rule into County sub-districts for health care planning purposes. Further, Community originally proposed locating its hospital in the central or southerly portion of Collier County, but as of the time of the hearing, proposed to locate its hospital in the northerly portion of Collier County with a service area it itself proposed which will include the southerly portion of Lee County. This area is also within the service areas of Naples Community Hospital, Lee Memorial Hospital, Fort Myers Community Hospital and the soon to be constructed Gulf Coast Osteopathic Acute Care Hospital. Thus, in its attempt to establish Naples Community Hospital as occupying a monopolistic position in the "Collier County health care market", Community did not establish that Collier County either legally or practically is a separate health care market demarcated by the county boundary with Lee and Hendry Counties, such that Naples' status as the sole acute care hospital within the legal boundaries of Collier County is monopolistic. Indeed, it competes for patients with the Lee County hospitals named above in the northern Collier-southern Lee County market area involved. Community attempted to demonstrate a monopolistic situation in favor of Naples Community Hospital by comparing its relative increase in costs per day and costs per patient stay with Fort Myers Community Hospital and Lee Memorial Hospital. Naples Community Hospital did indeed exhibit the largest rate of cost increase in both those categories. Community's expert, Dr. Phelps, opined that lack of competition in the Naples area caused the disparity in rate of increase in costs between Lee County hospitals and the Collier County hospital. Naples called Ed Morton, who was accepted as an expert witness in hospital financial analysis, reimbursement, hospital auditing and accounting, financial feasibility and corporate finance. It was thus established that Naples does not occupy a monopoly position and provides health care at lower costs than would be the case should the Community Hospital facility be constructed. Mr. Morton demonstrated that analyzing total costs per adjusted patient day does not reliably indicate the efficiency of a hospital, since such daily costs fluctuate with the average length of stay. A better indicator for determining hospital efficiency is to analyze total revenue per adjusted admission. A comparison of Lee Memorial, Naples Community Hospital, Fort Myers Community Hospital and NME's six Florida hospitals was employed based on data provided to the hospital cost containment board for the years 1980 through 1983, in order to show which hospital operated more efficiently and tended less toward monopolistic market positions. In making this comparison, Mr. Morton employed the "total revenue per adjusted admission" and "total revenue per adjusted patient day" methods of comparing the hospitals. He used this approach because it reduces to a common denominator the various values and statistics utilized in the hospital cost containment board formulas. It was thus established that Naples has the lowest total revenue per adjusted admission and lowest total revenue per adjusted patient day of all the hospitals depicted in the comparison study (Naples Exhibit 23). Naples total revenue per adjusted admission is $400 to $1,900 less than each of the other hospitals. One reason Naples experiences less total revenue is because its charges are lower, since it employs some 1,600 volunteer workers. If these workers were paid at a minimum wage they would reflect a cost of approximately $600,000 per year. Further, the hospital over the years has obtained large donations of money and labor through funding drives, all of which have enabled it to keep charges down for its patients and to continue to operate certain services at a deficit. For instance, Naples has a discreet pediatric unit, which means a physically separate, self-contained pediatric care unit, with specialized staff, who perform no other services than those they are designated to perform in pediatrics. That unit operates at a deficit repeatedly since 40 per cent of the Naples pediatric patients originate from the Immokalee area, which is characterized by an extremely high percentage of indigent persons. Naples' witness Morton performed a patient origin study which shows that approximately 84 per cent of Naples' patients originate in Collier County, 12 per cent originate in Lee County, particularly southern Lee County, and two per cent originate from unrelated areas. The Naples Community Hospital is located in Naples, approximately in the mid-section of Collier County and a significantly greater distance from the northern Collier/Lee County line than will be the Community facility, if built. Community expects to draw approximately one-half, or six per cent, of the 12 per cent of Naples' patient load which is derived from Lee County. NCH however, at the present time, competes with Fort Myers Community Hospital and Lee Memorial Hospital, in particular, for patients from both southern Lee County and northern Collier County, Community's proposed service area. Thus, NCH does not maintain a monopoly serving Collier County or Community's proposed service area to the exclusion of these other hospitals. The placement of Community's facility at a point much closer to the Lee County border than is Naples' present facility would result in the injection of a fourth or fifth strong competitor into the Collier County-southern Lee County patient origin and health service market area, rather than merely the addition of a second competitor for Naples Community Hospital. ADVERSE COMPETITIVE EFFECTS Both Lee Memorial Hospital and Fort Myers Community Hospital already draw a substantial number of patients from southern Lee County, as well as northern Collier County. Gulf Coast Osteopathic Hospital, after protracted litigation, has secured approval of a Certificate of Need to build an osteopathic acute care hospital in the southerly portion of Lee County. That Final Order authorizes 60 beds. It is fair to assume, inasmuch as these hospitals are already drawing from southerly Lee County, that the capture of the patient market in southern Lee County will be made much more pervasive with the addition of the Gulf Coast Osteopathic acute care facility. That being the case, insofar as the 1989 horizon year is concerned, far less than 12 per cent of the Lee County origin patient days now available to hospitals located in Collier County will actually be available. Community will thus draw even less than its own projected six per cent of its patient days from Lee County. In any event, it is logical to conclude that substantially all the patient days resultantly available to a Collier County situated facility will be derived from Collier County upon the advent of the Gulf Coast Hospital. Thus, any patients drawn to Community, if its facility were built, would be at the direct expense of NCH. That being the case, it is reasonable to conclude that the analyses performed by Mr. Morton, Naples' expert, which reveal that Community Hospital will potentially siphon off as many as 80 patient days per day from Naples Community Hospital, is accurate. If this occurs, it would mean that approximately 29,200 annual patient days would be garnered by Community. Mr. Morton's analysis established that a resultant raising of rates by Naples would have to occur in the amount of $240 per patient day. Failure of Naples to so raise its rates to patients, would cause an annual revenue deficiency of 6.5 million dollars. This increase of $240 per patient day would result in a $1,536 increase in the average charge per adjusted admission, based upon the average length of stay at Naples which is 6.2 days. Even if Community obtained only half its patients from the Naples Community Hospital, (a likely understatement of its patient market impact), the resulting loss to Naples per patient day would be $220 with a concomitant necessary increase, in average patient charges per admission in the amount of $768, in order for NCH to remain financially viable. If Naples were unable to raise its charges to compensate for this loss of patients to the Community facility, then it would have to curtail services currently rendered on a deficit basis, such as its discrete pediatric unit, which experiences a 40 per cent indigent patient utilization. Community's own projections show that it expects to garner 27,790 patient days, which for the above reason, are likely to all be gained at the expense of NCH. This will result in the loss to NCH of at least 76 patient days per day with a resultant revenue shortfall nearly as high as that postulated by Morton as a result of his patient origin study and adverse impact analysis. Thus, in terms of lost patient days and lost revenue, both the figures advanced by Naples and those advanced by Community reveal that a substantial adverse impact will be occasioned to Naples by the installation of Community's hospital, especially in view of its location at approximately the midpoint between the Lee County boundary and NCH's facility in Naples. Naples derives approximately 54 per cent of its gross patient revenues from Medicare reimbursement. Four per cent of its revenues are represented by Medicaid patient reimbursement. Eight to nine per cent of its billings are not collected because of non-reimbursable, indigent patient care and bad debts. Community will obtain from 76 to 80 patient days per day case load now enjoyed by Naples Community Hospital. Community projects that its billable case load will be characterized by four per cent Medicaid reimbursable billings, and six and one- half per cent of its annual case load will be represented by indigent and bad debt uncollectible billings. Forty-six per cent of NCH's indigent and bad debt cases come from the Immokalee area lying east of State Road 887 and north of State Road 846, and the Community Hospital would be built approximately midway between that area and the location of NCH. Therefore, based upon Community's own projection of total billings for 27,790 patient days, or at most, 29,200 days per year, (according to NCH's figures which depict the loss to NCH of 80 patient days instead of 76) it becomes obvious that Community's bad debt, indigent case billings would actually be in the neighborhood of 17 per cent of its total, billable case load, rather than the six and one-half per cent it projects in its application and evidence. This would render the bad debt, indigent patient-based uncollectibles of Community to be on the order of four million dollars per year. Such a high magnitude of bad debt, uncollectible billing experience can reasonably be expected since Community's Hospital would be constructed between the source of most of the indigent bad debt case load and NCH's location. This location is also in the center of the most affluent, rapidly developing residential area of Collier County. Given the fact that Community-NME's proposed location is likely to attract a high indigent, bad debt case load from the economically depressed Immokalee area, approaching the magnitude of 17 per cent of total case load, if a policy of freely accepting indigent, uncollectible cases were followed by Community-NME, but considering also the fact that Community proposes to locate its hospital in the service area it has delineated to include the most concentrated source of more affluent, privately paying patients available to these competing hospitals, it cannot be concluded that Community-NME plans to incur such a high financial risk by free acceptance of indigent, charity cases. Rather it seeks to largely serve the collectible, private-paying patient source of northwestern Collier County, hence its recently altered proposed location. This determination is borne out by the experience of NME's other Florida hospitals, which are characterized by a very low percentage acceptance of indigent, bad debt, patient service. Thus, it is quite likely that NCH would be relegated to continued service of this large number of indigent, nonpaying patients while Community/NME would serve a patient base composed of largely private-paying and Medicare reimbursed patients drawn primarily from NCH, a significant financial detriment to that entity, which at present experiences a rather precarious operating ratio, characterized by, at best, a three per cent profit margin. Such an eventuality would force upon NCH the choice of raising its rates substantially or curtailing services, or both, with the probable alternative of seeking taxpayer subsidization of such an increased charity case load. NCH effectively competes with the pertinent hospitals in Lee County for the same patient base, due to its lower charges, as shown by the fact that Naples has the lowest revenue per adjusted admission and per adjusted patient day of the hospitals in Collier and Lee Counties. Thus, any increase in charges at Naples necessitated by the adverse effect of the installation of Community's hospital would put it at a distinct additional disadvantage in competing with the Lee County hospitals. A similar financial resultant adverse impact would be imposed on Lee Memorial, Fort Myers Community and Gulf Coast in terms of declining utilization and revenues. It is further noteworthy that Community's own projection of annual patient days reveals that it will experience an occupancy rate of approximately 50 per cent. It has not been established how 27 to 29 thousand patient days with a concomitant occupancy rate of only SO to 51 per cent can support a 150-bed free standing, acute care hospital with a full complement of ancillary services, which fact renders the financial feasibility of Community's proposed hospital substantially in doubt. In terms of the relationship of adverse impacts on existing hospitals to the legislative goals of hospital cost and rate containment, it should be pointed out that the current utilization rate of all hospitals in this area District VIII are declining, partly as a result of the impact of the "diagnostic related groups" (DRG) method of reimbursement. The utilization at NCH for the first six months of 1984 has dropped to 62.3 per cent. The utilization rate of the Lee County hospitals has been reduced to approximately 65.4 per cent. The addition of another acute care hospital to this area, which is established to likely experience a utilization of only 50 to 51 per cent itself, would only cause the current low utilization rates to plummet more drastically. This situation would substantially impair the financial viability of all existing hospitals in the relevant area of District VIII, and Community, as well. Thus, if the proposed Community Hospital were added to this area, it would only aggravate the problem the CON approval process is designed to prevent, that of avoiding escalating health care rates and costs, concomitant decline in adequate levels of service and unnecessary duplication of services. GEOGRAPHIC ACCESSIBILITY In support of its assertion that by 1989 a portion of its service area will not be accessible within 30 minutes driving time of an existing hospital, Community adduced the testimony of Mr. Michael Dudek, accepted as an expert traffic engineer. Mr. Dudek plotted the time and distance of travel from NCH, Cape Coral Hospital, Lee Memorial Hospitals Fort Myers Community Hospital, Eastpoint Hospital, the future Gulf Coast Hospital and proposed Lee Memorial 100-bed satellite facility. He employed the "floating car method" in determining travel times from each hospital to points 30 minutes from the hospital. He projected future travel times along the same routes with a view toward growth in traffic volume based upon population growth. Mr. Dudek opined that in 1989 there will be, under average traffic conditions, a portion of northern Collier and southern Lee Counties which will not be within 30 minutes average travel time of any existing hospital. In his own opinion, in peak travel seasons, coextensive with seasonal, winter population peaks in this geographic area, the situation will be aggravated such that the territory where residents are more than 30 minutes driving time from existing hospitals will expand. Mr. Dudek conceded that vehicles on roads adjacent to main artery roads would reach various main arteries at different times, depending on the density of the population in the residential neighborhoods between those main traffic arteries. He did not map his proposed 30-minute driving time contour lines to indicate these variables. Further, he acknowledged that even during the 1989 projected peak traffic season, the geographical triangle in which Community-NME will locate its proposed hospital, was not outside the driving time projected for Naples Community Hospital. He apparently based his conclusions on the premise that road and traffic improvements would not occur so as to significantly compensate for the population and traffic growth posed by various real estate developments of regional impact which have been filed and proposed for north Collier and south Lee Counties. Naples, presented the testimony of Mr. Jack Barr, also accepted as an expert traffic engineer. Mr. Barr used the "average car method" in conducting a travel-time study to determine the points on arterial roads 30-minutes distance from all existing hospitals in Lee and Collier Counties as well as from the proposed Lee Memorial Satellite Hospital. (Naples Exhibit 76). The distances between those points are interpolated and plotted on the basis of estimated average speeds on the non- arterial segments of the roadways that would be traversed by people making their way to the arterial roads. Mr. Barr also surveyed proposed road improvements in the Collier and Lee County areas (Naples Exhibit 7C). He predicated this survey on the most recent Department of Transportation traffic maps. He performed his original field study during a four-week period in December and January, 1982. The travel times for Collier County were then revised and updated on October 24, 1984 with a field survey and for Lee County on August 14 through 23, 1984. Mr. Barr was unable to determine any significant statistical difference between the contours he plotted in his 1982-83 survey and those plotted in the 1984 updated survey. Mr. Barr employed information obtained from the Southwest Florida Regional Planning Council, the Lee County Planning Department and the Collier County Traffic Planner, as well as information from his own files on proposed residential building projects with which he has been associated professionally or become aware of in the area. It was thus established that that portion of north Collier County and southern Lee County, where most of the proposed residential development will occur, and which is in Community's proposed service area, is currently partially or totally within 30-minutes driving time of three existing and one approved hospital. All the proposed major residential developments in the north Collier/south Lee County area are within 30 minutes travel time of at least one existing hospital and most lie within the 3 minute contour lines for the proposed Lee Memorial Satellite Hospital. The travel time contours will remain substantially unchanged for the next ten years based upon major road improvements planned in the next ten years. Information as to road improvements was obtained from the approved Collier County Comprehensive Plan, from average daily traffic counts on U.S. 41 conducted by the Department of Transportation and Collier County, from the Lee County Transportation and Improvement Program which shows the status of road improvements for 1985 through 1989, and from the Department of Transportation Road Improvement Program extending through the fiscal year 1989 for Lee and Collier Counties. All the roads included in the DOT projection for the next five years are committed and will be built. Although there will not be a decrease in traffic along U.S. 41, rather the increase in traffic that would normally occur on U.S. 41 will be largely offset by traffic shifting over to parallel routes which are to be developed through the road improvement programs established by Mr. Barr. There has been a steady decrease in use of the formerly highly congested U.S. 41 artery because of the development of parallel highways such as Airport Road. Mr. Barr established that the road improvements upon which his opinion is partly based are being implemented, and since most are funded by gasoline tax monies earmarked for that purpose, it is reasonable to assume that the DOT sponsored improvements will continue to be made. Further, although Community sought to show that a portion of the population of its service area is beyond a 30- minute travel time from existing acute care hospitals, it did not demonstrate that that population now or in 1989 amounts to more than 10 per cent of the Collier County population. In his capacity as a traffic-engineer, Mr. Barr has worked in Lee and Collier Counties for approximately seven years, representing public and private clients. He has monitored the implementation of the Collier Comprehensive Plan as it relates to roadways and real estate development and established that road improvements are indeed being implemented. His testimony and opinion, predicated on more accurate surveying techniques, supported by local planning and Department of Transportation documentation, is better corroborated and more competent than that of Mr. Dudek and is accepted. Thus, it has not been shown that the 30 minute travel time points and distances attributable to existing hospitals will recede sufficiently to create the new service area contemplated by Community. EXISTING SERVICE - AVAILABILITY, QUALITY, ADEQUACY OF CARE, ACCESSIBILITY To ALL, INCLUDING INDIGENTS NCH affords adequate availability and access to acute care services for patients in Collier and southern Lee Counties, including indigent patients. Community's proposed facility would not have a level 2 or 3 nursery, and would not have a discreet pediatric unit, both of which Naples has. Thus, access to pediatric, as well as obstetric services, would not be enhanced by the advent of Community's hospital, for indigent or other patients originating in Community's proposed service area. Additionally, inasmuch as NCH's pediatric unit operates at a deficits the addition of such services, even of their limited scope, by Community may, for financial reasons, result in the curtailment of such services, especially for indigent, in view of the considerations expressed above. The physician-director of the Collier County Health Department, Dr. Polkowski was called and accepted as an expert witness on behalf of Naples in the area of public health, for the purpose of discussing the distribution of medically indigent persons and availability of services in Collier County. Her work requires her to routinely review U.S. Bureau of Census data on age and health characteristics of the population of Collier County and to travel throughout the county to acquire knowledge of the health characteristics of the population. It was thus established that the highest concentration of poverty level patients occurs in Census Tracts 112, 113, 114 and 104, with a particularly high concentration in Census Tract 112 which comprises the Immokalee area in northeastern Collier County. A particular health problem in that area is teenage pregnancy, with 90 births to females under 19 years of age in 1983 out of a county-wide statistic for such births of 172. Eleven per cent of the babies born to women under 19 years of age in Collier County are low birth weight babies, which typically necessitate higher levels of neonatal, specialized care because of the increased chances of serious health problems occasioned by low birth weight. There are three recognized levels of care for newborn babies in Florida. Naples Community Hospital has a Level 1 and 2 nursery. Level 1 represents babies who have no exceptional conditions. Level 2 is for those babies with respiratory and other serious problems requiring enhanced levels of care and is characterized by such special equipment as isolettes, intensive care bassinets with respirators, cardiac monitors, apnea monitors, resuscitation and cardiac resuscitation equipment. The staffing level of the Level 2 nursery is at a ratio of one neonatal specialized nurse to three babies rather than the one nurse per six babies of the Level 1 nursery. The Level 2 and 3 babies have serious and frequently chronic health conditions for the short, and sometimes the long-term, often characterized by quite high patient costs. The Immokalee area has the highest poor as well as non white concentration in the bounty. There are approximately 14,000 permanent residents, but during the wintertime the population swells to over 20,000 when predominantly Mexican American migrant farm workers arrive in the area. The poor population has a higher mortality rate for infants and manifests more serious medical problems on a greater per capita basis than does the more affluent population lying to the west and southwest. The Immokalee area population has a high rate of tuberculosis, venereal disease, parasites and hepatitis. The current level of services provided to the indigent population by Naples Community Hospital however, is of a high quality. Richard Akin is the Director of the Collier Health Services, a private, nonprofit primary health care organization which offers primary medical and dental care services to the rural, poor population of northeast Collier County. Most of these patients are migrant farm workers who have absolutely no means of paying their own medical bills. Collier Health Services provides primary medical care at three locations in the county with the largest center being at Immokalee. The Immokalee facility has seven staff positions which include such specialties as pediatrics, family practice, internal medicine and obstetrics. The Immokalee facility records approximately 60-thousand patient visits per year. Seventy-five per cent of these are represented by Mexican- American farm workers who are employed in the area seasonally. Another 10 to 12 per cent per year are Haitian immigrants employed in agriculture. Between 60 and 80 per cent of all patient visits are not paid for by the patient. The Immokalee primary care facility refers 4,000 to 4,500 patients to a hospital annually, with about 12 to 15 such referrals per day. These are for normal, non-emergency care situations. Additionally, between 400 and 450 patients are referred to a hospital for emergency care per year. All the primary care center's emergency and non emergency patients are referred to NCH. Mr. Akin has attempted to refer patients from the Immokalee facility to other area hospitals such as in Lee County, but without success. NCH is located in fairly close proximity to the Immokalee Primary Care Center, and, even though most patients have no means of paying for medical care, NCH treats and admits them without questioning them in advance concerning their ability to pay, insurance, Medicaid and the like. Mr. Akin has previously attempted to refer his indigent patients to the Fort Myers area hospitals with little success in having them admitted. LeHigh Acres Hospital is considerably closer, being 24 miles away, but Mr. Akins has had little success in having the indigent patients he serves admitted there. Instead, he refers to Naples since the patients are treated with the same dignity and decency as paying patients at that hospital. In excess of 50 per cent of the patients he refers from the primary health center to Naples never pay anything for the services received. Approximately 30 per cent of the non-emergency patients referred to Naples annually are pediatric referrals. About 30 per cent of the emergency referrals are also pediatric patients. Four hundred to four-hundred fifty non- emergency patients annually are obstetric patients who come to full term and are delivered. It is unlikely that any of the pediatric patients would be referred to a hospital, such as the proposed Community facility, which does not have a discreet pediatric unit with a specialized staff and equipment, since the primary care center in Immokalee has the capability of treating any overnight, routine pediatric problem itself, and any pediatric patient that cannot be handled on a one-day admission at the facility, can be sent to the discreet, specialized pediatric unit at Naples Community Hospitals which Community of Collier will not offer. The standard procedure at Naples Community Hospital for admitting patients who do not have a private physician or a private physician referral, is nondiscriminatory. That is, in the triage process, when a patient arrives at the emergency room, for instance, only the patient's name, address, age, date of birth and questions eliciting his medical status are asked upon his arrival. Depending on the nature of the injury involved, the on-call medical specialist for that type of injury is then summoned to the emergency room. If it appears necessary to admit the patient to the hospital, the on-call specialist authorizes the admission. When the admission determination is made, there is no information available on the admitting documents and no questions are asked to indicate whether the patient is a paying patient, a nonpaying migrant worker, an insured patient, or a Medicare patient. Naples presently has a labor and delivery area with a birthing room and a three-stage cohort type of nursery. Infants move through three different stages in the nursery depending on age, so as to reduce infections. Seventeen of the 24 beds on the floor are designated as OB beds. Whenever more than 17 patients must use that floor, they are able to expand to gynecological medical surgical beds on the same floor which thus gives a total capacity for OB patients of 24 beds. The OB services as proposed by Community are essentially duplicative of the services in existence at Naples Community Hospital, although with a less intensive level of care for 08 and pediatric patients. Essentially all the other services proposed by Community duplicate these services already available to area residents at NCH and the other pertinent hospitals. Thus, it is apparent that if Community's facility is located where proposed, it will actually serve an area that is more elongated north to south rather than east to west, and will in reality serve the more affluent, private- paying patient origin areas lying in west-central and northwest Collier County. The reason for this is that most of the indigent patient population will bypass Community of Collier's Hospital and go to Naples for the above delineated reasons, and Community would then tend to draw patients from the more populated, wealthier areas on a north-south line from the Naples area up to and across the Lee County line rather than on an east-west axis. The fact that Community/NME would serve primarily privately-paying patients is exemplified by the fact that NME's other Florida hospitals typically have no (or very minimal) Medicaid patient days, such that that parent company's policy is not one of encouraging service to Medicaid or indigent patients. It is thus apparent that with the advent of Community/NME's hospital that there would be created two different patient bases or patient markets, with Naples continuing to serve the vast majority of the indigent, Medicaid, or bad- debt patient base. Community/NME would garner its patient base largely from private-paying, more affluent patients with substantially less bad debt ratio. This would siphon off much of Naples's private paying base, such that, with its already slim or sometimes nonexistent profit margin, its financial viability would become more and more in doubt. This would raise the alternative mentioned above of either raising its rates substantially, causing health care costs for the consuming public to rise significantly, seeking relief from the taxpayers of Collier County, or curtailment of available services to indigents and all other patients, especially GE and pediatrics; possibly even all three cost coverage alternatives. Such an eventuality would ultimately result in a reduction in the quality of health care afforded the patient public. NAPLES AVAILABLE AND PROPOSED SERVICES Mr. Mike Jernigan was tendered by NCH and accepted as an expert in health care planning and hospital financial management. Mr. Jernigan is employed as Director of Planning at Naples and prepared the instant Certificate of Need application seeking 30 beds. Naples has recently added 43 psychiatric beds under previously issued Certificates of Need. The instant application contemplates relocation of the 43 psychiatric beds to the fourth floor of a support building, there creating a discrete psychiatric care unit. Naples amended its request at hearing so as to seek 20 instead of 30 medical/surgical beds to be added to the space to be vacated by the 43 psychiatric beds. No significant construction will be required in the vacated space, rather semiprivate rooms will be converted to private rooms. The 1.7 million dollar project cost is chiefly attributable to the construction of the facility which will house the licensed 43 psychiatric beds. Thus, the reduction in the number of acute care beds sought from 30 to 20 will not significantly alter the 1.7 million dollar project cost. Naturally, the minor project costs attributable to installation of 10 acute care beds in the vacated, former psychiatric bed space will be lessened by an amount attributable to 10 beds. In any event, NCH has been demonstrated to have adequate financial resources to undertake the project outlined in its application and has those funds committed. Naples can add these 20 proposed beds and successfully operate them as a minor addition to its now feasibly operating acute care hospital. Naples has recently opened a free standing, primary care center called North Collier Health Center, in the vicinity of the proposed site of Community/NME's hospital. That facility includes a radiology room, laboratory and emergency medical service station, in addition to offering normal, primary care services. It is staffed 24 hours a day, seven days a week with a physician, but does not have inpatient beds. A similar primary care center has been constructed on Marco Island. Both of these centers have been added to Naples complement of facilities and services in implementation of a long-range health care expansion plan designed to make Naples' services more accessible and available to the public throughout its Collier County, southern Lee County service area. Given Naples low and sometimes non existent margin of revenue over expenses, the construction of these two facilities was rendered largely financially feasible through the donation of the land for both of them through community fund raising efforts, and the construction of the Marco Island facility was accomplished with entirely donated funds. The EMS substation at the North Collier Primary Care Center is operated and financed by the county, and the sleeping quarters at that sub station and at the Naples main campus facility for EMS personnel are provided free of charge at some financial loss to the hospital. Such an arrangement constitutes good health care planning, even though it results in some financial detriment to Naples, since it makes the emergency medical technicians immediately available to assist emergency patients who are transported to the primary care centers by their own means, and shortens the reaction time for emergency personnel since they are not located at separate locations from the hospital or primary care centers. These arrangements further Naples' long range goal in making its emergency primary care and primary care services more available and accessible to the public in its service area, which goal receives strong public support as evidenced by the large public donations which largely made the installation and operation of these facilities possible. Since Naples is a not-for-profit hospital, any excess of revenue over expenses it experiences is used to acquire new and needed equipment or expand facilities, including facilities and services such as these. The installation of Community/NME's hospital at its proposed locations especially, would duplicate the services offered at North Collier Primary Care Center and to a great extent those offered at the main campus of NCH in Naples. It was established through the testimony of Miles Price, an architect specializing in hospital design, that the construction costs, architectural costs and related inflation factors depicted in Naples' application are reasonable and accurate with regard to the relocation and construction for the psychiatric beds, which are to be moved, and the installation of the 20 acute care beds proposed. Acquisition of equipment necessary for the operation of the 20 proposed beds will be financially assisted by its present shared purchasing arrangements, whereby it is able to obtain resultant discounts in acquisition of the necessary equipment needed for installation and operation of the new beds. BED NEED AND BED ALLOCATION Thomas Porter was tendered and accepted as an expert in health care planning in Florida. Subpart (23) of Rule 10-5.11, F.A.C. is the acute care bed need determination methodology. It is the policy of HRS in accordance with the legal mandate referenced herein to facilitate the use of subpart (23) of the rule by regularly compiling and disseminating district bed need information, including that depicted in Community's Exhibit 16, which includes a memorandum from Phil Rond, the Administrator of the Office of Comprehensive Health Planning of HRS. If the formula at subpart (23) of the above rule is employed using historical utilization data from the years 1981 through 1982, a net bed need of 375 for all of District VIII results and that is the current bed need status of the district advocated by Community. However, as established by the memorandum from Mr. Rond incorporated in Exhibit 16, the most recent utilization data includes that for the year 1983, which is the most recent hospital reporting period envisioned by the formula and above rule. When the 1983 utilization data is added to the 1981-1982 information, a drop in total bed need for District VIII occurs from a figure of 4,147 beds to 3,654 beds. When licensed and approved beds are subtracted from that figure, a minus bed need results and District VIII has an excess of 118 beds. The rule formula at subpart (23)(g) dictates that the three most recent annual hospital licensure reporting periods must be used for the utilization data necessary to operate the need determination formula. 2/ The use of the most recent utilization data, including 1983, for District VIII causes the overall projected occupancy level contemplated in the methodology (at 10.5.11(23)(g)(2)) to fall below 75 per cent, when the bed need calculation is carried out to its conclusion. Given the projected occupancy falling below 75 per cent, the end result is that gross bed need in District VIII is 3,654 beds, rather than 4,147 beds as postulated by Community. Community contends that the 1983 utilization data should not be used since it was not available for Districts I and II and should not be used for any district until it is available and disseminated for all districts 3/ The reason the department promulgated Mr. Rond's special memorandum with regard to the bed need projections for District VIII, was to alert users of that information that in that particular district the drop in the most recent utilization data triggered the rule mechanism of subpart (23)(g)(2) because it revealed that the overall projected occupancy levels would fall below 75 per cent, all of which showed on a district-wide basis an over-bedding of 118 acute care beds. Mr. Larry Bebe is Acting Executive Director and Planner for the District VIII Health Council. He was accepted as an expert witness in health care planning and public health administration. Mr. Bebe considers the local health council plan to be a valuable planning tool for purposes of allocating beds in District VIII on a less than district-wide basis. The plan was adopted in March, 1984, but has not yet been adopted as a rule by HRS. According to the District VIII Health Council Plan, that district is sub-districted by counties, except for Glades and Hendry Counties which are combined in a two-county sub- district. This form of sub-districting has been done for approximately seven years. District VIII is sub-districted on a county basis rather than on other geographical boundaries, because population data, useful in planning allocation of beds, is only available in the form of county-based population projections by age-specific cohorts from the Bureau of Economic and Business Research at the University of Florida (BEBR). Further, in considering the location of existing hospitals, the greatest proportion of people in the seven county area of District VIII can be located within a reasonable time and access to health care services by allocating the beds on a county sub-district basis. The population data promulgated by the BEBR is employed by HRS, is generally accepted as authoritative in Certificate of Need proceedings, and is herein. It is not available by age-specific cohort in the census tract geographical subdivisions attempted to be used by Community in 4 in delineating its purported service area. 4/ Performance of population based health care planning must be done consistently and future need must be projected based upon preparing utilization rates predicated on the same population geographical area each time. A common geographical basis for allocation of beds, such as counties, is most appropriate since that is the basis on which the most accurate population data is available. The bed allocation methodology used by the local health council to allocate beds by county sub-districts is contained in Naples Exhibit No. 35. Bed allocation on a county sub-district basis is determined by taking the overall bed number available from the state methodology rule formula and breaking it down into county sub-districts according to the District VIII health plan methodology. This methodology takes into account existing hospital utilization and location, changes in population, and projected patient days. All items of information to operate the allocation formula are obtained on a county basis. Under the District VIII health plan methodology, when existing beds are subtracted from needed beds, a projected need for 20 medical/surgical beds in Collier County results with an excess of 41 existing beds in Lee County for the horizon year of 1989. Mr. Porter corroborated Mr. Bebe's testimony and established that, although not adopted by HRS rule, the sub-districting of District VIII by county for health planning purposes conforms with HRS policy in terms of population and geographical criteria and constitutes a reasonable and rational health planning tool. The methodology used by the local health councils to allocate beds to the counties incorporates standard, accepted health planning practices and HRS' policy is not to interfere with that allocation of beds on a sub-district basis, so long as the subdistricting allocation does not exceed the bed need number for the district as a whole. Mr. Porter demonstrated that it is possible under the state Subpart (23) methodology to find no need or excessive beds at a district level, however, by applying the local health council methodology a positive mathematical need might be shown in one or more county sub-districts. Thus, it has been shown that the local health council allocation method which reveals a 20-bed need for Collier County is the result of a rational, standard, accepted health planning practice with regard to determining projected bed need on a less than district- wide basis. However, although that methodology shows a formula-based "need" in Collier County, the above findings reflecting the severely declining utilization experience in Collier County at NCH, together with its already scant operating ratio, when considered with the future effect on its utilization rate caused by the advent of Gulf Coast Hospital, show that no true need for any beds exists. Bed need projections are not the only pivotal considerations in determining entitlement to a CON. Brown and Kendall Lakes Hospital, Inc., Humana, Inc. d/b/a Kendall Community Hospital v. HRS, 4 FALR 2452A, (Final Order entered October 6, 1982).
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is, therefore RECOMMENDED: That the application for a Certificate of Need submitted by Community Hospital of Collier, Inc. for 150-beds for northern Collier County be DENIED, and that the application for a Certificate of Need submitted by Naples Community Hospital, Inc. for the addition, as amended, for 20 beds be DENIED, and that, in view of the application involved in Case No. 84-0909 having been withdrawn, that that case be CLOSED. DONE and ENTERED this 16th day of August, 1985 in Tallahassee, Florida. P. MICHAEL RUFF 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 16th day of August, 1985.
The Issue The issues in this case are whether the statement contained in Respondent's letter dated September 9, 1997 (1997 Letter), establishing a $24.00 payment for hospital outpatient services billed as revenue code 451 constitutes a rule as defined by Subsection 120.52(15), Florida Statutes (2010),1 and, if so, whether Respondent violated Subsection 120.54(1), Florida Statutes, by not adopting the statement in accordance with applicable rulemaking procedures.
Findings Of Fact AHCA is the state agency responsible for the administration of the Florida Medicaid Program. § 409.902, Fla. Stat. Petitioners are acute care hospitals that are and were enrolled as Medicaid providers of outpatient services in Florida, at all times relevant to this proceeding. On September 9, 1997, AHCA issued a letter to hospital administrators, which provided the following: This letter is to inform you that Medicaid coverage for hospital emergency room screening and examination services is now in effect. Hospitals will be reimbursed a $24.00 flat fee for providing these services to Medipass and Medicaid fee-for-service recipients who do not require further treatment beyond the screening and examination services. This policy is retroactive to July 1, 1996. The letter further provides that the $24.00 reimbursement would be billed under the revenue code 451. The statement in the letter applies to hospitals which are Medicaid providers and, therefore, is a statement of general applicability. The statement meets the definition of a rule. AHCA concedes that the statement, which provides "payment of a $24 rate for Medicaid Hospital Outpatient Services billed under Revenue Code 451, constitutes a rule under s. 120.52(16), Fla. Stat." AHCA concedes that the statement has not been adopted as a rule by the rule adoption procedures provided in Section 120.54, Florida Statutes. AHCA has discontinued all reliance on the challenged statement.
