Findings Of Fact On or about December 13, 1984, Petitioner applied to Respondent for a CON for an ambulatory surgical center (ASC). Respondent assigned CON number 3677 to Petitioner's application. Petitioner seeks to construct a two operating room, free standing ASC at 1710 West Colonial Drive in Orlando, Orange County, Florida. The primary area to be served by this application is Orange County, and the facility as proposed is reasonably accessible to Orange County residents. Orange County is located within Respondent's District VII, which is also comprised of Osceola, Brevard and Seminole Counties. Stuart and Joseph Yachnowitz are owners of Y and S Management and are partners in the application here at issue. Y and S Management will provide medical management services at this facility, as it provides at nine other facilities throughout the country which performed approximately 17,500 outpatient surgical procedures in 1985, primarily gynecological. Two of the facilities managed by Y and S Management are licensed as ASCs under the laws of the states in which they are located. The chief operating officer of Y and S Management, Susan Hill, prepared the CON application which is here at issue. Financing for this project will be provided from the personal funds of Stuart and Joseph Yachnowitz. No funds will be borrowed for this purpose. They have sufficient liquid personal funds to fully finance the project cost of $473,000, as well as operating costs. Petitioner will lease 6,500 square feet on the first floor of a professional building to be constructed at 1710 West Colonial Drive in Orlando from West Colonial Properties, Ltd., at $12 per square foot. This property is owned by Stuart and Joseph Yachnowitz. An abortion clinic known as Orlando Women's Health Center, which they also own, is located next door at 1700 West Colonial Drive. The facility as proposed can reasonably be expected to meet licensure requirements for an ASC. Ambulatory surgical procedures to be performed at Petitioner's facility will include, but not be limited to abortions, tubal ligations, hernia repairs, diagnostic laproscopies, eye surgery for cataracts, hand surgery, plastic surgery, tonsillectomies, and dilatation and curettage. Equipment cost estimates for this project of $161,158 are realistic and complete. Staffing requirement estimates of 11.54 F.T.E., and salary requirements of approximately $182,000 annually are also realistic and complete. Petitioner estimates that for 1987 and 1988, 20% of all cases will be paid by Medicaid, 5% by Medicare, and 75% will be insurance and private pay, with 4% of this figure ultimately being bad debt or indigent care. With total cases estimated for 1987 and 1988 to be 1700 and 2100, respectively, total net revenues for 1987 and 1988 are estimated to be $732,000 and $903,000, respectively. Providing services to Medicaid patients in 20% of its cases would be beneficial to the community since this is a high level of service to patients who are typically underserved. Assuming that 20% of the cases handled at Petitioner's facility have multiple procedures, the projected charge rates for 1987 are $326 per case for Medicare and Medicaid, and $489 per case for private pay and insurance. These are reasonable and competitive charges. The projected charge rate for private pay and insurance is simply 150% of the Medicare and Medicaid rate, which in turn is based on the projected case mix considering the various levels of reimbursement. Petitioner will pay Y and S Management a fee of $50 per case for management services. The financial pro forma prepared for Petitioner demonstrates that using a conservative approach that somewhat overestimates expenses, Petitioner will reach the break-even point at 1400 cases, after allowing for management fees, depreciation and amortization. Using a less conservative, but more typical approach to estimating expenses, Petitioner will break-even at 1100 cases. Need in the service area exceeds the conservative break-even point and Petitioner estimates it will handle 1700 cases in its first year of operation and 2100 in its second. These are reasonable estimates. Respondent has not promulgated a rule setting forth a methodology for determining need for an ASC. However, Respondent has utilized an evolving non-rule policy in evaluating the need for such facilities. Reid Jaffe, Respondent's expert in health care planning, explained the methodology used in this case which resulted in his determining that in July, 1987, there will be a need for additional ambulatory surgical facilities in Orange County sufficient to recommend approval of Petitioner's CON application. Specifically, Jaffe's methodology is as follows: Acquire data from the local health council regarding the number of inpatient and outpatient procedures performed by existing providers, as reported for the current calendar year (1985) by hospitals in the appropriate service district (District VII). Acquire data from the Governor's Office of the population estimate for the appropriate service area (Orange County) for the current and planning horizon years. Using this data, calculate the current overall surgical and outpatient surgical use rates per 1000 population for hospitals in the service area. Using the projected population for the planning horizon year (1987) and the current use rates calculated in (c) above, calculate the projection of overall surgical procedures in the planning horizon year. Multiply projected overall surgeries by 40% to establish total number of out-patient surgeries to be performed in the planning horizon year. Subtract from (e) all outpatient surgical procedures to be performed in hospitals, other ASCs in the service area, as well as the financial break-evens of all CON approved free-standing outpatient surgery centers in the service area. After performing these calculations and subtractions, the number of outpatient surgical procedures remaining are compared to the break-even of the CON applicant at issue. If the remaining number is larger than the applicant's break even, a quantitative need is demonstrated. Applying Jaffe's methodology to this case and applying data he obtained from the Local Health Council of East Central Florida, as reported to it by hospitals in District VII for calendar year 1985, as well as population data for Orange County he obtained from the Governor's Office, it appears that a total of 83,054 surgical procedures were performed in District VII in 1985, with 21,084 of these being outpatient procedures performed in a hospital. Using a July, 1985, population estimate for Orange County of 556,384, the overall surgical use rate for Orange County is 83,054 divided by 556,384 over 1000, or 149.27 surgical procedures per 1000 population; the use rate for outpatient procedures performed in hospitals is 21,084 divided by 556,384 over 1000, or 37.89 outpatient procedures performed in hospitals per 1000 population. Multiplying the overall surgical use rate of 149.27 by 574,599 (projected Orange County population for July 1987) over 1000 and applying a factor of 40% yields a projection of 34,308 outpatient surgical procedures to be performed in 1987. The use rate of 37.89 for outpatient services performed in a hospital is then multiplied by 574,599 over 1000 to obtain 21,722 which is the projected number of outpatient procedures which will be performed in a hospital in 1987. By subtracting this number (21,722) from the projection of total outpatient surgical procedures to be performed in 1987 (34,308) you identify 12,536 procedures which could be performed in ASCs in 1987. The reported number of outpatient procedures being performed in existing ASCs and the break-evens of CON approved facilities are calculated to be 5,488 (Surgical Services 2,693; MediVision 903; AMI Single Day Surgery 1,832; Surgical Associates 60) which is then subtracted from 12,536 to leave a need of 7,048 outpatient procedures which could be performed in ASCs which are not now approved for this service area. Since Petitioner has a conservative break-even point of 1400 cases, and a more typical break-even point of 1100 cases, a quantitative need has been identified which far exceeds Petitioner's break-even point. Jaffe testified that in his experience this is the largest margin between break-even and available procedures he has seen in reviewing CON applications. A need analysis conducted by Howard E. Fagin, Ph.D., who was accepted as an expert in health care planning, facility planning and operations analysis, also confirms that there is a quantitative need for the ASC proposed by Petitioner. The methodology used by Dr. Fagin starts by calculating a target utilization for ambulatory surgical operating rooms. Assuming that a facility operates 250 days/year, 6 hours/day, it takes 1.25 hours/case and that there are 1.2 procedures/case with a utilization rate of 75%, a target utilization of 1,080 procedures/year for an ambulatory surgical room is thereby determined. In 1985 there were 10 approved hospital "dedicated" ambulatory surgical rooms in Orange County, and 9 approved rooms in free-standing ASCs (Surgical Services-5, AMI Single Day Surgery-2, MediVision-2) not counting the 2 rooms approved in CON 3313 for Surgical Associates which are used for no more than 60 cases per year. Multiplying these 19 rooms by the target utilization of 1,080 procedures/year results in a calculation of 20,520 total utilization in available dedicated and free-standing ASC rooms. Data from the Local Health Council of East Central Florida for 1985 indicates that 11,413 outpatient procedures were performed in hospital, non-dedicated, operating rooms. Therefore if we take Jaffe's projection of 34,308 outpatient surgical procedures to be performed in 1987, and subtract 20,520 (total utilization in available dedicated and free-standing ASC rooms) and also subtract 11,413 (outpatient procedures performed in hospital, non-dedicated, rooms), we arrive at a need of 2,375 procedures in 1987 and 3,770 procedures in 1989. Since Petitioner's break-even is conservatively 1400 cases, and again assuming 1.2 procedures per case, Petitioner's conservative break-even is 1680 procedures, which is within the need which will exist in 1987, and well within the need in 1989. The need methodology and opinion of Intervenor's expert, Dr. Deborah Kolb, is rejected because she incorrectly: (a) considered Orange and Seminole Counties as comprising a two county service area; (b) included all existing inpatient hospital based operating rooms, regardless of whether they are dedicated to outpatient surgery, in arriving at her conclusion that there is excess capacity; and (c) assumed all hospital operating rooms are available for outpatient surgery without modification. Ambulatory surgery is typically performed in three types of facilities: hospitals which utilize their operating rooms for both inpatient and outpatient surgery; hospitals which maintain separate "dedicated" outpatient operating rooms, sometimes even in separate facilities adjacent to the main hospital; and free-standing ASCs which are not associated with a hospital. There are definite disadvantages to serving outpatients in hospitals without "dedicated" outpatient operating rooms, including the "bumping" of outpatients in emergencies and increased costs to the patient for services. On the other hand there are advantages and disadvantages to the other two modes of delivering ambulatory surgical services. Hospital based "dedicated" rooms are obviously closer to a hospital in case an emergency develops, and some patients may prefer this proximity to additional equipment and emergency medical staff. On the other hand, costs at a free-standing ASC are generally lower, and some patients prefer to avoid a hospital atmosphere altogether. Surgical procedures performed at ASCs have grown from 10% of all procedures in the early 1970s to 40% currently, and are projected to grow to 50% in the near future. This growth is somewhat the result of a change in Medicaid/Medicare reimbursement policies which now pay 80% for procedures performed in a hospital and require a 20% co-payment by the patient, but which pay 100% for procedures performed in an ASC and require no patient co-payment. The decision to have outpatient surgery performed at one or the other of these types of facilities is primarily the result of patient preference. However, it is clear that the increasing utilization of ASCs is a market force that is driving the cost of hospital outpatient services down. Respondent issued its original notice of intent to deny Petitioner's application on or about May 17, 1985, and on June 14, 1985, Petitioner filed its Petition for Formal Hearing. Thereafter, Respondent reconsidered its position and on March 6, 1986, notified the parties that it intended to grant Petitioner's application. The reason for this reconsideration was that when the initial denial was made, Respondent's projections of procedures were premised on the use of a 30% outpatient surgical factor. Subsequently, the Respondent began using 40% in its projection of the total volume of surgical procedures which might be performed on an outpatient basis. Given the fact that the reason Petitioner was initially denied was due to insufficient procedures, and utilization of the new projection of outpatient volume indicated there would be sufficient volume to support the facility, Respondent determined to support Petitioner's application. The notice of change of position was prepared by Reid Jaffe, who based his testimony at hearing on the 40% factor, and was approved by Robert E. Maryanski, Administrator of Community Medical Facilities, and Marta V. Hardy, Deputy Assistant Secretary for Health Planning and Development. Since Respondent has not adopted a need methodology rule for ambulatory surgical centers, the increase in the factor used to calculate outpatient surgeries from overall surgeries performed was not accomplished through rule-making proceedings. In 1985 Respondent used a factor of 30%, but in early 1986 increased this to the 40% applied in this case.. Intervenor provides services similar to those which Petitioner will perform, and has four free-standing, "dedicated" operating rooms which are used for ambulatory surgery. It also has 17 operating rooms that are used for both in and out-patient surgery. The Intervenor opposes Petitioner's application. In 1985, Intervenor made a profit of $10.9 million on total revenues collected of $184 million; it had an actual total of $37.4 million in uncompensated care which includes partial or no payments, charity, bad debt, and contractual patients. For 1986, it projects an $18.9 million profit on collected revenues of $211 million, with projections of actual uncompensated care of approximately $52 million. In 1985, 2% of Intervenor's costs were for providing indigent care, and this totaled approximately $6 million. Petitioner projects net revenues of approximately $900,000, and it has not been established if this will have any impact on Intervenor's revenues. According to Billie June, Assistant Director of Operating Rooms at Florida Hospital who was accepted as an expert in surgical nursing, and the management and operation of surgical units from a nursing standpoint, Intervenor has had considerable difficulty attracting qualified nursing staff for its operating rooms, and has had to develop its own qualified staff through an internship program. However, Petitioner's facility will not contribute to this difficulty or result in higher salaries. Susan Hill testified based on her experience since 1973 of managing and hiring staff in the Orlando area of the type needed to operate an ASC, that she has had no difficulty obtaining the cooperation of physicians in the area and in attracting fully qualified staff. Based on Hill's experience with other ASCs managed by Y and S Management throughout the country as well as her experience in Orange County, it is found that the staffing needs of Petitioner's proposed facility can be met with nursing and medical staff available in the area. It is found as a matter of fact that there is a need in Orange County for the two operating room ASC proposed by Petitioner, that Petitioner has the ability and will provide quality care, the project is financially feasible, Petitioner will work with and help to meet the needs of health maintenance organizations and will promote cost effectiveness in Orange County. Petitioner's proposal is consistent with the goals, objectives and recommended actions in the 1985-87 Florida State Health Plan and the local health plan. The State Plan encourages the existence of ASCs and the removal of obstacles to the use of outpatient surgery; the local plan provides that applicants for an ASC must demonstrate a willingness to provide services to underserved patient groups and considers the provision of ambulatory surgery to the underserved population to be a desirable objective. In this case Petitioner intends to provide 20% of its cases to Medicaid patients, and another 4% to indigents.
Recommendation Based on the foregoing, it is recommended that the Department of Health and Rehabilitative Services issue a Final Order granting Petitioner's application for CON number 3677. DONE and ENTERED this 23rd day of October, 1986, at Tallahassee, Florida. DONALD D. CONN, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 23rd day of October, 1986. COPIES FURNISHED: William Page, Jr., Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301 Chris H. Bentley, Esquire Post Office Box 1739 Tallahassee, Florida 32302 Douglas Mannheimer, Esquire Post Office Drawer 11300 Tallahassee, Florida 32302 E. G. Boone, Esquire Jeffrey Boone, Esquire Gregory Roberts, Esquire Post Office Box 1596 Venice, Florida 34284. APPENDIX Rulings on Petitioner's Proposed Findings of Fact: 1. Adopted in Findings of Fact 1, 2. 2,3. Adopted in Finding of Fact 3. Adopted in Finding of Fact 6. Adopted in Finding of Fact 5. Adopted in Finding of Fact 7. Adopted in Finding of Fact 11. Adopted in Findings of Fact 11, 22. Adopted in Finding of Fact 9. Adopted in Finding of Fact 2. Adopted in Findings of Fact 2, 14. 12,13. Adopted in Finding of Fact 20. Adopted in Finding of Fact 7. Adopted in Finding of Fact 20. Adopted in Finding of Fact 8. Adopted in Findings of Fact 3, 8. Adopted in Findings of Fact 4, 7. Adopted in Finding of Fact 4. Adopted in Finding of Fact 2. Adopted in part in Finding of Fact 15 but otherwise rejected as cumulative and unnecessary. Adopted in Finding of Fact 19. 23-25. Rejected in Finding of Fact 18 and otherwise rejected as irrelevant and not based on competent substantial evidence. Rejected as cumulative and unnecessary. Rejected in Finding of Fact 18. Adopted in Findings of Fact 12-14. Adopted in Findings of Fact 12, 13. Adopted in Findings of Fact 13, 14. 31-35. Adopted in Finding of Fact 15. 36,37. Rejected as irrelevant and unnecessary. 38. Adopted in Finding of Fact 22. 39,40. Adopted in Finding of Fact 23. 41. Rejected as a Finding of Fact since this is a request for further ruling on Petitioner's Motion to Limine which was granted at hearing. Petitioner filed a Motion in Limine on June 11, 1986 to exclude depositions taken of John Hutchens on April 23, 1986 and June 5, 1986. This is the motion dealt with at the prehearing conference on June 23, 1986. The only deposition of John Hutchens offered by Intervenor and admitted was one taken on June 20, 1986 (I-2). Therefore, Petitioner's motion and the prior ruling is moot since the depositions to which the motion was directed were not offered at hearing. 42-45. Adopted in Finding of Fact 22. Rulings on Intervenor's Proposed Findings of Fact, as set forth beginning on page 3: 1. Adopted in Finding of Fact 12. 2-16. Rejected in Finding of Fact 15, and otherwise irrelevant and cumulative. 17,18. Rejected in Findings of Fact 12-14, 22. 19-26. Adopted in part in Finding of Fact 14, but otherwise rejected as contrary to competent substantial evidence. 27,28. Adopted in part in Findings of Fact 12, 13, but otherwise rejected as contrary to competent substantial evidence. 29. Rejected in Findings of Fact 12-15 and otherwise as argument rather than proposed findings of fact. 30-34. Adopted and rejected in part in Finding of Fact 16 and otherwise rejected as contrary to competent substantial evidence. Adopted in part in Finding of Fact 19, but otherwise rejected as irrelevant. Adopted in Findings of Fact 13, 14. 37,38. Rejected as irrelevant. 39,40. Adopted in part in Finding of Fact 16. Adopted in part in Findings of Fact 2, 3 but otherwise rejected as contrary to competent substantial evidence. Adopted in part in Finding of Fact 6, but otherwise rejected as irrelevant. 43,44. Rejected in Finding of Fact 22. 45-47. Rejected in Finding of Fact 7. Adopted in Finding of Fact 7. Rejected in Finding of Fact 7. Rejected in Findings of Fact 3, 5, 7 and 22. Adopted in part in Finding of Fact 3. Rejected as contrary to competent substantial evidence. 53,54. Adopted and rejected in part in Finding of Fact 21. Adopted in part in Findings of Fact 11, 22 but otherwise rejected as irrelevant. Rejected as cumulative and unnecessary. 57-59. Rejected as simply a summation of testimony, irrelevant and contrary to competent substantial evidence. Adopted in part in Findings of Fact 13, 14 and 16 but otherwise rejected as contrary to competent substantial evidence. Rejected as irrelevant. 62,63. Rejected in Finding of Fact 21 and otherwise irrelevant and contrary to competent substantial evidence. Rejected in Findings of Fact 4, 7. Adopted and rejected in part in Finding of Fact 8. Rejected in Findings of Fact 11, 22. Rejected in Finding of Fact 22 and otherwise irrelevant and contrary to competent substantial evidence. Adopted in part in Finding of Fact 20, but otherwise rejected as irrelevant. Rejected as irrelevant. Adopted in Finding of Fact 16; rejected in Finding of Fact 21 and otherwise rejected as contrary to competent substantial evidence. Rejected in Findings of Fact 4, 5 and otherwise rejected as irrelevant. 72-75. Adopted in part in Findings of Fact 19-21, but otherwise rejected in Findings of Fact 21, 22 and as irrelevant. 76-79. Rejected as irrelevant, cumulative argument which does not provide citations to the record contrary to Rule 221-6.31(3), Florida Administrative Code.
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 This case arises out of a petition filed by Humana, Inc., Humedicenters, Inc., and Humhosco, Inc., challenging the validity of Respondent's Rule 10- 5.11(23), Florida Administrative Code. The challenged rule was promulgated by the Department of Health and Rehabilitative Services to provide a uniform methodology for determining the need for acute care beds in the various IRS districts in Florida. Subsequent to the filing of the petition and the scheduling of this matter for hearing, the Intervenor, University Community Hospital, filed a petition to Intervene and was permitted to intervene upon the same issues raised by the original petition. At the formal hearing, the Petitioners Humana, Inc., Humedicenters, Inc., and Humhosco, Inc., called as witnesses Brad Sexauer, David Petersen, Ira Korman, Richard Alan Baehr, Frank Sloan and James Bruce Ryan. Petitioners offered and had admitted into evidence nine exhibits. The Intervenor, University Community Hospital, called as witnesses Warren Dacus and George Britton. The Intervenor offered and had admitted into evidence three exhibits. The Respondent, the Department of Health and Rehabilitative Services, called as witnesses Stanley K. Smith, Stephen Williams and Phillip C. Rond. The Department offered and had admitted into evidence 36 exhibits. Respondent's Exhibits 5, 6, 14, 15, 16 and 17 were not admitted for all purposes but were admitted as hearsay for the purpose of corroborating or explaining other admissible evidence in the record. Counsel for each of the parties submitted proposed findings of fact and conclusions of law for consideration by the Hearing Officer. To the extent that those proposed findings of fact and conclusions of law are inconsistent with this order, they were rejected as not being supported by the evidence or as unnecessary to the resolution of this cause.
Findings Of Fact STANDING The Petitioners and Intervenor are corporations engaged in the business of constructing and operating hospitals in the State of Florida. Humedicenters, Inc. and Humhosco, Inc., are wholly owned subsidiaries of Humana, Inc. Humana, Inc., and its corporate subsidiaries presently have seven (7) pending applications for Certificates of Need for acute care hospital facilities. At least one of those applications for a facility in Jacksonville, Florida, was denied by HRS on the basis that no need existed under the challenged rule methodology. The Intervenor, University Community Hospital, is located in HRS Service District 6A in northern Hillsborough County. On June 29, 1982, University Community Hospital applied for a Certificate of Need for additional medical surgical beds and on December 1, 1982, HRS denied that application. HRS has taken the position that the challenged rule is applicable to that application and under the rule, there is no need for additional medical-surgical beds in District 6. DEVELOPMENT OF THE RULE As early as 1976, the Department began its effort to identify alternative approaches to acute care bed need determinations and at that time, the Department contracted with a consultant to review and assess various bed need approaches. An analysis was made of the then current methods or models used for projecting short-term bed requirements. This analysis was provided to a Bed Need Task Force which had been formed to consider appropriate bed-need methodologies. In early 1977, the Bed Need Task Force was appointed to review current bed-need methodologies and to recommend necessary changes to the methodologies in use. The Bed Need Task Force was formed for the primary purpose of recommending a general approach to be used in bed need determinations and to identify key policies to be followed in development of an acute care methodology for the State of Florida. This task force was composed of a variety of representatives from various groups including local planning agencies, hospital associations, the statewide health council, and the health industry itself. An outside consultant was used by the Task Force to aid them in their review. In February 1978, the Final Report of the Bed Need Task Force was issued. Subsequent to the Bed Need Task Force, the Task Force on Institutional Needs, (hereafter TFIN) was established. The purpose of the TFIN was to present a recommended methodology and policies related to that methodology for purposes of the initiation of implementation activities. The TFIN issued its final report in December 1978. This report contained a number of policies to be used in conjunction with the methodology. These policies stated that: The population composition should not include tourists but should include seasonal residents who reside in Florida greater than six months and these migrants who were in Florida on April 1, the date of each census. The methodology should deal with the differences in need for acute care services by age and sex. The use rates utilized should be based on a statewide normative standard. These standards should be based on statewide use rates for which data can be obtained and should be subject to periodic review. Methodology should eventually address need for various levels of care. Need determinations should be for specific geographical areas, the area of the Health Systems Agency (hereafter HSA). These areas are new the HRS districts. Patient flows should be taken into account but should not be binding on future determination in terms of expansion or addition of new facilities. The hospital service area concept should be rejected and a temporal accessibility criterion utilized. At the HSA level, a minimum volume standard should be developed for each service. The standards within the methodology should be applied uniformly all over the state in all HRS districts or service areas. The standards should not be applied to individual facilities. In terms of role and responsibility, the Department of HRS should be responsible for the need methodology with the local health agencies having responsibility for the facilities configuration model for its district. Having developed a recommended methodology and a set of policies to be used in conjunction with that methodology, the Department contracted with Research Triangle Institute (RTI) to develop a sampling design to be used in the data collection activity so that the methodology could be operationalized. A second contract was let to implement the data collection necessary to the methodology and to develop statewide estimates based on the data collected. The 1978, 1979, 1980, and 1981 State Health Plans each discussed the objective of achieving a certain ratio of nonfederal licensed acute care beds per 1,000 population in Florida. The 1981 State Health Plan adopted a goal to ensure a supply of licensed nonfederal, short-stay beds (including psychiatric beds) in Florida equivalent to 4.24 beds per 1,000 residents. Also, in 1981, the State Health Council adopted a "normative" bed-to-population ratio of 4.24 beds per 1,000 population. "Normative" means a statement of what "ought to be" as opposed to some historical standard. In the Spring of 1982, HRS actually began drafting the rule and in the September 3, 1982, issue of the Florida Administrative Weekly, HRS gave notice of its intent to adopt Rule 10-5.11(23) relating to acute care hospital beds. That notice also set a time, date and place for a public hearing on that proposed rule. Before a public hearing on that proposed rule was held, however, Petitioners Humana of Florida, Inc., Humedicenters, Inc., and Humhosco, Inc., and others, challenged it in D.O.A.H. Case 82-2561R. The intervenor in this proceeding was also an intervenor in that challenge. A public hearing on that initial rule was held September 20, 1982. Neither the Petitioner nor the Intervenor made any statement at the public hearing in opposition to the rule or in opposition to the expected economic impact. No written comment was submitted by these two parties following the public hearing. At the public hearing, there were eight oral presentations made by interested parties and 14 written comments were received. From the time the initial rule was promulgated until the time it was finally adopted, there were numerous other comments that were received. Two sets of changes were subsequently made to the proposed rule which reflected discussion and input the Department received both from the public hearing process and from challenges to the rule. The first set of changes was published April 1, 1983 in the Florida Administrative Weekly. Several issues were raised which were dealt with by the Department. Psychiatric bed need was removed and placed in a separate rule, the methodology was incorporated into the rule, language regarding the use of the formula was clarified, data updating provisions were added, a provision was made to consider peak demand, the district utilization adjustment procedure was changed and subdistrict bed allocation procedures were changed. Although there was also objection to the use of statewide use rates, the Department because of strong policy considerations, made no change in the statewide use rates. These changes were made in response to the comments at the public hearing, written comments submitted, and other input from the health industry. After the Department published its first set of changes to the initial rule, but before the publication of the second set of changes, Petitioners voluntarily dismissed their rule challenge in D.O.A.H. Case No. 82-2561R. The second set of changes was published in the Florida Administrative Weekly on May 13, 1983. At the time of their voluntary dismissal of their rule challenge and prior to the adoption of the challenged rule, Humana, Inc., and its subsidiaries, Humedicenters, Inc. and Humhosco, Inc. were aware of the economic impact the proposed rule would have on their operations in Florida. THE RULE Rule 10-5.11(23), Florida Administrative Code, is founded on a basic methodological approach to projecting the need for health care services which is commonly accepted and utilized among health planners. In its most generic form, this methodological approach may be expressed as follows: The population of the geographic planning unit is projected for some point in the future (usually five years); i.e., how many people will live in the planning area at the end of five years. The projected population is multiplied by a utilization rate in order to project how many days of hospital care the projected population is likely to need during the target year. A utilization rate is the measure by which hospital services are consumed within a given geographic entity and is determined by dividing the total number of hospital patient days in a year in a given area by the total population of that area for that year. Restated, a utilization rate is equivalent to the ratio of the number of days of care received by the population to the population as a whole. As noted above, multiplying a projected population by a utilization rate produces the projected number of-patient days during the target year. This number is then divided by 365 to derive an average daily census i.e., the average number of patients which one would expect to be in area hospitals on any given day of the year. The average daily census is then converted into beds by dividing the average daily census by an optimal occupancy standard for a given service. The optimal occupancy standard contemplates that hospitals cannot and should not operate at 100 percent occupancy in that some reserve capacity is necessary to meet seasonal or even weekly fluctuations and variations in patient characteristics and mix. The product of this generic methodology is the total number of beds needed in the planning area at the end of the planning horizon. Application of the methodology set forth in the rule is basically a three-step process. The initial step is the forecast of the District Bed Allocation (DBA), which is accomplished as follows: The population of each Department service district is forecast by age cohort (a cohort is a given subgroup of the total population) five years into the future. The age cohorts utilized in the rule are: (1) under 65; (2) 65 and older; (3) under 15; and (4) females 15-44. Total patient days are then forecast for each age cohort. Patient days are forecast by applying statewide, service-specific discharge rates and average lengths of stay to the age cohort projections. The specific hospital services included in the Rule are medical/surgical, intensive care, coronary care, obstetrical and pediatric. Projected patient days for persons age 65 and older are adjusted to account for the migration flew of elderly patients both to and from Florida and to and from Department districts within Florida. This flew adjustment is based upon historical migration patterns derived from 1977 Medicare data. The service-specific patient days by age cohort is then converted to projected bed need by dividing each component by 365 to arrive at an average daily census and then by applying a service-specific occupancy standard to derive the total bed need for each given service and age cohort. The sum of the bed need forecasts for each service/cohort is the DBA. The second step is an adjustment to the DBA under certain circumstances based on the projected occupancy of the beds allocated to a given district. This is known as the Adjusted District Bed Allocation (ADBA), and it is composed of the following steps: A Projected Occupancy Rate (FOR) for each district is calculated by multiplying the entire forecast population of the district by a Historic Utilization Rate (HUR), which is derived over the most recent three year period. The product is then divided by 365 times the DBA. The product of this computation is the POR which would result if the district contained the number of beds projected by the DBA and the population continued to utilize hospital services in accordance with the HUR. If the POR is less than 75 percent, the ADBA is determined by substituting a 90 percent occupancy standard in the formulation of DBA instead of the service-specific occupancy standards which would otherwise be applied (ranging from 65 percent for obstetrics to 80 percent for medical/surgical). If the POR is greater than 90 percent, the ADBA is determined by substituting a 75 percent occupancy standard in the calculation of DBA instead of such service- specific standards. In other words, when the POR is less than 75 percent, a a downward bed need adjustment results. When POR is greater than 90 percent, an upward need adjustment results. This part of the methodology is used to make an adjustment for those districts which for whatever reason lie outside the range of-expected utilization. The 75 percent and 90 percent thresholds are based upon an ideal operating range of 80 to 85 percent. The actual standard utilized by HRS is 80 percent, at the low or conservative end of that range. The third step involves the calculation of a Peak Demand Adjustment (PDA) which is accomplished as fellows: The average daily census for a given district is calculated by dividing the total number of projected days by 365. Peak demand is calculated by adding the average daily census to the square root of tic average daily census multiplied by a given standard deviation (1.65 for low peak demand districts or 2.33 for high peak demand districts) referred to as a "Z" value in the methodology: Peak demands utilized as the projected district acute care bed need if it is greater than the bed need for the district reflected by DBA or ADBA as calculated in steps one and two above. The purpose of this peak demand adjustment is to ensure that each district will have sufficient bed capacity to meet service-specific peak demands. Each subdistrict is to be identified by the Local Health Council as having high or low peak demand. These designated as high peak demand utilize a "Z" value; of 2.33 in the methodology in order to assure sufficient capacity to meet 99 percent of their peak capacity. These subdistricts designated as low peak demand areas utilize a "Z" value in the methodology of 1.65 and this assures sufficient total bed capacity to meet 95 percent of the peak demand. The rule also includes an accessibility standard which provides that in each district acute care hospital beds should be available and accessible to 90 percent of the residents within 30 minutes driving time and 45 minutes driving time in urban and rural areas respectively. The rule provides for periodic updating of the statewide discharge rates, average lengths of stay and patient flow factors as data becomes available. The historical use rate used in arriving at the adjusted district bed allocation is updated annually through the use of the most recent three years. Although the rule provides that a Certificate of Need will not "normally" be granted unless need is shown to exist under the methodology in the rule, this need calculation is not determinative of the issue of whether a Certificate of Need should be granted. The rule also provides that even if no bed need is shown to exist under the methodology a Certificate of Need may still be granted if the criteria, other than bed need, under Section 381.494(6)(c), Florida Statutes, demonstrate need. Likewise, the rule states that a Certificate of Need may be denied, where bed need is shown to exist under the rule, but other criteria in Section 381.494(6) are not met. The rule also specifically permits the approval of additional beds in a subdistrict where the accessibility requirements of the rule are not being met. Additional beds may also be approved where there is a need in a subdistrict but a surplus in the district as a whole. The rule utilizes population projections by age cohort in determining the number of hospital patient days by service which will be needed five years in the future. These population projections are based upon the projections made by the Bureau of Economic and Business Research (hereafter BEBR) at the University of Florida. BEBR makes three projections--low, midrange, and high-- for each year. The rule utilizes the midrange projection and the inherent margin of error in these projections is typically plus or minus 5 percent. Although these projections have systematically been low in the past, BEBR now uses a different method which utilizes six different techniques in arriving at ten projections which are then averaged. The flow adjustment used in arriving at the DBA is based upon 1977 MEDPAR data. This data was for Medicare recipients 65 years of age and elder and therefore the flow adjustment is only for that portion of the population over 65 years of age. No data was available from which flow factors could be determined for age cohorts or groups from o to 64 years of age. No data for either age group was available after 1977. ECONOMIC IMPACT STATEMENT An economic impact statement (EIS) was prepared for the challenged rule. The EIS contains an estimate of the Department's printing and distribution cost. The EIS was-- prepared by Phillip Rond, an employee of the Department of Health and Rehabilitative Services. In preparing the EIS, Mr. Rond did a comparison of the health system plans (HSP) with the results under the rule. This comparison was for projected need for the year 1987 and was done for each HRS District. The comparison generated the following results: HRS DISTRICT HSP RULE 1 0 0 2 3 0 3 0 0 4 0 0 5 0 0 6 0 0 7 0 0 8 0 87 9 0 137 10 0 0 11 0 0 3 224 The need calculations under the rule do not change substantially the short term projections under prior methodologies. The rule calculations for 1987 showed need for 221 more beds than was shown to exist under the methodologies used in the health systems plans. Mr. Rond also reviewed the background literature that led to the analysis contained in the state health plan as well as the reports from the Hospital Cost Containment Board. With regard to the rule's affect on competition and the open market the EIS notes that the rule will restrain the development of costly excess acute care bed capacity and in doing so will foster cost containment. Where need is indicated by the methodology or other criteria within the rule then competitive new beds will be allowed. In terms of economic benefit to persons directly affected the EIS points out that there will be a positive impact for some facilities and a negative impact for others. The rule will negatively impact facilities which wish to expand or add new beds if no need for those beds exists under the methodology of the rule. Existing facilities, however, will not be exposed to expansion of the bed supply in those districts where no need for additional beds exist. This benefit will be particularly positive for those facilities providing indigent care. It is a general estimate that operating costs for a health facility will be approximately 22 cents for each dollar of capital expenditure. The rule is intended to support a supply of beds to meet need while preventing excess or unused beds, thus reducing annual operating costs. The EIS notes that by reducing operating costs, the operating cost per bed will be lower and should result in a slower escalation of costs to consumers as well as third party payers such as insurers, taxpayers, and employers. Prior to adoption of the challenged rule, the Department considered and evaluated each of the factors listed in Section 120.54(2), Florida Statutes. There has been traditionally in Florida a surplus of acute care beds. The 1977 medical facilities plan indicated a surplus of beds ever need of 7,253 beds. Using the rule methodology and projecting to 1987, there is a surplus ? 5,562 beds and for 1988, a surplus of 4,044 beds. In both 1980 and 1982, there were significant numbers of licensed beds in the state which were not in use. In 1980, there were 4,923 beds out of the total bed stock in acute care hospitals not in use. This was about 10.7 percent of the total licensed in bed stock. In 1982, there were 5,093 or about 10.6 percent of such beds licensed and not in use. In 1976, the occupancy rate for acute care hospitals in Florida was 60.3 percent. In 1982, the occupancy rate in such facilities was 67 percent. The target occupancy rate under the challenged rule and its methodology is 80 percent.
Findings Of Fact Background On July 31, 1987, the Department of Health and Rehabilitative Services (HRS) published in the Florida Administrative Weekly an announcement of the fixed need pools for the subject batching cycle, which pertained to the planning horizon of July, 1992. According to the notice, the fixed need pool, which was calculated pursuant to Rules 10-5.008(6) and 10-5.011(m), (n), (o), and (q), Florida Administrative Code, was adjusted according to the occupancy rate thresholds as prescribed by said rules. The net adjusted need for short-term psychiatric beds in District 7 was zero. By letter to HRS dated August 12, 1987, the North Brevard County Hospital District, doing business as Jess Parrish Memorial Hospital (Jess Parrish), provided notice of its intent to apply for a certificate of need to convert 16 beds from medical/surgical to psychiatric. By Application for Certificate of Need dated September 14, 1987, Jess Parrish requested that HRS grant a certificate of need for the conversion of 16 medical/surgical beds to 16 adult short-term psychiatric beds at a cost of $46,100. Jess Parrish is a tax-exempt organization whose board of directors have been authorized by law to levy ad valorem taxes in a special tax district in north Brevard County for the support of the hospital. The main hospital is located at 951 North Washington Avenue in Titusville, which is in north Brevard County. Brevard County is located in HRS District 7. By letter to Jess Parrish dated October 5, 1987, HRS requested additional information. By response dated November 9, 1987, Jess Parrish supplied the requested responses to omissions. By letter dated November 18, 1987, Jess Parrish provided additional information desired by HRS. By letter dated December 22, 1987, Wuesthoff Hospital (Wuesthoff) informed HRS that it objected to the above-described application because of absence of need. The letter states that Wuesthoff maintained an occupancy rate of 74% during the past year in its 25 short-term psychiatric beds. Wuesthoff is located in Rockledge, which is in central Brevard County. By letter and State Agency Action Report dated January 25, 1988, HRS informed Jess Parrish of its intent to issue the requested certificate of need for the conversion of the 16 beds. By Petition for Formal Administrative Hearing filed February 23, 1988, Wuesthoff challenged the intent to award the certificate of need to Jess Parrish and requested a formal hearing. The Application and Approval Process The application for the certificate of need states that Jess Parrish has a total of 210 beds, consisting of 172 medical/surgical beds, 10 obstetric beds, 20 pediatric beds, and 8 intensive care unit beds. The application contains all elements required by law, including a resolution authorizing the application and financial statements. The application and omissions response state that Jess Parrish admitted about 100 psychiatric patients in fiscal year ending 1987. The omissions response adds that Jess Parrish would offer the following programs for its short-term psychiatric patients: continual evaluation, screening, and admissions; individual, family, and group therapy; occupational, recreational, and vocational therapy; psychological and psychiatric testing and evaluation; day hospital and day clinic; family and friends education and support groups; and specialized treatment programs for geriatric psychiatric patients. The omissions response reports that the only facility with adult short-term psychiatric beds within 45 minutes of Jess Parrish is Wuesthoff. The omissions response states that Wuesthoff had experienced the following occupancy rates in its adult short-term psychiatric program: 1984--59%; 1985--66%; 1986-- 7l%; and first three quarters of 1987--71%. The omissions response acknowledges that Jess Parrish and Circles of Care, Inc. (Circles of Care) had jointly prepared the application and that Jess Parrish "plans to employ by contract, Circles of Care, Inc. to operate and manage our unit" if the application is approved. The omissions response includes a letter to HRS dated November 10, 1987, from James B. Whitaker, as president of Circles of Care. The letter describes the 12-year relationship between the two parties, which began when Circles of Care leased its first 12 beds from Jess Parrish between 1974 and 1980. Mr. Whitaker states that the two parties thus "work[ed] out a management agreement; for the new sixteen bed unit that Jess Parrish has requested." In the State Agency Action Report, HRS notes that the project does not conform with Policy 4 of the applicable District 7 Local Health Plan. This policy provides that additional short-term inpatient psychiatric beds may be approved when the average annual occupancy rate for all existing facilities in the planning area equals or exceeds the following rates: adult--75% and adolescents/children--70%. HRS reports a similar discrepancy as to the occupancy standard in the State Health Plan, which incorporates at Objective 1.2 the same 70%/75% standards. HRS states in the State Agency Action Report that the 1986 occupancy rates for short-term psychiatric beds, which averaged 69.98% in Brevard County, were 87% at Circles of Care, 70.6% at Wuesthoff, and 14% at a new facility, C. P. C.--Palm Bay. In addition, for the first six months of 1987, the report states that the occupancy rates, which averaged 63.5% in Brevard County, were 76% at Circles of Care, 71.5% at Wuesthoff, and 43% at C. P. C.--Palm Bay. In calculating numeric need under the rule, HRS concludes that there was a net need for a total of 547 beds in the district, consisting of 312 in specialty hospitals and 235 in general hospitals. Addressing the provision of the District 7 Local Health Plan focusing upon need at the county level, HRS finds that there was a net need for a total of 38 beds. Recognizing the "sub- standard utilization" of existing short-term psychiatric beds, HRS states that the application was justified "mainly because of the enhanced access to services that the project would provide." All of the other criteria were fully satisfied with one irrelevant exception, and the State Agency Action Report concludes: Although the district and county utilization of short-term psychiatric beds falls below the 70% [sic) adult standard, this project merits a Certificate of Need because there exists numeric need in the service area and because the project affords greater access and availability to psychiatric services for underserved groups. Need District and State Health Plans Part 3 of the 1985 District 7 Local Health Plan, published by The Local Health Council of East Central Florida, Inc., sets forth policies and priorities for inpatient psychiatric services. Policy 1 establishes each of the four counties of District 7 as a subdistrict for purposes of planning inpatient psychiatric services. Policy 3 of the 1985 District 7 Local Health Plan provides a specific methodology to allocate beds when the numeric need rule methodology indicates a need for inpatient psychiatric beds. A minimum of .15 beds per 1000 projected population should be allocated to hospitals holding a general license. A total of .20 beds per 1000 projected population may be located in specialty hospitals or hospitals holding a general license. The population projections are for five years into the future. Policy 4 of the 1985 District 7 Local Health Plan provides that additional short-term inpatient psychiatric beds may be approved when the average annual occupancy rates for all existing facilities in the planning area equal or exceed 75% for adult facilities and 70% for adolescents/children facilities. The policy concludes: Additional beds should not be added to the health system' until the existing facilities are operating at acceptable levels of occupancy. Good utilization of existing facilities prior to adding beds aids in cost containment by preventing unnecessary duplication. The 1988 District 7 Local Health Plan, although inapplicable to the subject proceeding, refers to the pending application of Jess Parrish. The plan states: [T]he residents of District 7 appear to be well-served by the existing providers with only a few exceptions. First, residents of north Brevard County (Titusville area) currently have no access to any certified, short-term, inpatient psych services in less than 22 miles. In many driving situations this distance takes longer than 30-45 minutes to traverse. . . . If [the CON that has been tentatively approved] is sustained through litigation and the unit is finally opened availability of these 16 beds should ameliorate, to a large degree, the potential geographic access problems for north Brevard adult/geriatric patients at least. Objective 1.1 of the 1985-1987 State Health Plan states that the ratio of short-term inpatient hospital psychiatric beds to population should not exceed .35 beds to 1000 population. Objective 1.2 states that, through 1987, additional short-term psychiatric beds should not normally be approved unless the service districts has an average annual occupancy of 75% for existing and approved adult beds and 70% for existing and approved adolescents/children beds. Numeric Need Pursuant to HRS Rules Net Need Rule 10-5.011(1)(o)4., Florida Administrative Code, sets forth the HRS numeric need methodology. The rule provides that the projected number of beds shall be determined by applying the ratio of .35 beds to 1000 population to the projected population in five years, as estimated by the Executive Office of the Governor. The relevant projected population for District 7 is 1,564,098 persons. Applying the ratio, the gross number of beds needed in District 7 is 547. The total number of existing and approved short-term psychiatric beds in District 7 in 1987 was 410. There is therefore a net need for 137 short-term psychiatric beds in District 7. The relevant projected population for Brevard County is 441,593 persons. Applying the ratio, the gross number of beds needed in Brevard County is 155. The total number of existing and approved short-term psychiatric beds in Brevard County in 1987 was 117. There is therefore a net need for 38 short- term psychiatric beds in Brevard County. A minimum of .15 beds per 1000 population should be located in hospitals holding a general license, and .20 beds per 1000 population may be located in specialty hospitals or hospitals holding a general license. The calculations disclose that, for District 7, there is a net need of 73 beds in the former category and 65 beds in the latter category. As to Brevard County, the respective numbers are 41 and 4. Rule 10-5.011(1)(o)4.d., Florida Administrative Code, provides that new facilities for adults must be able to project a 70% occupancy rate for the first year and 80% occupancy rate for the third year. Jess Parrish projects that its short-term psychiatric program will experience a utilization rate of 66% at the end of the first complete year of operation and 82% at the end of the third complete year of operation. These projections are reasonable and substantially conform with the requirements of the rule. Rule 10-5.011(1)(o)4.e., Florida Administrative Code, provides that no additional short-term inpatient beds shall normally be approved unless the average annual occupancy rate for the preceding 12 months in a "service district" is at least 75% for all existing adult short-term inpatient psychiatric beds and at least 70% for all adolescents/children short-term inpatient psychiatric beds. HRS considered the 70%/75% occupancy standards in making the July, 1987, announcement of a zero fixed need pool for short-term psychiatric beds in Brevard County. The determination of zero fixed need was a reflection that, although numeric need existed, the occupancy standards had not been satisfied. The incorporation of the occupancy standard into the July, 1987, fixed need calculation represented a deviation from nonrule policy deferring computation of the occupancy levels until the application-review process. The prior announcement of a fixed need pool on February 27, 1987, stated that a number of beds were needed even though the occupancy situation in District 7 was about the same. Subsequent announcements likewise deferred consideration of the occupancy standard. HRS has explicated its nonrule policy of excluding occupancy standards from the calculation of numeric need when publishing fixed need pools. Unlike the relatively simple task of determining the relevant population projection and multiplying it by the proper ratio, application of the occupancy standards, especially at the time in question, required numerous determinations and calculations. By attempting to incorporate the occupancy standards into the calculations upon which the fixed need pool were based, HRS increased the potential for error, which occurred in this case, rather than increased the reliability of the information. Although adequate reason exists for revising the July, 1987, published fixed need pool, Rule 10-5.008(2)(a), Florida Administrative Code, prohibits revisions to a fixed need pool based upon a change in need methodologies, population estimates, bed inventories, or other factors leading to a different projection of need, if retroactively applied. However, the revision of the July, 1987, fixed need pool does not represent a change in need methodologies, population estimates, bed inventories, or other factors leading to a different projection of need, if retroactively applied. The revision to the fixed need pool, which did not represent a change in need methodology or underlying facts, was a result of three legitimate considerations. First, HRS revised the fixed need pool to implement its policy decision to limit the fixed need pool to the numeric need calculation and reserve the calculations of occupancy standards to the application-review process. This consideration does not involve a change in the methodology of determining numeric need or applying occupancy standards. Second, HRS revised the fixed need pool to correct earlier, erroneous calculations. This consideration does not involve a change in the underlying facts, but merely in the computations based upon the same facts. Third, HRS revised the fixed need pool to reflect developing policy in the application of the occupancy standards. HRS decided to apply the more liberal 70% occupancy standard to facilities serving both adults and adolescents/children, exclude from the determination of occupancy levels any facilities serving only age cohorts not served by the applicant, and restrict the 75% occupancy standard to facilities serving adults only. HRS made these changes, which it felt would not harm existing providers, in recognition of the failure of data provided by health-care suppliers to distinguish between adult and adolescents/children admissions and patient days. These considerations approximate a change in methodology, but the revision resulting from such considerations does not violate the rule because HRS already has shown that consideration of the occupancy standards should not take place until after publication of the fixed need pool. In the present case, two facilities in District 7 serve only adolescents/children. These facilities are C. P. C.-- Palm Bay and Laurel Oaks, which is in Orange County. Eliminating their occupancy rates, the district occupancy rate in the year ending June 30, 1987, was 71.9%. Removing the occupancy rate of C. P. C.--Palm Bay from Brevard County, the county occupancy rate during the same period was over 75%. Under the revised policies, Brevard County had a net need of 38 short- term psychiatric beds, applicable occupancy standards in the county and district were satisfied, and the July, 1987, publication of a fixed need pool of zero did not preclude the finding of need under other than "not normal" circumstances. Accessibility Financial Accessibility The primary service area of Jess Parrish is north Brevard County. A higher percentage of the population of this area lives below the poverty level than does the population of any other sub-region of Brevard County. According to the 1980 Census data, the applicable percentages of area residents living below the poverty level were 12.7% in north Brevard County, 10% in central Brevard County, 8.4% in south Brevard County, and 9.6% in Brevard County overall. Partly as a reflection of the different sub-regions and partly as a reflection of the commitment of Jess Parrish to provide access to underserved populations, Jess Parrish provides considerably more services to Medicaid patients than does either of the other major general hospitals in central and south Brevard County. In 1987, 11.5% of the admissions and 8.9% of the patient days at Jess Parrish were Medicaid. The respective numbers are 7% and 6% for Wuesthoff and 5.8% and 3.9% for Holmes Regional Medical Center, which is in Melbourne. A key component of financial accessibility is the effect of the proposed program on Circles of Care. About 55% of the patients of Circles of Care are indigent. Another 17% of its patients earn between the minimum wage and $15,000 annually. Circles of Care has participated in all phases of the application process on behalf of Jess Parrish. The approval of the new program would not have an adverse effect on Circles of Care. To the contrary, the new program at Jess Parrish would provide Circles of Care with more treatment options, especially with respect to indigent patients, whose need for short-term psychiatric services has proven at times difficult to meet. These options are especially valuable at a time when there is no net need in Brevard County for any more short-term psychiatric beds in specialty hospitals, such as Circles of Care. The 52 psychiatric beds licensed to Circles of Care are in two different units contained within a single hospital facility located in Melbourne, which is in south Brevard County. Sheridan Oaks is a 24-bed, private unit, which cannot accept many Baker Act patients without adversely affecting the other patients and the psychiatrists who refer private-pay patients to this unit. The other unit is a public Baker Act receiving facility with 28 beds, for which Circles of Care receives state funds. Unlike Sheridan Oaks, the public receiving facility employs the psychiatrists who work there. About 85-90% of all Baker Act patients in Brevard County come through this public receiving facility, whose occupancy rate was 98% in the year ending June 30, 1987. In addition to these units, Circles of Care operates a mental health outpatient clinic in Titusville, an outpatient/inpatient treatment center in the Rockledge/Cocoa area, numerous social clubs throughout Brevard County for the chronic mentally ill, and numerous public education and awareness programs concerning the treatability of mental illness. Another limitation of being a specialty hospital is that Circles of Care does not qualify for Medicaid reimbursement. Jess Parrish, as a general hospital, qualifies for such reimbursement and projects in its application that 39% of its patient days will be Medicaid and 9% of its patient days will be indigent. Geographic Access Jess Parrish is located at the north end of Brevard County, which runs about 80 miles north-south. Wuesthoff is about 25 miles south of Jess Parrish, and Titusville is about 40 miles north of Melbourne. Intercity north-south traffic uses Interstate 95, which is west of the above-described cities, and U.S. Route 1, which runs through the center of each of these cities. Rule 10-5.011(1)(o)5.g., Florida Administrative Code, provides that short-term inpatient psychiatric services should be located within a maximum travel time of 45 minutes under average travel conditions for at least 90% of the population of the service area. This criterion is presently met without the addition of short-term psychiatric beds at Jess Parrish. This factor is outweighed, however, by another factor in this case. Jess Parrish projects about half of its patients will be indigent or Medicaid, and north Brevard County has a disproportionate share of the county's impoverished residents. Average travel conditions for these persons require public transportation, which, in north Brevard County, is limited to Greyhound/Trailways and local taxi companies. Exclusive of time waiting for the bus and traveling to and from the bus stations, the time for the 25-mile trip between Titusville and Rockledge, of which there are three or four trips daily (excluding off-hour trips), ranges from 25-35 minutes. There is evidence in the record that mentally ill bus passengers do not always make it to their intended destinations by way of intercity buses. The use of available public transportation is therefore problematic, but in any event adds considerable time to the travel time to Wuesthoff for those individuals who do not own a motor vehicle. Effect on Wuesthoff The effect of the conversion of medical/surgical beds to short-term psychiatric beds will have no material effect on Wuesthoff, even though it did reduce the number of short-term psychiatric beds from 30 to 25 in 1986. The occupancy rate for Wuesthoff's short-term psychiatric unit in 1987 was 70.6%. The prime service areas of Wuesthoff and Jess Parrish as to psychiatric admissions do not substantially overlap. Although Jess Parrish may be expected to draw more patients from Wuesthoff's prime service area following commencement of the new operation, many of Jess Parrish's patients will be from the indigent and Medicaid payor classes for which the competition is not intense. The addition of a 16-bed short-term psychiatric unit at Jess Parrish will not materially influence the availability of qualified personnel for Wuesthoff. It appears that Jess Parrish will be able to staff the relatively small 16-bed unit without employing significant numbers of professional employees of Wuesthoff. Some of the relatively few patients whom Wuesthoff can be expected to lose to Jess Parrish involve referrals from Titusville-area physicians, psychiatrists, and psychologists, who will place their patients in the closer facility once it is opened. The negative impact upon Wuesthoff is outweighed in these cases by gains for the patients in continuity of care and community support. Financial Feasibility The short-term financial feasibility is good. Jess Parrish has available to it sufficient funds to undertake the relatively modest capital outlay in constructing the facility, which will consist of about 8000 square feet on an existing floor of the hospital. The long-term financial feasibility is generally good. The financial projections are based on reasonable assumptions, which are largely derived from the actual experience of Circles of Care. The projections accurately estimate revenue sources and expenses. Jess Parrish reasonably projects an adequate supply of patients from a combination of sources, including Circles of Care, existing patients whose diagnoses include psychiatric components, and numerous health-care professionals in north Brevard County. The financial projections contemplate a material contribution by Circles of Care, but project no compensating expenditures. However, this deficiency is largely offset by the likelihood that the financial participation of Circles of Care will be restricted to a share of any excess of revenues over expenses of the new project, possibly excluding reimbursement of fairly minor expenses. If that is the case, the effect of any management agreement would be only to reduce the excess of revenues over expenses enjoyed by Jess Parrish from the operation of the short-term psychiatric unit. The management agreement would not expose Jess Parrish to losses that would not have otherwise existed but for the agreement to make payments to Circles of Care. Under these circumstances, the omission of the information, although material, does not seriously cast into doubt the long-term financial feasibility of the project. Quality of Care The quality of hospital care offered by Jess Parrish is excellent. The quality of the various psychiatric services offered by Circles of Care is also excellent. Both facilities are accredited by the Joint Commission on the Accreditation of Hospitals. The issue in this case involves the quality of care to be expected in the 16-bed short-term psychiatric unit for which Jess Parrish seeks a certificate of need. Circles of Care and Jess Parrish have agreed that Circles of Care will be responsible for recruiting most of the personnel for the new program and will employ the program's medical director, who will be responsible for treatment decisions. In addition, Circles of Care will advise Jess Parrish as to the adoption of policy, which will remain ultimately the responsibility of Jess Parrish. Jess Parrish will employ the head nurse and all other full-time professional staff working in the unit. The tentativeness of the arrangement between Circles of Care and Jess Parrish is partly explained by the desire of both parties to avoid the time and expense of negotiating an agreement in every detail prior to obtaining final approval of the certificate of need. In addition, both organizations were devoting substantial time to the subject litigation, for which Circles of Care was paying a portion of the expenses. In the final analysis, the failure to work out the agreement, although not a positive feature of the application, is not a serious problem for two reasons. First, Circles of Care and Jess Parrish have a long history of mutual cooperation. The relationship began when Jess Parrish leased Circles of Care 16 hospital beds for psychiatric use. Although the arrangement ended several years ago when Circles of Care constructed its Melbourne facility, the two organizations have since cooperated in several less intensive ways. Second, although Circles of Care has superior expertise in the area of mental health, Jess Parrish qualifies by itself to operate the proposed facility. Circles of Care has already provided much of the necessary technical information required for the preparation of budgets and pro formas. Recruiting would probably take somewhat longer without Circles of Care, but the modest construction budget obviously does not involve significant debt service, so that the delay would not be costly. Perhaps the most significant loss from a quality-of-care perspective would be the medical director, whose expertise will be critical. Again, this would be largely a problem of delay only, as Jess Parrish would have to find a replacement, although it appears likely that the director may be Dr. David Greenblum, who is already a member of the active medical staff at Jess Parrish. Given the quality of care provided by Jess Parrish in the past, there is no basis for any concern that, in the unlikely event that the parties fail to negotiate an agreement, Jess Parrish would jeopardize its reputation as a quality 200-bed general hospital in order to commence prematurely a 16-bed short- term psychiatric unit. Other Factors The record does not demonstrate that there are less costly, more efficient, or more appropriate alternatives to the inpatient services proposed in the subject application. There are no crisis stabilization units or short-term residential treatment programs available in Brevard County. The proposed project will have a measurable impact only upon Circles of Care, whose existing inpatient facilities will be enhanced, and Wuesthoff, whose existing inpatient facilities will not be materially affected. In general, these existing services are being used in an appropriate and efficient manner. On the other hand, the beds that Jess Parrish seeks to convert are underutilized in their present designation. The medical/surgical beds at Jess Parrish have been utilized at a rate of less than 60% over the past three years. There are no feasible alternatives to renovation of the existing facilities. The costs and methods of proposed construction are reasonable and appropriate. The approval of the application will foster healthy competition in the area of short-term psychiatric services and promote quality assurance.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Health and Rehabilitative Services enter a Final Order granting the application of Jess Parrish for a certificate of need to convert 16 medical/surgical beds to 16 short-term adult psychiatric beds. DONE and ENTERED this 30th day of June, 1989, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of June, 1989. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-1220 Treatment Accorded Proposed Findings of Jess Parrish 1-6 Adopted or adopted in substance. 7-8 Rejected as irrelevant. 9-10 Adopted or adopted in substance. 11 Rejected as recitation of testimony and subordinate. 12-13 Adopted or adopted in substance. Rejected as irrelevant. Adopted to the extent of the finding in the Recommended Order that there likely will be an agreement between Circles of Care and Jess Parrish. Rejected as unsupported by the evidence that such an agreement exists already. Also rejected as unnecessary insofar as the application can stand on its own without the participation of Circles of Care. 15a Adopted or adopted in substance. 15b-15c Rejected as irrelevant. 15d-15g Adopted in substance, although certain proposed facts rejected as subordinate. However, the first sentence of Paragraph 15f is rejected as against the greater weight of the evidence. 15h Rejected as recitation of testimony. 16-18 Adopted or adopted in substance except that all but the last sentence of Paragraph 18g. is rejected as against the greater weight of the evidence and legal argument. 19 First sentence adopted. 19 (remainder) -22. Rejected as subordinate and recitation of evidence. Generally adopted, although most of the facts are rejected as subordinate in the overall finding and cumulative. Adopted except that sixth sentence is rejected as against the greater weight of the evidence and the seventh sentence is rejected as subordinate. Adopted in substance. First sentence adopted. Remainder rejected as irrelevant. Rejected as irrelevant. Adopted. 28a Rejected as unsupported by the greater weight of the evidence. 28b-28d Adopted or adopted in substance. and 31 Rejected as subordinate. Rejected as unnecessary. 32-50 Adopted or adopted in substance. Treatment Accorded Proposed Findings of HRS 1-11 Adopted or adopted in substance. & 14 Rejected as irrelevant. & 15-16 Adopted. 17 Rejected as unnecessary. 18-74 See rulings on Paragraphs 16-50 in preceding section. Treatment Accorded Proposed Findings of Wuesthoff 1-3 Adopted or adopted in substance. Rejected as irrelevant. Rejected as against the greater weight of the evidence and legal argument. 6-10 & 12 Adopted or adopted in substance. 11 Rejected as against the greater weight of the evidence. Rejected as recitation of testimony and cumulative. Rejected as cumulative except that second sentence is adopted. Rejected as recitation of testimony. Rejected as cumulative, subordinate, and legal argument. Rejected as cumulative except that second sentence is adopted. First clause rejected as against the greater weight of the evidence. Remainder rejected as irrelevant. Rejected as cumulative and subordinate. 20-23 Rejected as irrelevant and unnecessary. Rejected as against the greater weight of the evidence. Rejected as irrelevant and unnecessary. Rejected as cumulative. 27-28 Rejected as irrelevant and unnecessary. 29 Rejected as legal argument. 30-32 Rejected as irrelevant. 33-41 Rejected as against the greater weight of the evidence and subordinate. 42 and 51 Rejected as recitation of evidence. 43-45 Rejected as against the greater weight of the evidence. 46 Rejected as legal argument. 47-50 and 52-54 Rejected as subordinate. 55 Rejected as against the greater weight of the evidence. 56-59 Rejected as irrelevant. 60-66 Rejected as subordinate and recitation of testimony. 67-69 Rejected as against the greater weight of the evidence. 70-73 Rejected as against the greater weight of the evidence and subordinate. 74-78 Adopted. 79 Rejected as against the greater weight of the evidence. 80-82 Adopted. 83-85 Rejected as against the greater weight of the evidence. 86 Rejected as subordinate and against the greater weight of the evidence. 87-91 Adopted or adopted in substance. 92 Rejected as against the greater weight of he evidence. 93-94 Rejected as subordinate. Rejected as against the greater weight of the evidence. Rejected as irrelevant. 97-98 Rejected as against the greater weight of the evidence. Rejected as irrelevant. Rejected as subordinate. 101-102 Rejected as against the greater weight of the evidence. Rejected as partly cumulative and partly legal argument. Rejected as against the greater weight of the 105 evidence Rejected and irrelevant. as against the greater weight of the 106-108 evidence. Rejected as subordinate. 109 110-113 Rejected evidence. Rejected as against the greater weight of as subordinate. the 114-117 118-120 Rejected evidence. Rejected as against the greater weight of as irrelevant and subordinate. the 121-122 Rejected as subordinate. 123 124-125 First sentence adopted in substance. Remainder rejected as subordinate. Rejected as subordinate. 126-129 Rejected as unsupported by the greater weight of evidence. the COPIES FURNISHED: Anthony Cleveland W. David Watkins Oertel, Hoffman, Fernandez & Cole, P.A. Post Office Box 6507 Tallahassee, Florida 32314-6507 John Rodriguez 1323 Winewood Boulevard Building 1, Room 407 Tallahassee, Florida 32399-0700 William B. Wiley Darrell White McFarlain, Sternstein, Wiley & Cassedy, P.A. Post Office Box 2174 Tallahassee, Florida 32316-2174 Stephen M. Presnell MacFarlane, Ferguson, Allison & Kelly Post Office Box 82 Tallahassee, Florida 32302 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================
The Issue Whether Florida Administrative Code Rule 59C-1.008(4) (Rule) constitutes an invalid exercise of delegated legislative authority because it enlarges, modifies, or contravenes the specific provisions of law implemented.
Findings Of Fact The Parties VRBH is an existing hospital in Sarasota County. In the second batching cycle of 2016, VRBH applied to AHCA for a CON to establish a Class I Acute Care Replacement Hospital of up to 312 beds in AHCA District VIII, Subdistrict 8-6, Sarasota County. The CON application was preliminarily approved by AHCA on December 2, 2016. SMH is a public hospital system serving Sarasota County. In the second batching cycle of 2016, SMH applied for a CON to establish a new acute care hospital with 90 beds in AHCA District 8, Acute Care Subdistrict 8-6, Sarasota County. As with the VRBH application, the SMH application also received preliminary approval from AHCA on December 2, 2016. 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 through 408.045, Florida Statutes. The Challenged Rule In part, Florida Administrative Code Rule 59C-1.008(4) requires that CON applications contain the audited financial statements of the applicant, or the applicant’s parent corporation. The Rule states as follows: Certificate of Need Application Contents. An application for a Certificate of Need shall contain the following items: All requirements set forth in Sections 408.037(1), (2) and (3), F.S. The correct application fee. An audited financial statement of the applicant or the applicant’s parent corporation if the applicant’s audited financial statements do not exist. The following provisions apply: The audited financial statement of the applicant, or the applicant’s parent corporation, must be for the most current fiscal year. If the most recent fiscal year ended within 120 days prior to the application filing deadline and the audited financial statements are not yet available, then the prior fiscal year will be considered the most recent. Existing health care facilities must provide audited financial statements for the two most recent consecutive fiscal years in accordance with subparagraph 1. above. Only audited financial statements of the applicant, or the applicant’s parent corporation, will be accepted. Audited financial statements of any part of the applicant or the applicant’s parent corporation, including but not limited to subsidiaries, divisions, specific facilities or cost centers, will not qualify as an audit of the applicant or the applicant’s parent corporation. To comply with Section 408.037(1)(b)1., F.S., which requires a listing of all capital projects, the applicant shall provide the total approximate amount of anticipated expenditures for capital projects which meet the definition in subsection 59C-1.002(7), F.A.C., at the time of initial application submission, or state that there are none. An itemized list or grouping of capital projects is not required, although an applicant may choose to itemize or group its capital projects. The applicant shall also indicate the actual or proposed financial commitment to those projects, and include an assessment of the impact of those projects on the applicant’s ability to provide the proposed project; and, Responses to applicable questions contained in the application forms. The 2008 CON Legislative Changes In 2008, the Florida Legislature made numerous changes to streamline the CON application process for general hospitals. It is these changes that VRBH asserts removed the requirement for general hospitals to submit audited financial statements with CON applications. Section 408.035 was amended to provide as follows: 408.035 Review criteria.— The agency shall determine the reviewability of applications and shall review applications for certificate-of-need determinations for health care facilities and health services in context with the following criteria, except for general hospitals as defined in s. 395.002: The need for the health care facilities and health services being proposed. 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 ability of the applicant to provide quality of care and the applicant’s record of providing quality of care. The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. The extent to which the proposed services will enhance access to health care for residents of the service district. The immediate and long-term financial feasibility of the proposal. The extent to which the proposal will foster competition that promotes quality and cost-effectiveness. 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 applicant’s past and proposed provision of health care services to Medicaid patients and the medically indigent. 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. For a general hospital, the agency shall consider only the criteria specified in paragraph (1)(a), paragraph (1)(b), except for quality of care in paragraph (1)(b), and paragraphs (1)(e), (g), and (i). (Emphasis added). Section 408.035 has not been revised since 2008. Additionally, section 408.037 was amended to read as follows: 408.037 Application content.— Except as provided in subsection (2) for a general hospital, an application for a certificate of need must contain: A detailed description of the proposed project and statement of its purpose and need in relation to the district health plan. A statement of the financial resources needed by and available to the applicant to accomplish the proposed project. This statement must include: A complete listing of all capital projects, including new health facility development projects and health facility acquisitions applied for, pending, approved, or underway in any state at the time of application, regardless of whether or not that state has a certificate-of-need program or a capital expenditure review program pursuant to s. 1122 of the Social Security Act. The agency may, by rule, require less- detailed information from major health care providers. This listing must include the applicant’s actual or proposed financial commitment to those projects and an assessment of their impact on the applicant’s ability to provide the proposed project. A detailed listing of the needed capital expenditures, including sources of funds. A detailed financial projection, including a statement of the projected revenue and expenses for the first 2 years of operation after completion of the proposed project. This statement must include a detailed evaluation of the impact of the proposed project on the cost of other services provided by the applicant. An audited financial statement of the applicant or the applicant’s parent corporation if audited financial statements of the applicant do not exist. In an application submitted by an existing health care facility, health maintenance organization, or hospice, financial condition documentation must include, but need not be limited to, a balance sheet and a profit-and-loss statement of the 2 previous fiscal years’ operation. An application for a certificate of need for a general hospital must contain a detailed description of the proposed general hospital project and a statement of its purpose and the needs it will meet. The proposed project’s location, as well as its primary and secondary service areas, must be identified by zip code. Primary service area is defined as the zip codes from which the applicant projects that it will draw 75 percent of its discharges. Secondary service area is defined as the zip codes from which the applicant projects that it will draw its remaining discharges. If, subsequent to issuance of a final order approving the certificate of need, the proposed location of the general hospital changes or the primary service area materially changes, the agency shall revoke the certificate of need. However, if the agency determines that such changes are deemed to enhance access to hospital services in the service district, the agency may permit such changes to occur. A party participating in the administrative hearing regarding the issuance of the certificate of need for a general hospital has standing to participate in any subsequent proceeding regarding the revocation of the certificate of need for a hospital for which the location has changed or for which the primary service area has materially changed. In addition, the application for the certificate of need for a general hospital must include a statement of intent that, if approved by final order of the agency, the applicant shall within 120 days after issuance of the final order or, if there is an appeal of the final order, within 120 days after the issuance of the court’s mandate on appeal, furnish satisfactory proof of the applicant’s financial ability to operate. The agency shall establish documentation requirements, to be completed by each applicant, which show anticipated provider revenues and expenditures, the basis for financing the anticipated cash- flow requirements of the provider, and an applicant’s access to contingency financing. A party participating in the administrative hearing regarding the issuance of the certificate of need for a general hospital may provide written comments concerning the adequacy of the financial information provided, but such party does not have standing to participate in an administrative proceeding regarding proof of the applicant’s financial ability to operate. The agency may require a licensee to provide proof of financial ability to operate at any time if there is evidence of financial instability, including, but not limited to, unpaid expenses necessary for the basic operations of the provider. The applicant must certify that it will license and operate the health care facility. For an existing health care facility, the applicant must be the licenseholder of the facility. (Emphasis added). Section 408.037 has only been amended once since 2008. The revisions are not relevant to the issue presented in this Rule challenge.2/ The Parties’ Positions In support of its argument that the Rule contravenes the statutes, VRBH asserts that the Rule is an invalid exercise of delegated legislative authority because it enlarges, modifies, or contravenes the laws implemented. Simply put, VRBH contends that the Rule is contrary to sections 408.035 and VRBH advances three reasons for its position that the Rule modifies the laws implemented; all three center on the assertion that in 2008, the Legislature removed the requirement for the submission of audited financial statements with general hospital CON applications: Requiring a general hospital to comply with the requirements of section 408.037(1), Florida Statutes, by submitting an audited financial statement with its CON application violates the express provision of the statute which specifically excludes general hospitals from the requirements of subsection (1); Requiring a general hospital to submit an audited financial statement with the CON application directly contradicts the submission requirements set forth in section 408.037(2), Florida Statutes, which only requires a general hospital to provide a statement of intent that it will “furnish satisfactory proof of the applicant’s financial ability to operate” if the CON application is approved by final order of the agency. Requiring a general hospital to submit an audited financial statement with the CON application contradicts the 2008 legislative changes to section 408.035, Florida Statutes, which streamlined the application process for general hospitals by removing the short and long term financial feasibility of the project as a review criteria. (VRBH Petition, ¶¶ 15-17). AHCA’s ultimate position is that the Rule should be interpreted as not requiring audited financial statements for general hospital CON applicants. To reach this conclusion, AHCA relies on 59C-1.008(4)(a), which provides that a CON application must contain “all requirements set forth in Sections 408.037(1), (2), and (3), Florida Statutes.” AHCA interprets the introductory phrase contained in section 408.037(1)--“except as provided in subsection (2) for a general hospital, an application for a certificate of need must contain”--to mean that only subsection (2) of section 408.037 applies to an application for general hospitals. Because section 408.037(2) does not mention audited financial statements, AHCA reasons that they are not required. Therefore, despite the plain language of the Rule, AHCA contends that the Rule does not require the submission of audited financial statements because: the Rule references sections 408.037(1), (2), and (3); AHCA interprets only section 408.037(2) as applying to general hospitals; and section 408.037(2) does not mention audited financial statements. SMH contends that the Rule does not enlarge, modify, or contravene the laws implemented and, therefore, is a valid exercise of delegated legislative authority. Specifically, SMH contends that section 408.037 itself requires general hospital applicants to submit audited financial statements because subsection (2) does not wholesale replace subsection (1) for general hospitals. Subsection (1) applies to general hospitals, unless there is an exception to those requirements listed in subsection (2). Subsection (1) requires the submission of audited financial statements for all CON applicants; nothing in subsection (2) creates an exception to that requirement. SMH also argues that audited financial statements are reliable documents that AHCA can quickly access for relevant information, including an applicant’s provision of health care services to Medicaid patients and the medically indigent, both of which are prominent considerations during the review of a general hospital’s CON application. See § 408.035(1)(i), (2), Fla. Stat. Post 2008 Rule Challenged Rule 59C-1.008(4) does not expressly exclude or differentiate between general hospital CON applications and other CON applications. Instead the Rule cross-references to the statutory requirement. AHCA asserts that by doing so, the Rule incorporates the statutory scheme by reference and does not require a CON application for a general hospital to include audited financial statements. The above-cited statutory provisions clearly state that a general hospital CON application need not include an audited financial statement and that financial condition is not relevant to the CON application review process. Any rule that requires a general hospital CON applicant to provide an audited financial statement with the application would be contrary to the requirements of section 408.037. It follows, therefore, that a rule contrary to the requirements of a statute would be invalid as it would exceed AHCA’s delegated legislative authority. Requiring a general hospital applicant to comply with the requirements of section 408.037(1) would violate the provision of the statute, which expressly excludes general hospitals from the requirements of subsection (1). Further, requiring a general hospital applicant to submit an audited financial statement with its CON application directly contradicts the submission requirements set forth in section 408.037(2). AHCA’s interpretation of rule 59C-1.008 is that it must be read in conjunction with section 408.037, subsections (1), (2), and (3), and accordingly, AHCA does not require that a general hospital applicant submit an audited financial statement as part of its application. AHCA’s interpretation is consistent with the differences in the content of the CON application forms published by AHCA for general hospital applications when compared to non-general hospital applications, for instance, those seeking other beds and services such as comprehensive medical rehabilitation, psychiatric, hospice, and other CON- regulated beds in a hospital. The requirements of each application type correspond to the statutory requirements for each application type. Application forms for projects “except for general hospitals” correspond to the CON application content requirements of section 408.037(1), which requires a statement of financial resources that must include capital projects (Schedule 2 of the CON application); capital expenditures and source of funds (Schedules 1 and 3 of the CON application); and a detailed financial projection, including revenues and expenses for the first two years (Schedules 5 through 8 of the CON application). The general hospital CON application does not have these requirements. General hospitals are not required to submit proof of financial ability to operate at the time of the submission of the CON application. In accordance with rule 59C-1.010(2)(d), general hospitals are required to comply with the requirements of sections 408.035(2) and 408.037(2). Neither of those statutes requires that a general hospital applicant submit proof of financial ability to operate until 120 days after the issuance of the final CON to the applicant. AHCA’s representative, Marisol Fitch, testified that AHCA does not require applicants for general hospitals to submit audited financial statements in the CON application, and that proof of financial ability to operate is required within 120 days after the final approval of the CON application, consistent with the statutory provisions. She testified that the Rule being challenged, when read in conjunction with the AHCA CON application form (incorporated by reference into the Rule) and other AHCA rules, including 59C-1.010 and 59C-1.030, is consistent with the statute, and that no audited financial statements are required. SMH asserts that an audited financial statement for hospitals might contain useful information, such as information on a hospital’s current payor mix. However, the unrefuted testimony is that audited financial statements are not required to include payor mix information, and normally do not since they are typically used to look at an applicant’s financial feasibility to operate. Further, regardless of whether such information might be “useful,” the specific requirement of section 408.037(2) expressly “excepts” general hospitals from the requirement to include such statements in the CON application. Pursuant to rule 59C-1.010(2)(d), “an application for a general hospital must meet the requirements of Sections 408.035(2) and 408.037(2), F.S.,” neither of which require that a general hospital CON applicant provide audited financials or financial feasibility data with the CON application. However, the challenged language in rule 59C-1.008(4) does not contain the “exception” for general hospital applications. Rule 59C-1.008(4) provides, without qualification, that a CON application must contain audited financial statements. Therefore, rules 59C-1.008(4) and 59C-1.010(2)(d) are contradictory. The primary purpose of an audited financial statement in a CON application is to review the short-term and long-term financial feasibility of the proposal. Requiring this financial information is contrary to the clear language of the 2008 changes to section 408.035, which removed the short-term and long-term financial feasibility of the project as review criteria in order to streamline the general hospital CON application process. AHCA has stated that their interpretation of rule 59C-1.008(4) is that it must be read in pari materia with rule 59C-1.010(2)(d) and sections 408.037 and 408.035, therefore, general hospital CON applicants are not required to submit audited financials with the CON application. According to AHCA’s interpretation, rule 59C-1.008(4) does not require a general hospital CON applicant to submit an audited financial statement with the CON application. However, regardless of AHCA’s interpretation, rule 59C-1.008(4) expressly states that a CON application must contain audited financial statements, in contravention of sections 408.035 and 408.037.
The Issue Whether Respondent, Guy Hendricks, III, R.Ph., is subject to discipline pursuant to Subsection 465.016(1)(e), Florida Statutes, for violating Rule 64B16-28.120(2), Florida Administrative Code.
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing, the following findings of facts are made: Respondent, Guy R. Hendricks, III, R.Ph., is a Florida-licensed registered pharmacist, so licensed in 1972; he was licensed as a consultant pharmacist in 1974. Registered pharmacists typically dispense medications at a community pharmacy, for example, Eckerds and Walgreen's. Consulting pharmacists oversee a pharmaceutical distribution system in a long-term care nursing home facility with a Class I institutional permit. In addition to his employment at the Arbors in Orange Park (the Arbors), Respondent is engaged in the development of "cutting edge consultant computer programs" and "research and development in the field of software platforms which will lead to a fully integrated consultant software package." (Respondent's vita, Petitioner's Exhibit 2) On August 1, 1996, Respondent became the consulting pharmacist for the Arbors. The AHCA survey, which is the genesis of the allegations of the Amended Administrative Complaint in this case, was conducted later that same month. The Arbors is a sub-acute care facility which has a Class I institutional pharmacy permit. Florida Statutes and Florida Administrative Code rules restrict the type of medicinal drugs and drug preparations allowed in Class I institutional pharmacies. One of the consulting pharmacist's responsibilities is to see that the applicable Florida Statutes and Florida Administrative Code rules are followed within the Class I institutional pharmacies, subject to pharmacist's control. The Arbors utilized a Baxter SureMed Dispensing Machine (SureMed machine) which is a computerized dispensing machine that stores medications and allows the pharmacist to track when medications are taken from the machine, by whom they are taken, what dosage is dispensed, and to whom the medication is administered. It has a complete computerized tracking system. It is a "modern tool of pharmacy" used to provide a high level of pharmaceutical care for nursing home residents. Florida Statutes and Florida Administrative Code rules require that nursing homes, such as the Arbors, provide "reasonable and consistent quality of life for residents" and that "reasonable efforts be made to accommodate the needs and preferences of residents to enhance the quality of life in a nursing home." Florida Administrative Code rules allow the Arbors to adopt policies and procedures regarding drugs to meet the needs of residents and to maintain an Emergency Medical Kit(s), the contents of which shall be determined by the facility's medical director, director of nursing, and pharmacist, and "it (the medical kit) shall be in accordance with facility policy and procedures"; the "emergency medical kit" may contain medicinal drugs and drug preparations which are not otherwise allowed within Class I institutional pharmacies. Respondent testified that the SureMed machine was being used as one of the Emergency Medical Kits of the Arbors. The drugs contained in the SureMed machine were determined by the Arbors staff before Respondent was employed as consulting pharmacist. During the August 27-28, 1996, AHCA Survey, the surveyor concluded that the SureMed machine was being used inappropriately by the Arbors. The survey revealed that the SureMed dispensing unit was used as an emergency medication kit. Review of the SureMed Policy and Procedure stated "Medications stored in SureMed are intended for emergency stat orders, late admission first dose, new orders and missing doses" (part of Petitioner's Exhibit 5) contrary to the approved use of medicinal drugs used in facilities with a Class I Institutional Pharmacy Permit. An inventory list provided by the facility revealed in excess of 300 medications in the SureMed unit and this unit had been accessed 22 times in the 24 hours prior to surveyor review. Further review of the usage log revealed that an unsampled resident received Norixin from the SureMed unit on 8/26/96 at 23:04, 8/27/96 at 22:21 and 8/28/96 at 22:21 instead of receiving a resident specific labeled medication from the provider pharmacy. Respondent suggests that a "typographical error" may have occurred in the facility's SureMed policy and procedure in that, if the word "not" is inserted after the words "emergency stat orders," the policy and procedure would conform to the limitations proscribed for Class I institutional permitees. While this explanation is plausible, it is not accepted as credible. This portion of the Arbors' SureMed policy and procedure, referenced by the AHCA surveyor, does not follow Florida law. If the foregoing policy and procedure language is the only language considered, the surveyor's conclusions may be justified; however, the surveyor failed to note the following language which immediately follows the quote from the same SureMed policy and procedure. "SureMed is not intended to be a routine source of medication. The pharmacy must be informed of all new admissions, new orders, refill orders, and missing doses." When a nursing home resident is first admitted to the Arbors, the admittee does not bring medications but brings new prescription orders which must be filled by the provider or back-up pharmacy. Home Care Pharmacy in Orlando, Florida, provides medications to the Arbors; it is 140 miles from Orlando to Orange Park. Deliveries are made two times a day. There were occasions in 1996 when patients were out of medication or Home Care Pharmacy was not delivering as ordered. While the Arbors has only a Class I institutional permit which limits drugs readily available to residents, the facility accepts residents who are "sub-acute" care patients, for example, patients with chronic disease, post-surgical patients, and patients with "super" infections, all of whom require continuity of pharmaceutical therapy. Frank May, a registered pharmacist and certified HCFA surveyor for AHCA, testified that while the Arbors' SureMed policy and procedure were "out of compliance," nevertheless, it was appropriate to "take a drug out of the machine or out of the emergency medication kit if it cannot be provided by the provider pharmacy or if that provider pharmacy is a long way off or by a back-up pharmacy in a timely manner for the next dosage of that medication." May also testified that "there is nothing wrong" with utilizing the SureMed machine as an emergency medical kit or maintaining drugs, otherwise not permitted in a Class I institution permit, in the machine. May further testified that without examining each instance wherein the SureMed machine was accessed immediately prior to the AHCA survey, it would be impossible to determine whether or not an "emergency" existed warranting the use of the particular drug obtained from the SureMed machine. May testified that in 1996, the use of automated drug dispensing machines was becoming very prominent in nursing homes; and problems, such as addressed in this case, were "fairly prevalent." Respondent maintains that the facility's use of the SureMed machine was on a bona fide emergency basis only. The Arbors' SureMed policy and procedure were changed immediately following the August 1996 survey. Respondent sent AHCA a July 20, 1997, letter in response to the AHCA licensure investigation in which he identified the SureMed machine as a "computerized emergency system," a "modern tool of pharmacy," and "our only solution" "to treat our residents' sub acute conditions" when "some local pharmacies . . . could not provide medications." The SureMed machine was removed from the Arbors in November 1996.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the charges against Respondent in the Amended Administrative Complaint be dismissed. DONE AND ENTERED this 28th day of March, 2001, in Tallahassee, Leon County, Florida. JEFF B. CLARK 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 March, 2001. COPIES FURNISHED: Guy Hendericks, III Post Office Box 4173 Sebring, Florida 33871 Lawrence F. Kranert, Jr., Esquire Agency for Health Care Administration Post Office Box 14229 Tallahassee, Florida 32317-4229 John Taylor, R.Ph., Executive Director Board of Pharmacy Department of Health 4052 Bald Cypress Way Tallahassee, Florida 32399-1701 Theodore M. Henderson, Agency Clerk Department of Health 4052 Bald Cypress Way, Bin A02 Tallahassee, Florida 32399-1701 William W. Large, General Counsel Department of Health 4052 Bald Cypress Way, Bin A02 Tallahassee, Florida 32399-1701
Findings Of Fact At all times material hereto, Petitioner, R & R Guest Home, Inc., was licensed to operate an adult congregate living facility at 720 Southwest 6th Street, Dania, Florida. On February 5, 1987, the Respondent caused to be conducted an investigation at Petitioner's facility to determine whether a resident, J. T., was appropriately placed. That investigation resulted in the Respondent concluding that the resident needed care beyond that which Petitioner was licensed to provide. Pursuant to the mandate of Section 400.426(7), Florida Statutes, Respondent delivered to Petitioner that day a health assessment form for the resident, with directions that it be completed by the resident's examining physician and returned to Respondent within 30 days. The health assessment form was apparently completed by the resident's examining physician on February 10, 1987, but Petitioner did not submit it to the Respondent until March 30, 1987.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered which sets and levies a $250.00 fine against R & R Guest Home, Inc., for its failure to comply with Section 400.426(7), Florida Statutes. DONE and ENTERED this 6th day of January, 1988, in Tallahassee, Florida. WILLIAM J. KENDRICK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 904/488-9675 FILED with the Clerk of the Division of Administrative Hearings this 6th day of January, 1988. COPIES FURNISHED: Rholanda Higgs-Rule R & R Guest Home, Inc. 720 Southwest 6th Street Dania, Florida 33004 Leonard T. Helfand, Esquire Department of Health and Rehabilitative Services 5190 Northwest 167th Street Miami, Florida 33014 Gregory L. Coler, Secretary Department of and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
The Issue Kindred Hospitals East, LLC ("Kindred") and Select Specialty Hospital-Palm Beach, Inc. ("Select-Palm Beach"), filed applications for Certificates of Need ("CONs") with the Agency for Health Care Administration ("AHCA" or the "Agency") seeking approval for the establishment of long-term care hospitals ("LTCHs") in Palm Beach County, AHCA District 9. Select-Palm Beach's application, CON No. 9661, seeks approval for the establishment of a 60-bed freestanding LTCH in "east central" Palm Beach County about 20 miles south of Kindred's planned location. Kindred's application, CON No. 9662, seeks approval for the establishment of a 70-bed LTCH in the "north central" portion of the county. The ultimate issue in this case is whether either or both applications should be approved by the Agency.
Findings Of Fact Long Term Care Hospitals Of the four classes of facilities licensed as hospitals by the Agency, "Class I or general hospitals," includes: General acute care hospitals with an average length of stay of 25 days or less for all beds; Long term care hospitals, which meet the provisions of subsection 59A-3.065(27), F.A.C.; and, Rural hospitals designated under Section 395, Part III, F.S. Fla. Admin. Code R. 59A-3.252(1)(a). This proceeding concerns CON applications for the second of Florida's Class I or general hospitals: LTCHs. A critically ill patient may be admitted and treated in a general acute care hospital, but, if the patient cannot be stabilized or discharged to a lower level of care on the continuum of care within a relatively short time, the patient may be discharged to an LTCH. An LTCH patient is almost always "critically catastrophically ill or ha[s] been." (Tr. 23). Typically, an LTCH patient is medically unstable, requires extensive nursing care with physician oversight, and often requires extensive technological support. The LTCH patient usually fits into one or more of four categories. One category is patients in need of pulmonary/respiratory services. Usually ventilator dependent, these types of LTCH patients have other needs as well that requires "complex comprehensive ventilator weaning in addition to meeting ... other needs." (Tr. 26). A second category is patients in need of wound care whose wound is life-threatening. Frequently compromised by inadequate nutrition, these types of LTCH patients are often diabetic. There are a number of typical factors that may account for the seriousness of the wound patient's condition. The job of the staff at the LTCH in such a case is to attend to the wound and all the other medical problems of the patient that have extended the time required for care of the wound. A third category is patients with some sort of neuro-trauma. These patients may have had a stroke and are often elderly; if younger, they may be victims of a car accident or some other serious trauma. They typically have multiple body systems that require medical treatment, broken bones and a closed head injury for example, that have made them "very sick and complex." (Tr. 27). The fourth category is referred to by the broad nomenclature of "medically complex" although it is a subset of the population of LTCH patients all of whom are medically complex. The condition of the patients in this fourth category involves two or more body systems. The patients usually present at the LTCH with "renal failure ... [and] with another medical condition ... that requires a ventilator ..." Id. In short, LTCHs provide extended medical and rehabilitative care to patients with multiple, chronic, and/or clinically complex acute medical conditions that usually require care for a relatively extended period of time. To meet the definition of an LTCH a facility must have an average length of inpatient stay ("ALOS") greater than 25 days for all hospital beds. See Fla. Admin. Code R. 59A-3.065(34). The staffs at general acute care hospitals and LTCHs have different orientations. With a staff oriented toward a patient population with a much shorter ALOS, the general acute care hospital setting may not be appropriate for a patient who qualifies for LTCH services. The staff at a general acute care hospital frequently judges success by a patient getting well in a relatively short time. It is often difficult for general acute care hospital staff to sustain the interest and effort necessary to serve the LTCH patient well precisely because of the staff's expectation that the patient will improve is not met in a timely fashion. As time goes by, that expectation continues to be frustrated, a discouragement to staff. The LTCH is unlike other specialized health care settings. The complex, medical, nursing, and therapeutic requirements necessary to serve the LTCH patient may be beyond the capability of the traditional comprehensive medical rehabilitation ("CMR") hospital, nursing home, skilled nursing facility ("SNF"), or, the skilled nursing unit ("SNU"). CMR units and hospitals are rarely, if ever, appropriate for the LTCH patient. Almost invariably, LTCH patients are not able to tolerate the minimum three (3) hours of therapy per day associated with CMR. The primary focus of LTCHs, moreover, is to provide continued acute medical treatment to the patient that may not yet be stable, with the ultimate goal of getting the patient on the road to recovery. In comparison, the CMR hospital treats medically stable patients consistent with its primary focus of restoring functional capabilities, a more advanced step in the continuum of care. Services provided in LTCHs are distinct from those provided in SNFs or SNUs. The latter are not oriented generally to patients who need daily physician visits or the intense nursing services or observations needed by an LTCH patient. Most nursing and clinical personnel in SNFs and SNUs are not experienced with the unique psychosocial needs of long-term acute care patients and their families. An LTCH is distinguished within the healthcare continuum by the high level of care the patient requires, the interdisciplinary treatment model it follows, and the duration of the patient's hospitalization. Within the continuum of care, LTCHs occupy a niche between traditional acute care hospitals that provide initial hospitalization care on a short-term basis and post-acute care facilities such as nursing homes, SNFs, SNUs, and comprehensive medical rehabilitation facilities. Medicare has long recognized LTCHs as a distinct level of care within the health care continuum. The federal government's prospective payment system ("PPS") now treats the LTCH level of service as distinct with its "own DRG system and ... [its] own case rate reimbursement." (Tr. 108). Under the LTCH PPS, each patient is assigned an LTC- DRG (different than the DRG under the general hospital DRG system) with a corresponding payment rate that is weighted based on the patient diagnosis and acuity. The Parties The Agency is the state agency responsible for administering the CON Program and licensing LTCHs and other hospital facilities pursuant to the authority of Health Facility and Services Development Act, Sections 408.031-408.045, Florida Statutes. Select-Palm Beach is the applicant for a free-standing 60-bed LTCH in "east Central Palm Beach County," Select Ex. 1, stamped page 12, near JFK Medical Center in AHCA District 9. Its application, CON No. 9661, was denied by the Agency. Select-Palm Beach is a wholly owned subsidiary of Select Medical Corporation, which provides long term acute care services at 83 LTCHs in 24 states, four of which are freestanding hospitals. The other 79 are each "hospitals-in-a- hospital" ("HIH" or "LTCH HIH"). Kindred is the applicant for a 70-bed LTCH to be located in the north central portion of Palm Beach County in AHCA District 9. Its application, CON No. 9662, was denied by the Agency. Kindred is a wholly owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 73 LTCHs, 59 of which are freestanding, according to the testimony of Mr. Novak. See Tr. 56-57. Kindred Healthcare has been operating LTCHs since 1985 and has operated them in Florida for more than 15 years. At the time of the submission of Kindred's application, Kindred Healthcare's six LTCHs in Florida were Kindred-North Florida, a 60-bed LTCH in Pinellas County, AHCA District 5; Kindred-Central Tampa, with 102 beds, and Kindred-Bay Area- Tampa, with 73 beds, both in Hillsborough County, in AHCA District 6; Kindred-Ft. Lauderdale with 64 beds and Kindred- Hollywood with 124 beds, both in Broward County, ACHA District 10; and Kindred-Coral Gables, with 53 beds, in Dade County, AHCA District 11. The Applications and AHCA's Review The applications were submitted in the first application cycle of 2003. Select-Palm Beach's application is CON No. 9661; Kindred's is CON No. 9662. Select-Palm Beach estimates its total project costs to be $12,856,139. Select-Palm Beach has not yet acquired the site for its proposed LTCH, but did include in its application a map showing three priority site locations, with its preferred site, designated "Site 1," located near JFK Medical Center. At $12,937,419, Kindred's estimate of its project cost is slightly more than Select-Palm Beach's. The exact site of Kindred's proposed LTCH had not been determined at the time of hearing. Kindred's preference, however, is to locate in the West Palm Beach area in the general vicinity of St. Mary's Hospital, in the northern portion of Palm Beach County along the I-95 corridor. This is approximately 15 to 20 miles north of Select's preferred location for its LTCH. There is no LTCH in the five-county service area that comprises District 9: Indian River, Okeechobee, St. Lucie, Martin, and Palm Beach Counties. There are two LTCHs in adjacent District 10 (to the south). They have a total of 188 beds and an average occupancy of 80 percent. The Agency views LTCH care as a district-wide service primarily for Medicare patients. At the time of the filing of the applications, the population in District 9 was over 1.6 million, including about 400,000 in the age cohort 65 and over. About 70 percent of the District 9 population lives in Palm Beach County. More than 70 percent of the District's general acute care hospitals are located in that county. Kindred's preferred location for its LTCH is approximately 40 to 50 miles from the closest District 10 LTCH; Select-Palm Beach is approximately 25 to 35 miles from the closest District 10 LTCH. The locations of Select Palm-Beach's and Kindred's proposed LTCHs are complementary. The SAAR Following its review of the two applications, AHCA issued its State Agency Action Report ("SAAR"). Section G., of the report, entitled "RECOMMENDATION," states: "Deny Con #9661 and CON #9662." Agency Ex. 2, p. 43. On June 11, 2003, the report was signed by Karen Rivera, Health Services and Facilities Consultant Supervisor Certificate of Need, and Mr. Gregg as the Chief of the Bureau of Health Facility Regulation. It contained a section entitled "Authorization for Agency Action" that states, "[a]uthorized representatives of the Agency for Health Care Administration adopted the recommendations contained herein and released the State Agency Action Report." Agency Ex. 2, p. 44. The adoption of the recommendations is the functional equivalent of preliminary denial of the applications. In Section F. of the SAAR under the heading of "Need," (Agency Ex. 2, p. 40), the Agency explained its primary bases for denial; it concluded that the applicants had not shown need for an LTCH in AHCA District 9. The discussions for the two, although not precisely identical, are quite similar: Select Specialty Hospital-Palm Beach, Inc.(CON #9661): The applicant's two methodological approaches to demonstrate need are not supported by any specific discharge studies or other data, including DRG admission criteria from area hospitals regarding potential need. The applicant also failed to provide any supporting documentation from area physicians or other providers regarding potential referrals. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Kindred Hospitals East, L.L.C. (CON #9662): The various methodological approaches presented are not supported by any specific DRG admission criteria from area hospitals suggesting potential need. The applicant provided numerous letters of support for the project from area hospitals, physicians and case managers. However, the number of potential referrals of patients needing LTCH services was not quantified. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Id. At hearing, the Agency's witness professed no disagreement with the SAAR and continued to maintain the same bases contained in the SAAR for the denials of the two applications The SAAR took no issue with either applicant's ability to provide quality care. It concluded that funding for each applicant was likely to be available and that each project appeared to be financially feasible once operating. The SAAR further stated that there were no major architectural concerns regarding Kindred's proposed facility design, but noted reservations regarding the need for further study and revision of Select Palm-Beach's proposed surgery/procedure wing, as well as cost uncertainties for Select Palm Beach because of such potential revisions. By the time of final hearing, however, the parties had stipulated to the reasonableness of each applicant's proposed costs and methods of construction. The parties stipulated to the satisfaction of a number of the statutory CON criteria by the two applicants. The parties agreed that the applications complied with the content and review process requirements of sections 408.037 and 409.039, Florida Statutes, with one exception. Select reserved the issue of the lack of a Year 2 of Schedule 6, (Staffing) in Kindred's application. The form of Schedule 6 provided by AHCA to Kindred (unlike other schedules of the application) does not clearly indicate that a second year of staffing data must be provided. The remainder of the criteria stipulated and the positions of the parties as articulated in testimony at hearing and in the proposed orders that were submitted leave need as the sole issue of consequence with one exception: whether Kindred has demonstrated that its project is financially feasible in the long term. Kindred's Long Term Financial Feasibility Select-Palm Beach contends that Kindred's project is not financially feasible in the long term for two reasons. They relate to Kindred's application and are stated in Select Palm Beach's proposed order: Kindred understated property taxes[;] Kindred completely fails to include in its expenses on Schedule 8, patient medical assistance trust fund (PMATF) taxes [citation omitted]. Proposed Recommended Order of Select-Palm Beach, Inc., p. 32, Finding of Fact 97. Raised after the proceeding began at DOAH by Select- Palm Beach, these two issues were not considered by AHCA when it conducted its review of Kindred's application because the issues were not apparent from the face of the application. AHCA's Review of Kindred's Application Kindred emerged from a Chapter 11 bankruptcy proceedings on April 20, 2001, under a plan of reorganization. With respect to the events that led to the bankruptcy proceeding and the need to review prior financial statements, AHCA made the following finding in the SAAR: Under the plan [of reorganization], the applicant [Kindred] adopted the fresh start accounting provision of SOP 90-7. Under fresh start accounting, a new reporting entity is created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values. Accordingly, the prior period financial statements are not comparable to the current period statements and will not be considered in this analysis. Agency Ex. 2, p. 30. The financial statements provided by Kindred as part of its application show that Kindred Healthcare, Kindred's parent, is a financially strong company. The information contained in Kindred's CON application filed in 2003 included Kindred Healthcare's financial statements from the preceding calendar year. Kindred Healthcare's Consolidated Statement of Operations for the year ended December 31, 2002, showed "Income from Operations" to be more than $33 million, and net cash provided by operating activities (cash flow) of over $248 million for the period. Its Consolidated Balance Sheet as of December 31, 2002, showed cash and cash equivalents of over $244 million and total assets of over $1.6 billion. In light of the information contained in Kindred's CON application, the SAAR concluded with regard to short term financial feasibility: Based on the audited financial statements of the applicant, cash on hand and cash flows, if they continue at the current level, would be sufficient to fund this project as proposed. Funding for all capital projects, with the support of its parent, is likely to be available as needed. Agency Ex. 2, p. 30 (emphasis supplied). The SAAR recognized that Kindred projected a "year two operating loss for the hospital of $287,215." Agency Ex. 2, p. Nonetheless, the SAAR concludes on the issue of financial feasibility, "[w]ith continued operational support from the parent company, this project [Kindred's] is considered financially feasible." Id. The Agency did not have the information, however, at the time it reviewed Kindred's application that Kindred understated property taxes and omitted the Public Medicaid Trust Fund and Medical Assistance Trust Fund ("PMATF") "provider tax" of 1.5 percent that would be imposed on Kindred's anticipated revenues of $11,635,919 as contended by Select-Palm Beach. Consistent with Select Palm-Beach's general contentions about property taxes and PMATF taxes, "Kindred acknowledges that it likely understated taxes to be incurred in the operation of its facility." Kindred's Proposed Recommended Order, paragraph 50, p. 19. The parties agree, moreover, that the omitted PMATF tax is reasonably projected to be $175,000. They do not agree, however, as to the impact of the PMATF tax on year two operating loss. The difference between the two (approximately $43,000) is attributable to a corporate income tax benefit deduction claimed by Kindred so that the combination of the application's projected loss, the omitted PMATF tax, and the deduction yields a year two operating loss of approximately $419,000. Without taking into consideration the income tax benefit, Select-Palm Beach contends that adding in the PMATF tax produces a loss of $462,000. Kindred and Select-Palm Beach also disagree over the projection of property taxes by approximately $50,000. Kindred projects that the property taxes in year two of operation will be approximately $225,000 instead of the $49,400 listed in the application. Select-Palm Beach projects that they will be $50,000 higher at approximately $275,000. Whether Kindred's or Select-Palm Beach's figures are right, Kindred makes two points. First, if year two revenues and expenses, adjusted for underestimated and omitted taxes, are examined on a quarterly basis, the fourth quarter of year two has a better bottom line than the earlier quarters. Not only will the fourth quarter bottom line be better, but, using Kindred's figures, the fourth quarter of year two of operations is profitable. Second, and most importantly given the Agency's willingness to credit Kindred with financial support from its parent, Kindred's application included in its application an interest figure of $1.2 million for year one of operation and $1.03 million for year two. Kindred claims in its proposed recommended order that "[i]n reality ... this project will incur no interest expense as Kindred intends to fund the project out of cash on hand, or operating capital, and would not have to borrow money to construct the project." Id., at paragraph 54, p. 20. Through the testimony of John Grant, Director of Planning and Development for Kindred's parent, Kindred Healthcare, Kindred indicated at hearing that its parent might, indeed, fund the project: A ... Kindred [Healthcare] would likely fund this project out of operating capital. Like I said, in the first nine months of this year Kindred had operating cash flow of approximately $180 million. So it's not as if we would have to actually borrow money to complete a project like this. Q And what was the interest expense that you had budgeted in Year Two for this facility? A $1,032,000. Q ... so is it your statement then that this facility would not owe any interest back to the parent company? A That's correct. Tr. 221-222 (emphasis supplied). If the "financing interest" expense is excluded from Kindred's statement of projected expenses in Schedule 8 of the CON application, using Kindred's revised projections, the project shows a profit of approximately $612,0002 for the second year of operation. If Select-Palm Beach's figures and bottom line loss excludes the "finances interest" expense, the elimination of the expense yields of profit for year two of operations in excess of $500,000. If the support of Kindred's parent is considered as the Agency has signaled its willingness to do and provided that the project is, in fact, funded by Kindred Healthcare rather than financed through some other means that would cause Kindred to incur interest expense, Kindred's project is financially feasible in the long term. With the exception of the issue regarding Kindred's long term financial feasibility, as stated above, taken together, the stipulation and agreements of the parties, the Agency's preliminary review contained in the SAAR, and the evidence at hearing, all distill the issues in this case to one overarching issue left to be resolved by this Recommended Order: need for long term care hospital beds in District 9. Need for the Proposals From AHCA's perspective prior to the hearing, the only issue in dispute with respect to the two applications is need. This point was made clear by Mr. Gregg's testimony at hearing in answer to a question posed by counsel for Select-Palm Beach: Q. ... Assuming there was sufficient need for 130 beds in the district is there any reason why both applicants shouldn't be approved in this case, assuming that need? A. No. (Tr. 398). Both applicants contend that the application each submitted is superior to the other. Neither, however, at this point in the proceeding, has any objection to approval of the other application provided its own application is approved. Consistent with its position that both applications may be approved, Select-Palm Beach presented testimony through its health care planner Patricia Greenberg3 that there was need in District 9 for both applicants' projects. Her testimony, moreover, rehabilitated the single Kindred methodology of three that yielded numeric need less than the 130 beds proposed by both applications: Q ... you do believe that there is a need for both in the district. A I believe there's a need for two facilities in the district. Q It could support two facilities? A Oh, absolutely. Q And the disagreement primarily relates to the conservative approach of Kindred in terms of not factoring in out-migration and the narrowing the DRG categories? A Correct. ... Kindred actually had three models. Two of them support both facilities, but it's the GMLOS model that I typically rely on, and it didn't on the surface support both facilities. That's why I reconciled the two, and I believe that's the difference, is just the 50 DRGs and not including the out-migration. That would boost their need above the 130, and two facilities would give people alternatives, it would foster competition, and it would really improve access in that market. Tr. 150-51. Need for the applications, therefore, is the paramount issue in this case. Since both applicants are qualified to operate an LTCH in Florida, if need is proven for the 130 beds, then with the exception of Kindred's long term financial feasibility, all parties agree that there is no further issue: both applications should be granted. No Agency Numeric Need Methodology The Agency has not established a numeric need methodology for LTCH services. Consequently, it does not publish a fixed-need pool for LTCHs. Nor does the Agency have "any policy upon which to determine need for the proposed beds or service." See Fla. Admin. Code R. 59C-1.008(2)(e)1. Florida Administrative Code Rule 59C-1.008(2), which governs "Fixed Need Pools" (the "Fixed Need Pools Rule") states that if "no agency policy exist" with regard to a needs assessment methodology: [T]he applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. Fla. Admin. Code R. 59C-1.008(2)(e)2. The Fixed Need Pools Rule goes on to elaborate in subparagraph (e)3 that "[t]he existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area." Population, Demographics and Dynamics The first of the four topics to be addressed when an applicant is responsible for demonstrating need through a needs assessment methodology is "population, demographics and dynamics." The Agency has not defined service areas for LTCHs. Nonetheless, from a health planning perspective, it views LTCH services as being provided district-wide primarily for Medicare patients. Consistent with the Agency's view, Select-Palm Beach identified the entire district, that is, all of AHCA District 9, as its service area. It identified Palm Beach County, one of the five counties in AHCA District 9, as its primary service area. In identifying the service area for Select-Palm Beach, Ms. Greenberg drew data from various sources: population estimates for Palm Beach County and surrounding areas; the number of acute care hospital beds in the area; the number of LTCH beds in the area; the types of patients treated at acute care hospitals; and the lengths of stay of the patients treated at those hospitals. AHCA District 9 has more elderly than any other district in the State, and Palm Beach County has more than any other county except for Dade. Palm Beach County residents comprise 71% of the District 9 population. It is reasonably projected that the elderly population (the "65 and over" age cohort) in Palm Beach County is projected to grow at the rate of 8 percent by 2008. The "65 and over" age cohort is significant because the members of that cohort are most likely to utilize hospital services, including LTCH services. Its members are most likely to suffer complications from illness and surgical procedures and more likely to have co-morbidity conditions that require long- term acute care. Persons over 65 years of age comprise approximately 80 percent of the patient population of LTCH facilities. Both Select-Palm Beach and Kindred project that approximately 80 percent of their admissions will come from Medicare patients. Since 90 percent of admissions to an LTCH come from acute care facilities, most of the patient days expected at Select-Palm Beach's proposed LTCH will originate from residents in its primary service area, Palm Beach County. When looking at the migration pattern for patients at acute care facilities within Palm Beach County, the majority (90 percent) come from Palm Beach County residents. Thus, Select- Palm Beach's projected primary service area is reasonable. Just as Select-Palm Beach, Kindred proposes to serve the entire District. Kindred proposes that its facility be based in Palm Beach County because of the percentage of the district's population in the county as well as because more than 70% of the district's general acute care hospitals are in the county. Its selection of the District as its service area, consistent with the Agency's view, is reasonable. Currently there are no LTCHs in District 9. Availability, Utilization and Quality of Like Services The second topic is "availability, utilization and quality of like services." There are no "like" services available to District residents in the District. Select-Palm Beach and Kindred, therefore, contend that they meet the criteria of the second topic. There are like services in other AHCA Districts. For example, AHCA District 10 has at total of 188 beds at two Kindred facilities in Fort Lauderdale and Hollywood. The Agency, however, did not present evidence of their quality, that they were available or to what extent they are utilized by the residents of AHCA District 9. Medical Treatment Trends The third topic is medical treatment trends. Caring for patients with chronic and long term care needs is becoming increasingly more important as the population ages and as medical technology continues to emerge that prolongs life expectancies. Through treatment provided the medically complex and critically ill with state of the art mechanical ventilators, metabolic analyzers, and breathing monitors, LTCHs meet needs beyond the capability of the typical general acute care hospitals. In this way, LTCHs fill a niche in the continuum of care that addresses the needs of a small but growing patient population. Treatment for these patients in an LTCH, who otherwise would be cared for without adequate reimbursement to the general acute care hospital or moved to an alternative setting with staff and services inadequate to meet their needs, is a medical trend. Market Conditions The fourth topic to be addressed by the applicant is market conditions. The federal government's development of a distinctive prospective payment system for LTCHs (LTC-DRG), has created a market condition favorable to LTCHs. General acute care hospitals face substantial losses for the medically complex patient who uses far greater resources than expected on the basis of individual diagnoses. Medicare covers between 80 and 85 percent of LTCH patients. The remaining patients are covered by private insurance, managed care and Medicaid. LTCH programs allow for shorter lengths of stay in a general acute care facility, reduces re-admissions and provide more discharges to home. These benefits are increasingly recognized. Numeric Need Analysis Kindred presented a set of needs assessment methodologies that yielded numeric need for the beds applied for by Kindred. Select-Palm Beach did the same. Unlike Kindred, however, all of the needs assessment methodologies presented by Select-Palm Beach demonstrated numeric need in excess of the 130 beds proposed by both applications. Select-Palm Beach's methodologies, overall, are superior to Kindred's. Select-Palm Beach used two sets of needs assessment methodologies and sensitivity testing of one of the sets that confirmed the methodology's reasonableness. The two sets or needs assessment methodologies are: (1) a use rate methodology and (2) length of stay methodologies. The use rate methodology yielded projected bed need for Palm Beach County alone in excess of the 130 beds proposed by the two applicants. For the year "7/05 - 6/06" the bed need is projected to be 256; for the year "7/06 - 6/07" the bed need is projected to be 261; and, for the year "7/07 - 6/08" the bed need is projected to be 266. See Select Ex. 1, Bates Stamp p. 000036 and the testimony of Ms. Greenberg at tr. 114. If the use rate analysis had been re-computed to include two districts whose data was excluded from the analysis, the bed need yielded for Palm Beach County alone was 175 beds, a numeric need still in excess of the 130 beds proposed by both applicants. The use rate methodology is reasonable.4 The length of stay methodologies are also reasonable. These two methodologies also yielded numeric need for beds in excess of the 130 beds proposed. The two methodologies yielded need for 167 beds and 250 beds. Agency Denial The Agency's general concerns about LTCHs are not without basis. For many years, there were almost no LTCH CON applications filed with the Agency. A change occurred in 2002. The change in the LTCH environment in the last few years put AHCA in the position of having "to adapt to a rapidly changing situation in terms of [Agency] understanding of what has been going on in recent years with long-term care hospitals." (Tr. 358.) "... [I]n the last couple of years long-term care hospital applications have become [AHCA's] most common type of application." (Tr. 359.) At the time of the upsurge in applications, there was "virtually nothing ... in the academic literature about long- term care hospitals ... that could [provide] ... an understanding of what was going on ... [nor was there anything] in the peer reviewed literature that addressed long-term care hospitals" id., and the health care planning issues that affected them. Two MedPAC reports came out, one in 2003 and another in 2004. The 2003 report conveyed the information that the federal government was unable to identify patients appropriate for LTCH services, services that are overwhelmingly Medicare funded, because of overlap of LTCH services with other types of services. The 2004 report gave an account of the federal government decision to change its payment policy for a type of long-term care hospitals that are known as "hospitals-within- hospitals" (tr. 368) so that "hospitals within hospitals as of this past summer [2004] can now only treat 25 percent of their patients from the host hospital." Id. Both reports roused concerns for AHCA. First, if appropriate LTCH patients cannot be identified and other types of services overlap appropriately with LTCH services, AHCA cannot produce a valid needs assessment methodology. The second produces another concern. In the words of Mr. Gregg, The problem ... with oversupply of long-term care hospital beds is that it creates an incentive for providers to seek patient who are less appropriate for the service. What we know now is that only the sickest patient ... with the most severe conditions are truly appropriate for long-term care hospital placement. * * * ... [T]he MedPAC report most recently shows us that the greatest indicator of utilization of long-term care hospital services is the mere availability of those services. Tr. 368-369. The MedPAC reports, themselves, although marked for identification, were not admitted into evidence. Objections to their admission (in particular, Kindred's) were sustained because they had not been listed by AHCA on the stipulation required by the Pre-hearing Order of Instructions.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be issued by the Agency for Health Care Administration that: approves Select-Palm Beach's application, CON 9661; and approves Kindred's application CON 9662 with the condition that financing of the project be provided by Kindred Healthcare. DONE AND ENTERED this 18th day of April, 2005, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 18th day of April, 2005.
The Issue Whether under Section 381.494(6)(c)-(d), Florida Statutes, and Rule 10-5.11, Florida Administrative Code, Respondent, Martin Memorial Hospital Association, Inc., is entitled to a Certificate of Need ("CON") authorizing a proposed 75-bed satellite hospital in Port Salerno, Martin County, Florida.
Findings Of Fact Background Respondent, Martin Memorial Hospital Association, Inc. ("Martin Memorial"), seeks a CON to construct and operate a 75- bed satellite hospital in Port Salerno, Florida. Of the proposed 75 acute-care beds, 50 will be new and 25 will be transferred from Mar in Memorial's existing hospital in Stuart, Florida. The proposed satellite hospital will have six intensive care beds, 69 medical-surgical beds, and two operating rooms. Respondent, Department of Health and Rehabilitative Services ("DHRS"), preliminarily issued the applied-for CON. After Petitioner, Palm Beach-Martin County Medical Center ("PBMC"), owner of nearby Jupiter Hospital in northern Palm Beach County, requested a Section 120.57 hearing to contest issuance of the CON, DHRS forwarded this case to the Division of Administrative Hearings for assignment of a hearing officer. This case, in its earlier stages, was a consolidated proceeding with numerous parties and party-applicants. In the fall of 1984, several parties withdrew or were dismissed. One of the them, American Healthcorp., dismissed its challenge of DHRS' denial of its application to construct a 120-bed new hospital in Vero Beach, Florida. Prior to that dismissal, American Healthcorp. had filed a mandamus action in Leon County Circuit Court to require DHRS to issue a CON. The writ of mandamus was issued and that order was appealed by DHRS to the First District Court of Appeal. On June 18, 1985, the First District reversed the Circuit Court's order. DHRS never issued a CON to American Healthcorp., as the writ of mandamus was stayed during the pendency of the appeal. Initially, PBMC, another party-applicant, contested DHRS' denial of a proposed 66-bed addition to its existing hospital in Jupiter, Palm Beach County, Florida. Later, PBMC dropped its opposition to the denial after concluding that, due to a dramatic drop in patient census during 1984, additional beds in the area were not needed.1 On Martin Memorial's unopposed motion to dismiss, PBMC was dismissed as a party. Other nonapplicant intervenors subsequently withdrew. In the earlier consolidated proceeding, Martin Memorial had contested the denial of its initial application (filed in 1983) for a CON to construct a 150-bed satellite hospital in Port Salerno, on the same site as now proposed for the 75-bed hospital. In October, 1984, Martin Memorial revised its application, within a deadline for submittal of amended applications set by prehearing order. This revised application, now the subject of this proceeding, reduced the number of beds in the proposed hospital from 150 to 75: 50 were to be new and 25 were to be transferred from Martin Memorial's existing hospital in Stuart.2 This 75-bed application was then preliminarily approved by DHRS, as part of an effort to settle the pending consolidated proceeding. After notice of the approval was published on December 7, 1984 in the Florida Administrative Weekly, PBMC timely requested a hearing to contest it. PBMC's position is, generally, that another hospital in the area is not needed and will result in an unnecessary duplication of services and that, if built, the hospital would draw patients who would otherwise use Jupiter Hospital, to the economic injury of PBMC. The remaining party-applicant in the consolidated proceeding was Lawnwood Medical Center, whose proposed 50- bedexpansion of its hospital in Fort Pierce (St. Lucie County), was preliminarily approved by DHRS. Martin Memorial requested a Section 120.57(1) hearing to contest the approval. By stipulation dated May 15, 1985, Lawnwood Medical Center was dismissed as a party. Martin Memorial II. The Parties The applicant, Martin Memorial, operates a not-for- profit community hospital in Stuart, Florida, which has served the health care needs of the area since 1939. At that time, it had 25 beds and the site consisted o eight acres. In subsequent years, Martin Memorial added five additional acres of land, and the hospital now has 336 beds, including 26 new beds: nearing completion. Martin Memorial is a subsidiary of Coastal Health Corporation, a not-for-profit holding company. One of the holding company's other non-profit subsidiaries, Coastal Care Corporation, provides services such as ambulatory surgery and primary or emergency care at medical treatment centers. Martin Memorial and its parent corporation, Coastal Health Corporation, are governed by boards comprised of full- time residents of Martin County who serve without compensation. Martin Memorial Hospital has a proven record of providing health care to indigents. Its policy is to provide health services without regard to race, religion, national origin, or a patient's ability to pay. It has always participated in the Medicare/Medicaid Programs and participates in the county indigent program. It proposes to follow the same policy at the proposed satellite hospital. Martin Memorial Hospital, in Stuart, is adjacent to the St. Lucie River on the north, bounded by the Heida-Brad Park residential development on the east, by the St. Mary's Episcopal Church on the south, and by various businesses and residences on the west. It would be difficult for Martin Memorial Hospital to expand to meet anticipated future demand. It has found it impractical to buy additional land adjacent to its existing facility. (It does not nave eminent domain power.) Under current zoning, its height is limited to the existing six floors. Other obstacles include problems with parking access and compliance with fire safety codes. Palm Beach-Martin (PBMC) PBMC is a non-profit corporation, organized in 1973, with the stated purpose of serving tee health care needs of residents of northern Palm Beach County and southern Martin County. It operates a community not-for-profit hospital, known as Jupiter Hospital, in Jupiter, Florida. A 156-bed acute care hospital, it is the northern most hospital in Palm Beach County and provides health care services to the residents of northern Palm Beach and southern Martin Counties. Over 10% of Jupiter Hospital's patients come from the Hobe Sound area of Martin County, and another 20% come from the Tequesta area of Martin County. The boards which operate PBMC and Jupiter Hospital are made up of volunteers; one-half of whom are doctors on the hospital's medical staff, and the other half are lay-members from the community. All policy decisions are made by the boards. The hospital is managed, under contract, by hospital Corporation of America Management Company (owned by Hospital Corporation of America) which supplies only the hospital administrator and finance director, all other personnel are employees of PBMC. Like Martin Memorial, PBMC has a practice of providing health care to indigent patients. It has a Medicaid contract at its convalescent pavilion and treats Medicaid patients requiring care. (Since it has not had a Medicaid contract with the state, PBMC "writes-off" the cost of care provided to Medicaid and indigent patients. But due to an increasing number of Medicaid patients, PBMC has applied for a Medicaid contract.) It has a current contract with Palm Beach County to treat indigents in its out-patient facility. Department of Health and Rehabilitative Services (DHRS) DHRS is designated by statute as the single state agency charged with issuing and denying CONs in accordance with district plans, DHRS rules, and state and federal statutes. See, Section 381.494, Florida Statutes (1983). Geographic Facts The proposed satellite hospital would be located in Port Salerno, Martin County, 5 1/2 miles south of Martin Memorial Hospital and 15 miles north of Jupiter Hospital. The site of the proposes hospital is 35 acres in size, and is located approximately 1/4 mile east of Highway U.S. 1, on Port Salerno Road. Jonathan Dickinson State Park, abutting Highway U.S. 1 for five miles, is situated between the site of the proposed satellite hospital and PBMC's Jupiter Hospital. The area of Hobe Sound is just north of this State Park. The proposed hospital would be adjacent to the Martin County Campus of Indian River Community College. III. Standing of PBMC: Expected Impact of Proposed Hospital on PBMC. Since it is physicians who admit patients to hospitals, the extent to which medical staffs overlap is one factor used to project how a new hospital will affect an existing one. Martin Memorial Hospital and Jupiter Hospital have distinct medical staffs and there is no material overlap. Neither has it been shown that Jupiter Hospital physicians will seek staff privileges at the proposed satellite hospital. It is reasonably expected that the proposed hospital will be staffed, for the most part, by physicians who are also on the staff of Martin Memorial Hospital. Nevertheless, the proposed satellite hospital would draw away a substantial portion of Jupiter Hospital's patient base and is intended to reduce Jupiter Hospital's market share in the Hobe Sound area to near zero. (Indeed, this is a result projected in Martin Memorial's Long Range Plan.) Martin Memorial (in its Long Range Plan) estimates Jupiter Hospital's current market share to be 65%. Jupiter Hospital's primary service area includes Hobe Sound, from which it draws approximately 10% of its patients. The northern boundary of the Hobe Sound area is 20 minutes driving time from Jupiter Hospital. Hobe Sound is also within the primary service area of the proposed satellite hospital. The proposed hospital would be in the same DHRS Service District as Jupiter Hospital and both hospitals would have overlapping primary service areas. The projected loss of 10% of its patient base to the proposed satellite hospital would have a significant adverse financial impact on PBMC. It has not been shown, however, this impact would imperil the continued financial feasibility of Jupiter Hospital. IV. Numerical Bed-need Projected by Applying DHRS Rule-Based Bed-need Methodology. The proposed satellite hospital would be located in DHRS Health District 9, which consists of Indian River, St. Lucie, 55artin, Okeechobee, and Palm Beach Counties. The state acute care bed-need methodology is a complex formula contained in Rule 10-5.11(23), Florida Administrative Code. It projects bed-need, on a district-wide basis, five years into the future, creating what is referred to as a "five-year planning horizon" for assessing acute care bed-need. The formula requires several district-specific inputs, including population forecasts in four age groups, the average fertility rate in the district for the three most recent years, the average historical utilization rate in the district for the three most recent years, together with specific factors used to determine the net flow of elderly patients. Three other input factors are applied uniformly to all districts: discharge rates by service and by age cohort for Florida residents, average length of stay by service and by age cohort, and occupancy standards by service and by age cohort. Application of the formula entails seven steps: Project patient days by service and by age cohort using the formula: Patient days = projected population x discharge rate x average length of stay Adjust the projected patient days for the 65 and over age cohort to account for patient flows. Calculate bed-need by applying service- specific occupancy standards to projected patient days. Calculate the district bed allocation by summing the beds needed by service. Calculate the projected occupancy of these beds using the district's historical utilization rate. If the projected occupancy. rate is less than 75 percent or greater than 90 percent, apply specified formulas to adjust the district bed allocation (downward or upward, respectively. Check to ensure that each district will be able to meet peak demand based on the adjusted allocation. (R-l8l/, Testimony of Kolb) Population projections used in the methodology are: "for age- specific cohorts residing in the relevant district projected five years into the future," Rule 10-5.11(23)(f)1., Florida Administrative Code. These age-specific cohort projections (of county populations) must be "those developed by the State Health Planning Agency, and will be based on the latest mid-range projections published by the Bureau of Economic and Business Research of the University of Florida [BEBR]." Id. There are currently 4,695 licensed or approved acute care beds in District 9, which includes the 50 additional beds (preliminarily) approved for the proposed satellite hospital and the 45 beds approved in a subsequent batching cycle. For July, 1989, application of the bed-need methodology shows a district wide gross need of 4,621 beds. This is based on population forecasts for July, 1939, released by the Governor's Budgeting and Planning Office on- January 1, 1985.This office interpolates and publishes population forecasts based on figures received from BEBR. Since later 1934 (when Rule 27E-2.01-.04 was adopted requiring state agencies to use, in their planning, population projections provided by the Governor's Office), DHRS's Office of Health Planning and Development has used such forecasts to project bed-need under the methodology. These forecasts are appropriate for such use since they are "developed" by the State Health Planning Agency and based on the latest mid-range projections published by BEBR. When the licensed or approved bed total of 4,645 (excluding 50 beds for the proposed satellite hospital) are subtracted from the district wide gross need, there is a net surplus of 24 beds. If the 50 beds of the proposed satellite hospital are included, the net surplus increases to 74 beds. A planning horizon of January, 1990, however, is more appropriate. It more closely conforms to the methodology's requirement that need be projected five years into the future. (At hearing, all parties agreed or acquiesced to the proposition that the five year planning horizon should begin to run, to the extent possible, from the date of final hearing in June, 1985.) The latest county-wide projections released by the Governor's Office for state agency use, projects population by age and sex cohorts for January 1, 1990 and July 1, 1990. The July 1, 1990 projections are beyond the five year horizon and so less suitable for use in the methodology. Applying, then, the bed-need methodology to project bed-need for January, 1990, shows a gross need of 4,702 beds, resulting in a total district wide net need of 57 beds (excluding the proposed 50-beds satellite hospital). Hence the methodology shows (just barely) a January, 1990 need for the 50- beds sought for the proposed satellite hospital. Because of projected increases in district population, the methodology predicts a significant growth in bed-need between July, 1989 and January, 1990: bed-need grows by 81 beds or by more than 10 beds per month. PBMC contends that a planning horizon of July 1, 1989, and no later, must be used since DHRS has, historically, updated bed-need projections only on July 1 of each year. Annual updates were limited to once a year because updated population figures were received only in July. Now, however, -he situation has greatly improved. DHRS receives updated population forecasts from the Governor's Office twice a year--in January and July. There is no reason why these updated and, presumably, more accurate population forecasts cannot be used to project bed-need Martin Memorial, on the other hand, argues for a more distant planning horizon--April 1, 1990. This horizon, however, requires use of BEBR projections recently received but not yet released or interpolated by the Governor's Office, until released, such projections are not appropriate for use by state agencies. See, Rule 27E-2.01-2.04, Fla. Admin. Code. V. Consideration of Other CON Review Criteria [A CON may be denied even though the bed- need methodology projects a need for the proposed beds five years into the future. Rule 10-5.11(23)(b): "An unfavorable Certif- icate of Need determination may be made when a calculated bed-need exists, but other criteria specified in Chapter 3Bl.494(6)(c), Florida Statutes, are not met." DHRS must consider CON applications in light of all statutory and rule criteria. See, Department of Health and Rehabilitative Services v. Johnson & Johnson, 447 So. 2d 361 (Fla. 1st DCA 1984).] Subdistrict Need: Allocation of District Wide Bed-need to|-. Relevant Subdistrict In 1983, the Local Health Council divided District9 into five subdistricts: (1) Indian River County, (2) Martin and St. Lucie Counties, (3) Okeechobee County, (4) northern Palm Beach County, and (5) southern Palm Beach County. Each subdistrict "is an area where the co-unity, by itself, uses the facilities in an area. It is supposed to be a sort of natural boundary that separates the different communities." (TR-413) The council also adopted a methodology for allocating acute care beds among the five component subdistricts. (R.-19) Although DHRS has not yet adopted, by rule, District9's subdistricts and subdistrict bed-need allocation methodology, both are part of District 9's Local Health Plan, adopted after a series of workshops and public hearings. The subdistricts were identified pursuant to a protocol furnished by DHRS which required consideration of whether an area was urban or rural, or comprised a standard metropolitan statistical area (SMSA). Under the protocol, an SMSA must be designated a separate subdistrict. Since Martin and St. Lucie Counties form a SMSA, they form a separate subdistrict. The five subdistricts of District 9 were identified in a rational manner, have a factual basis, and are useful tools for health care planning purposes. The methodology for allocating district wide bed-need to the subdistricts, also part of the Local Health Plan, has also been shown to be supported by reason and accepted health care planning concepts. DHRS cannot rationally determine the need for additional acute care beds, at least in =he context of this case without looking at subdistrict need or lack of need. In this way, local needs and conditions are considered in the decision- making process. District 9 is too large to serve as a useful unit for acute care bed planning purposes. Applying the Local Health Plan's sur5istrict bed-need allocation methodology to the July, 1989 planning horizon, indicates a net acute care bed-need for the Martin/St. Lucie-- County Subdistrict (not counting the 50 beds at issue) of 103beds. If the proposed hospital were approved, the subdistrict bed-need methodology would show a remaining subdistrict need for53 acute care beds. (R-18, TR-249) When applied to the January, 1990 planning horizon, preferred to the July, 1999 horizon., the subdistrict methodology shows a net acute care bed-need of 119 beds for the Martin/St. Lucie County Subdistrict (not counting the 50 beds at issue). Thus, the bed-need allocation methodology contained in District 9's Local Health Plan, shows a need for the proposed 50-acute care beds, with a 69-bed margin. (T-18, TR-248) Since the total number of licensed and approved beds (excluding the 50-beds at issue) for the subdistrict is 761, the projected need for 119 new acute care beds in January, 1990, is considered to be substantial. But the subdistrict bed allocation methodology assumes, incorrectly, that patients do not "cross-over" from one subdistrict to another. It fails, therefore, to consider or take to account the significant number of patients residing in the Martin/St. Lucie Counties Subdistrict who use acute care beds at Jupiter Hospital, located in the subdistrict to the south. This failure in the subdistrict methodology detracts from the weight to be given the resulting bed-need calculation. Availability, Accessibility and Adequacy of Like and Existing Facilities. Section 384.494(6) (c) 2.; Florida Statutes, requires review of CON applications in context with the "availability . . . accessibility and adequacy of like and existing health care services . . . in the district of the applicant."] Excess or under-utilized acute care bed capacity is a problem because it contributes to higher health costs. There are fixed overhead costs associated with acute care beds, whether empty or filled by a patient. These costs must ultimately be borne by the patients, or their insurers In reviewing a CON application, DHRS considers the number of available unoccupied beds at the facility and in the county or subdistrict for the most recent calendar year, determines actual occupancy rates, and compares them against an 80% occupancy standard, a standard generally accepted by health care planners. For example, one stated reason for DHRS' denial of Martin Memorial's initial 150-bed application was the availability of 20 unoccupied medical-surgical beds at Martin Memorial in 1982, on an average daily basis. Similarly, the average daily availability of 73 unoccupied medical-surgical beds in the five hospitals within PBMC's service area, plus additional approved but not licensed beds in the area, were stated reasons for DHRS' denial of PBMC's initial 1983 application for additional beds. (R-13) Applying the 80% occupancy standard to 1984 bed utilization statistics in the Martin/St. Lucie County Subdistrict, there were 111 unoccupied acute care beds on an average daily basis, not counting the 50 new beds recently approved for Lawnwood Hospital and the 26 new beds soon to be available at Martin Memorial. This is a 63.7% occupancy rate. Moreover, there were 47 unoccupied licensed beds on an average daily basis at Martin Memorial Hospital (not counting the 26 new beds under construction). The same calculation using only medical-surgical beds shows that in 1984, on an average daily basis, Martin Memorial had 36 unoccupied medical-surgical beds or an occupancy rate of 661. At Jupiter Hospital and Port St. Lucie Medical Center, the two hospitals having overlapping service areas with Martin Memorial, there were 31 (58.2% occupancy rate) and 49 (43.7% occupancy rate) unoccupied medical-surgical beds, respectively, on an average daily basis. (HRS-4) There is an ample supply of available beds: there is not a shortage of acute care hospital beds at Martin Memorial Hospital or in the Martin/St. Lucie Subdistrict. Martin Memorial has shown only that there may be, or could be, bed availability problems during certain peak months at Memorial Hospital in 1990, based on seasonal considerations. At most, it has shown that, without the proposed satellite hospital, the average occupancy for its highest occupancy month in 1990 would reach 91%. (TR-263-265) However, it is possible to operate a hospital at such an occupancy level for several months and yet maintain an acceptable level of service. (Moreover, Martin Memorial's analysis fails to take into account acute care beds which would be available in 1990 at Port St. Lucie Medical Center and Jupiter Hospital, where occupancy rates would be much lower.) Martin Memorial does not assert that in 1990 its average daily occupancy rate will exceed 80%. Indeed, assuming the validity of its average length of stay and hospital utilization assumptions (which are questionable), Martin Memorial forecasts an average daily occupancy rate of 79.4%. The State Health Plan states that "the issue of surplus beds is expected to be an even greater problem in the future because of the growth of alternative delivery systems"-- (R-20, p.22)--a proposition with which Martin Memorial's expert generally agrees. (TR-287-288) The State Health Plan concludes that "the combined effect of ambulatory surgery, HMOs, DRGs, and other innovations could reduce acute care bed-need by 15% or more." Id. Thus it becomes more likely that there will be an ample supply of available unoccupied beds in the subdistrict through 1990. The proposed satellite hospital would improve or enhance the accessibility of hospital services, since it would be located closer to some patients than either Martin Memorial or Jupiter Hospital. However, it has not been shown that geographic accessibility has been or will be a serious problem without construction of the proposed satellite hospital. The proposed hospital would be located about 5 miles from Martin Memorial and about 15 1/2 miles from Jupiter Hospital. Patients in the southern part of Martin County, residing south of the northern part of Hobe Sound, can be driven to Jupiter Hospital in 20 minutes or less. The definitive standard, commonly used by DHRS and.generally accepted by health care planners to detect geographical bed-access problems, is the 30 minute drive-time standard. Under this standard, if acute care hospital beds are available and accessible, within an automobile travel time of 30 minutes under average traffic conditions to at least 90% of the population, there is no cause for concern about geographic accessibility. It is undisputed that hospital beds are now available well within 30 minutes travel time to all residents of Martin County during all relevant periods, and will continue to be so through 1990. In short, geographic accessibility is not a current or projected problem and although the satellite hospital would make in-patient services more geographically accessible to some residents, such a result could be expected whenever a new hospital is constructed, whatever its location. As to adequacy of existing and licensed and approved facilities, there is no showing that the quality or extent of health care provided is inadequate. Extent of Utilization of Like and Existing Facilities. [Under Section 3Bl.494(6)(c)2., Florida Statutes, CON applications must also be reviewed in context with the "extent of utilization . . . of like and existing health care services . . . in the service district of the applicant."] During the last two years, the health care industry has undergone major changes resulting in a sudden and dramatic decline in the use of hospital in-patient services. The main cause of this decline was the shift, in October 1983, to the Medicare prospective payment system, otherwise known as Diagnostic Related Groupings (DRGs). The DRG payment system changed Medicare reimbursement from a cost basis to a set reimbursement based on diagnosis. It has caused a sharp decline in the average length of stay of Medicare patients as well as a decrease in Medicare admissions, and a resulting decline in hospital occupancy levels. For example, in calendar year 1984, the average length of stay for hospital patients in District 9 dropped from approximately 6.8 to 6.1. (DHRS-4) Another recent development contributing to the general decline in hospital utilization .is the increasing emphasis on providing out-patient services such as out-patient surgery and home health services. In many areas of the country, the advent of Preferred Provider Organizations (PPOs) and Health Maintenance Organizations (HMOs) have significantly impacted hospital occupancy rates, not only by encouraging shorter lengths of stay, but also by greatly lowering admission rates. (TR-604-05, 773: P-3, p.l8) According to the State Health Plan, "the emergence of [these] alternative delivery systems . . . [has] exacerbated declining occupancy rates." (R-20, Vol. 1, p.26) Martin Memorial has developed free-standing medical treatment centers in Hobe Sound and Port St. Lucie, which can provide up to 80% of the services required by patients in hospital emergency rooms. (TR-56-59 R-1, Vol. II at 73) In addition, Martin Memorial is merging with VNA in Martin County to provide home health care. These alternative delivery systems, along with the expected increasing effects of PPOs, HMOs and prospective payment systems, will contribute to further declines in hospital utilization and tend to extend the time during which the existing inventory of acute care beds will be adequate to meet the needs of a growing population. Although witnesses for Martin Memorial suggest that this steady decline in bed utilization at Martin Memorial will soon bottom out and that the average length of stay will fall no further, the weight of credible evidence shows that hospital utilization in District 9, as well as in the country as a whole, is still declining and that no one can say, with any reasonable degree of certainty, just when the decline (or "nose dive," TR- 682) in average length of stay and overall utilization will stop. The Executive Director of the District 9 Health Council predicts that the average length of stay in the district may fall from its current level of 6.1 or 6.2 to 5, and a recent survey of southeastern hospitals predicts at least a 5% further decline in average length of stay from 1984 levels. Hospital admission or discharge rates in District 9 fell slightly in 1984, but on the whole have remained relatively constant. The decline in hospital utilization has been chiefly caused by the unprecedented drop in average length of stay. Several factors causing declines in hospital admissions as well as utilization in other areas of the state and country have not yet begun to significantly affect northern Palm Beach, Martin, and St. Lucie Counties. It is, however, reasonably expected that these factors, such as out-patient or ambulatory surgical centers, and home health services (which are becoming increasingly used), will continue to grow and further decrease hospital in-patient surgery and care, admissions, and utilization. (TR-39-40, 578) As stated earlier, the most recent State Health Plan predicts that the combined effect of ambulatory surgery and other alternative health care delivery systems will be to reduce hospital discharges (or admissions) by 15% or more by 1989. (R-20, Vol. 2, p.72) Another factor which will contribute to the further decline in hospital utilization in Florida will be the required adoption of prospective payment programs by hospitals and private insurers for non-;5edicare patients. Under the Florida Health Care Access Act of 1984, hospitals are required to negotiate a prospective payment arrangement with each health insurer representing 10% or more of the hospital's private pay patients (R-20, Vol. 1, p. ll) To date, the only active HMOs in District 9 are found in southern Palm Beach County and their impact has not been felt elsewhere in the district. It is reasonably anticipated, however, that HMOs will expand throughout the district in the next several years and will contribute to a further decline in admissions. (Some commentators predict HMOs will reduce hospital admission rates by as much as 40%.) (TR-605-06, 679-80) Even without these factors, the extent of the decline in hospital utilization in District 9 has been dramatic. Overall hospital utilization i., 1984 declined from a level of 73.7% in 1983 to 65.R% in 1984. (HRS-4; R-~9: P-5) The District 9 medical-surgical utilization rate dropped from 76.3% in 1983 to 67.3% in 1984. The decline in hospital utilization in the Martin/St. Lucie Subdistrict and at specific hospitals in the area have been even more pronounced: 1983-84 Subdistrict and Specific Hospital Utilization Rates Overall Rate Med-Surg Rate 1983 1984 1983 1984 Martin/St. Lucie Subdistrict 76.9%1 63.7% 78% 63.8% Martin Memorial 74.1% 65.1%4 74.8% 66.0% Port St. Lucie5 38.9% 44.1% 37.6% 43.7% Jupiter Hospital 67.7% 55.7% 71.4% 58.2% Although experts disagree on how long the decline in hospital utilization will continue and how far it will fall, it is apparent that hospital utilization is continuing to decline in District 9 in 1985. By January and February 1985, the Martin/St. Lucie Subdistrict medical-surgical utilization declined about 1% from the same period in 1984. However, the most recent data for March, 1985, shows a decline in monthly medical-surgical utilization from 73.2% in 1984 to 68.8%. Martin Memorial's patient days in 198; are less than the corresponding number of patient days .when compared to the same periods in 1984. In addition, in no single month during Martin Memorial's 1985 fiscal year, beginning on October 1, 1984, has Martin yet achieved its budgeted patient days or admissions. In fact, Martin Memorial's bed utilization is more than 10% under budget for fiscal year 1985. (TR-66-69 P-1) Martin Memorial contends that the projected increase in the population and the aging in population in the Martin/St. Lucie Subdistrict will offset the decline in average length of stay and gradually increase the in-patient population. Although it is reasonable to expect that such factors would increase utilization, over the last year in District 9, use rates have gone down and admission rates have decreased slightly even though population increased and aged. In addition, it is reasonably anticipated that the future negative impact of HMOs on use and admissions will offset these population changes and contribute to further decline in utilization. Projected Utilization of Martin Memorial Hospital and the Proposed Satellite Hospital. In projecting- utilization for its existing and proposed facilities, Martin Memorial used 1984 District 9 use rates and a constant to increasing average length of stay. (R- 18) Use and admission rates have declined steadily for several years for the under-65 population and, in the first year of DRGs, dropped by over 3% for the over-65 population. Vet, despite this t-end and projections of decreasing use and admission rates in the future due to alternative delivery programs, Martin Memorial's utilization forecast uses admission rates slightly higher than the 1984 actual admission rates. (R- 18) In projecting the average length of stay for the proposed Port Salerno Hospital, Martin 'Memorial discounted 10% from its 1984 average length of stay. This discount, however, was due to projections of lower Medicare utilization and lower intensity of services at the new hospital, and makes no allowance for any further decreases in average lengths of stay. Similarly, in projecting utilization for Martin Memorial Hospital, Martin Memorial assumed an increase over the 1984 average length of stay of 6.0 days to 6.1 days in 1990. These assumptions are unreasonable in that they 'ail to fully into account the current and projected continuing decline in hospital admissions and utilization. Consequently, little weight is assigned to Martin Memorial's forecast of future bed utilization—that the satellite hospital would experience 58% occupancy in 1990, the first year of operation. Martin Memorial projects that without the proposed Port Salerno Hospital, Martin Memorial would achieve an occupancy rate of 79.4% in 1990. This utilization projection was based on population projections for Martin County done in 1984 by Dr. Stanley Smith it fails to take into account Dr. Smith's recent revision downward of the 1990 population projections for Martin County from 100,900 to 98,700. (TR-95-96, 294-95 R-6) The decline in average length of stay and hospital use rates will have a major impact on the number of empty beds in District 9 and, at least as applied to this District, the bed- need methodology of Rule 10-5.11(23), over-states the need for additional beds in 1990. The methodology uses a constant average length of stay derived from prior years. It is not an accurate predictor of future occupancy when, as now, use rates and utilization are declining and are reasonably expected to continue to decline. (TR-639-41: TR-614, 621-22 P-5) Martin Memorial's projected 79.4% occupancy rate in 1990 is overstated because it fails to fully take into account continuing declines in average length of stay and use rates, and because the 1984 population figures used to derive the 1984 use rate may be understated, thereby overstating the use rate. Similarly, using the same assumptions, an occupancy rate of 69.7% was projected for Jupiter Hospital (without the proposed Port Salerno Hospital). This projection is also overstated for the same reasons. If the Port Salerno Hospital were approved, the 1990 occupancy figures for both Martin Memorial and Jupiter Hospital would, in all likelihood, be much lower. (TR-627 P-5) 21 A more credible projection of ,Martin Memorial Hospital's 1990 occupancy rate was offered by Thomas W. Schultz, PSMC's health care planning expert. By reducing the 1984 Dis- trict 9 use rate by 2.9% to account for declining utilization at Martin Memorial during the first three months of 1985, as well as the general continuing decline in hospital utilization, Mr. Schultz projected Martin Memorial's 1990 occupancy (without the new facility) to be only 72.6%. Similarly, because use rates are still declining and because the 1985 population numbers used to calculate the rates may have been understated, this projected occupancy is overstated. (TR-628-30, 635-38; P-5) The State Health Plan and the District 9 Local Health Plan [Section 381.494(6) (c)l. requires that CON applications be reviewed "in relation to the applicable district plan and state health plan "] Several specific utilization and occupancy standards are contained in the State Health Plan and the District 9 Local Health Plan. A major stated goal of the State Health Plan is to promote the efficient utilization of acute care services by raising the occupancy rates or acute care hospitals. (R-20) It identifies 80% as the appropriate minimum occupancy level for acute care hospitals: an average annual occupancy rate of at least 80% is made an objective. As conceded by Debra S. Kolb, Ph.D., Martin Memorial's expert health planner, the 80% occupancy standard is an appropriate minimum standard which should be "looked at as a hurdle before beds are added." (TR- 289) She adds, however, that "there are other factors, such as . . . size of the facility, seasonality issues, age problems. . . that would warrant special cases." (T?.-289) By policy and practice, DHRS considers current occupancy levels to be an important criterion and has applied this 80% occupancy standard in reviewing CON applications. Its use of these standards is illustrated by its initial action on the various applications which were once part of this proceeding. DHRS granted Lawnwood Hospital's application for several stated reasons, one of which was a 1982 occupancy rate of 90%. Martin Memorial's initial 150-bed application and PBMC's 60-bed application (later dropped) were denied, in substantial part, because of low utilization rates in 1982 and because there was an adequate supply of beds currently available. (Interestingly, both Martin Memorial and PBMC had 1982 occupancy rates exceeding 70%.) As stated by Gene Nelson, then supervisor of DHRS' CON review section, in the State Agency Action Report denying PBMC's application: "Overall utilization for Palm Beach Martin County Medical Center for 1982 was 72.3% and medical/surgical utilization was 76.4%, neither being sufficiently high to justify additional beds." (R-13) The Acute Care portion of District 9's Local Health Plan (1984), contains "Recommendations by Priority Ranking" reflecting policies and priorities which, according to the local health council, should be used (in addition to the DHRS bed-need methodology) in planning and allocating acute care bed-need. Priority I delineates the subdistricts for purposes of allocating acute care hospital beds: Priority II establishes the_ subdistrict allocation methodology: Priority III establishes an occupancy rate which must be met before additional beds may approved: Before needed beds, as determined by Rule 10-5.11(23), may be approved, applicants requesting additional acute care beds should demonstrate that certain occupancy thresholds have been achieved relative to medical/surgical, obstetric, pediatric and ICU/CCU beds. The average annual occupancy rate (most recent calendar year) in the applying facility and its corresponding subdistrict average, should equal or exceed the following levels (inclusive of CON approved beds): Medical/Surgical 75% Obstetrical 65% Pediatric 65% ICU/CCU, Monitored & Intermediate Care 75% (e.s.) (R-10, pp.48-49) The rationale for this standard is set forth in the plan: With the advent of the Medicare prospective reimbursement system, there is literally no way to estimate the magnitude of impact that this reimbursement mechanism will have on hospital admissions, occupancy rates, and average lengths of stay. Therefore, relying upon the national standard of 4 beds/1000 population was not adequate. There is a need for an indicator based solely on utilization for the elderly. Since the reimbursement mechanism for non-Medicare patients has not changed, a resource based methodology has been utilized for this population group. Moreover, the program goals of the Local Health Plan state that the overall occupancy rate in District 9--as a whole--for licensed acute care beds as well as the occupancy rate for medical/surgical beds should equal or exceed 756. (Id. at 47) These minimum annual district and subdistrict occupancy rates take seasonality and age considerations into account. Bed utilization or occupancy standards are the only bed-need criteria that look to actual, verifiable data reflecting current conditions as opposed to forecasts, which look to the future.6 Failure to achieve the occupancy standards of Priority III A of the Local Health Plan creates, at least, a strong presumption against the approval of the project. In exceptional situations, however, additional beds may be approved even though the occupancy standard is not met. A typical example projected continuing decline in hospital admissions and utilization. Consequently, little weight is assigned to Martin Memorial's forecast of future bed utilization--that the satellite hospital would experience 58% occupancy in 1990.the first year of operation would be where there was a geographical access problem.7 Both the State and District 9 Health Plans cite the high cost of unused hospital beds which add to the cost of hospitalization. (R-20, p.70: R-10, p.10) A primary goal of both plans is to raise occupancy rates and eliminate excess beds. With this in mind, it is reasonable to give considerable weight to current utilization rates even though a numerical "need" for the beds is projected by the DHRS bed-need methodology.8 1984 bed utilization at Martin Memorial, Port St. Lucie and Jupiter Hospitals, as well as average utilization for District 9 and the Martin/St. Lucie Subdistrict, fall well below the minimum occupancy standards normally applied by DHRS and set out in the State and Local Health Plans. These minimum occupancy standards have not been met and are not reasonably projected to be met by 1990. Considerable weight should be accorded this factor since that is the effect of the State and Local Health Plans and DHRS' normal practice. Moreover, since occupancy rates are based on actual current conditions, they are less subject to manipulation, and inject a healthy measure of reality into CON decision-making during a time of great change in the health care industry. Economies and Improvement Services Derived From Operation of Joint, Cooperative or Shared Resources. [Another CON criterion is whether there will be "[p]robable economies and improvements in service that may be derived from the operation of joint, cooperative, or shared health care resources." Section 3fll.494(6)(c)5., Florida Statutes.] Because the proposed project is a satellite hospital, there will be economies and improvements in services realized from the operation of joint, cooperative or shared health care resources, as compared to the operation of a wholly separate free-standing hospital. The satellite hospital will not offer obstetrics or a defined pediatric unit. It will not have a CAT Scanner, a -- personnel office similar to Martin Memorial's, or a hospital laundry. It will have an emergency room, normal operating room suites, and radiology and lab services, although the more complex lab tests will be performed at Martin Memorial Hospital. The Need for Research and Educational Facilities. [CON applications are also reviewed in context with the "need for research and educational facilities . . .." Section 381.494 (6)(c)7, Florida Statutes.] The proposed satellite hospital will be located directly adjacent to the Martin County campus of Indian River Community College ("IRCC"). The IRCC campus has an Allied Health Building with approximately nine classrooms, a nursing 120 and an emergency medical technician lab. IRCC has a contract with Martin Memorial Hospital which allows IRCC students to use Martin Memorial facilities for clinical training. Clinical training is an important part of the allied health curriculum at IRCC. Construction of the satellite hospital next to the IRCC campus would benefit the Allied Health Programs since there could be joint use of equipment, facilities, and personnel, and a better opportunity to invite doctors, nurses, and other health care professionals to the classroom. The satellite hospital would also be more convenient to students, in terms of scheduling and transportation, than Martin Memorial Hospital, where they now receive clinical training. Although the proposed satellite hospital would enhance the IRCC health care training programs, there is no evidence that the clinical training programs now provided at Martin Memorial Hospital are inadequate. The proposed facility is not predicated on a claim that its primary purpose will be to serve as a research or educational facility. Financial Feasibility of the Proposed Satellite Hospital. [Another CON criterion is "[t]he immediate and long-term financial feasibility of the proposal." Section 381.494 (6)(c)9, Florida Statutes.] Estimated Project Costs The estimated costs of the movable equipment for the proposed satellite hospital are reasonable. (Stipulation, P.3) The real property in Port Salerno where the proposed satellite hospital would be located, is owned by Martin Memorial and is of adequate size and otherwise appropriate for the proposed project. (Stipulation, p.3) The estimated cost of construction and fixed equipment is $7,490,625.00, which amounts a cost of $117.50t per square foot. (The hospital will have 850 square feet per bed: $117.50 X 850 X 75 = $7,490,625.00.) his is a reasonable cost for bidding the project in the spring of 1986. Estimates of the architect's fee ($545,317.00), the cost for surveys and borings ($25,000.00j, the 3% contingency cost ($251,000.00), the developmental costs ($195,000.00), the site work and utilities ( $960, 000.03 ), the actual land costs.($595,000.00), and the financing and refinancing costs($3,100,770.00) have also been shown to be reasonable. Short-Term Financial Feasibility Martin Memorial has sufficient funds to make the equity contribution necessary to obtain financing. It also has the ability to raise $16,370,000.00 through the sale of tax exempt bonds, which appear to be marketable. It is likely that Martin Memorial would be able to secure the necessary funds for construction. The proposed satellite hospital would be financially feasible in the short-term. Martin Memorial has proven its ability to operate a hospital efficiently and profitably. Even with the advent of the DRG payment system, Martin Memorial Hospital has continued to operate profitably. During the initial DRG phase-in year of 1984, Martin Memorial benefited financially from the use of the new prospective payment schedule. Even if bed use at the satellite hospital is less than projected, or desired, during the start-up years, it is likely that Martin Memorial would be able to subsidize its operation until, with expected population growth, utilization increases and it becomes financially self- sustaining. Long-Term Financial Feasibility The proposed satellite hospital is also financially feasible in the long-term his conclusion is supported by a financial analysis utilizing reasonable assumptions based on Martin Memorial Hospital's historical experience an t financial costs obtained from a qualified securities analyst. The financial analyst also used bed utilization projections supplied by Martin Memorial's qualified earth care planner. Although the reliability of the 1990 utilization forecast is questionable, over the long-term--with projected increases in population9 is likely that the proposed hospital would become financially feasible, self-sustaining, and able to meet its operating expenses and debt service payments. I. Availability of Manpower and Resources [Another CON criterion is "[t]he availability of resources, including health manpower . . .." Section 381.494 (6)(c)8, Florida Statutes.] Martin Memorial has an in-place recruiting department which, in the past, has successfully recruited new employees for expansion programs. It has the capability of recruiting, training, and staffing the 175 full-time equivalent medical personnel shown in its CON application. There has been no showing that the hiring of employees for the satellite hospital will significantly impact other facilities or that there is a shortage of health manpower and resources. III. Need for the Proposed Hospital (using a planning horizon of January, 1990) Based on a Balanced Consideration of all CON Criteria_ ["Need" for a proposed facility, under CON law, is determined by "a balanced consideration of all the statutory [and rule] criteria." Department of Health and Rehabilitative Services v. Johnson & Johnson, 447 So. 2d 361, 363 (Fla. 1st DCA 1984) See, Section 381.494(6)(c), Florida Statutes. DHRS may not adopt a rule allowing it to "ignore some statutory criteria and emphasize others." Id. Nor may it adopt a methodology, in rule form, which "rigidly control[s] the granting or withholding of [CON] approval." Humana, Inc. et al. v. Department of Health and Rehabilitative Services, So. 2d (Fla. 1st DCA Case No. AY-422, Opinion filed May 16, 1985), 10 F.L.W. 1222.] (a) The foregoing evidentiary findings support an ultimate finding that the proposed satellite hospital is not needed, either now or within the planning horizon of January, 1990. When measured against all pertinent statutory and rule criteria, the factors favoring approval of Martin Memorial's application are outweighed by the factors supporting denial. The DHRS numerical bed-need methodology projects a January, 1990 "need", but barely so. Further, the methodology, as one criterion among many, is assigned less weight since it is a less accurate predictor of "need" in times, such as these, when in-patient bed use is steadily declining. This decline is pervasive, has continued, unabated, for over 13 months and has not yet bottomed-out. The methodology uses bed-need figures rooted in the past and does not adequately reflect this decline. Allocation of bed-need to the Martin/St. Lucie Subdistrict shows a more substancial "need" (103 beds), but this figure is, in part, also derived from the DHRS methodology. There is an adequate current supply of available acute care beds at existing facilities, similar in nature. No geographical access problem has been shown. The existing hospitals which serve the area proposed to be served by the satellite hospital, as well as the subdistrict and district, have 1984 occupancy rates considerably below the,30% occupancy standard generally applied by DHRS and health care planners. There is not a current shortage of beds. In January, 1990, it is likely that the supply of acute care beds will continue to be adequate. In all likelihood, daily occupancy rates at Martin Memorial and in the subdistrict will still be below the 80% standard. At best, Martin Memorial has shown that during two or three peak winter months, its own institution-specific occupancy rate will exceed 90%.10 But on a short-term basis, such a rate is doable and consistent with quality health care. Current bed utilization, a readily ascertainable criterion which reflects actual conditions, should be accorded considerable weight on the scale of criterion when, as now, the health care industry is in rapid flux and past trends have been disrupted, or even displaced. With declining average lengths of stay and anticipated growth in alternative delivery systems, it is reasonably expected that acute care bed use will continue to decline. The steady drop in bed use makes it more likely that the currently existing and licensed or approved beds in the area will be adequate through January 1990. Martin Memorial's utilization forecast failed to fully take into account the steady decline in bed use. Approval of the proposed hospital would be inconsistent with the State Health Plan, which identifies 80% as a minimum occupancy rate for acute care hospitals and, more particularly, with the Local Health Plan (Priority III) which, with few exceptions, does not allow new beds (irrespective of the DHRS methodology numbers) until specified occupancy thresholds have been met. These thresholds have not yet been met. The proposed hospital would be financially feasible in the short-and-long-term, enhance competition, and improve the education of health care students at the adjacent Indian River Community College. These benefits, however, are outweighed by the other factors which support a conclusion that the proposed hospital will not be needed by January, 1990. Construction of an unneeded hospital would have the effect of reducing occupancy rates at nearby hospitals and exacerbating the problem of excess bed capacity.
Recommendation Based on the foregoing, it is RECOMMENDED: That Martin Memorial's application or a CON to construct and operate the Port Salerno Hospital be DENIED. DONE and ORDERED this 4th day of October, 1985, in Tallahassee, Florida. R. L. CALEEN, J . Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, FL 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of October, 1985.
The Issue The issue in this case is whether the Respondent, the Department of Health and Rehabilitative Services (HRS), should grant the application of the Petitioner, RHPC, Inc., d/b/a Riverside Hospital (Riverside), for a certificate of need, CON Action No. 6582, for the addition of 31 acute care beds.
Findings Of Fact The Applicant and the Application. The applicant, the Petitioner, RHPC, Inc., d/b/a Riverside Hospital (Riverside), is a 102 bed acute care hospital 1/ located at 6600 Madison Street, New Port Richey, Florida, in the West Pasco County Subdistrict of HRS Service District 5, which also includes Pinellas County and East Pasco County. Included among its complement of beds are 14 obstetrical (OB) beds. There are no existing pediatric beds. Riverside's application is for a certificate of need to spend approximately $2,000,000 to renovate its existing OB unit, add 14 beds to the OB unit, add 11 medical/surgical beds and add six pediatric beds. The addition of the pediatric unit will be accomplished by relatively minor alterations to existing space and existing beds, and the cost attributable to this phase of the application is negligible. Similarly, the 11 additional med/surg beds will be accomplished by adding beds to existing private rooms, to create semi-private rooms, at a cost of only approximately $44,000. (Gas and electric lines for the additional beds already have been run to the headwall of these rooms and can be connected without difficulty or much expense.) Most of the $2 million total capital expenditure proposed in the application is attributable to the cost of modernizing the OB unit, with the addition of 14 beds in the process. The addition of 14 beds to the unit does not add significantly to what the modernization effort would cost without the addition of the 14 beds. The proposed new OB unit would include private rooms, to go along with the semi-private rooms that make up the existing 14-bed unit. In addition, the proposed modernized 28-bed OB unit would consist of the combined labor/delivery/recovery/post-partum (LDRP) rooms now preferred by most patients. Pertinent State Health Plan Provision. The 1989 State of Florida Health Plan states at the outset of a list of preferences to be utilized in comparing applications for additional acute care beds: No additional acute care beds should generally be approved unless the subdistrict occupancy rate is at or exceeds 75 percent, or, in the event of an existing facility, an applicant shall demonstrate that the occupancy rate for the most recent 12 months is at or exceeds 80 percent. The Need Methodology. Using the F.A.C. Rule 10-5.038 methodology, the district and subdistrict would show numeric need of approximately 201 and 230, respectively. See F.A.C. Rule 10-5.038(5). Regardless of the calculated bed need, HRS does not normally approve additional beds in a subdistrict unless the annual average acute care bed occupancy rate is 75 percent or higher during the 12-month base period of July, 1989, through June, 1990. See F.A.C. Rule 10-5.038(7)(d). The 670 licensed beds in the West Pasco Subdistrict reported only 68.92% occupancy during the 12- month base period, resulting in no projected need for additional acute care beds in the subdistrict for the applicable 1996 planning horizon. Even when a subdistricts's need for additional acute care beds projected by the methodology is zero, an application by an existing hospital still may be approved where that hospital's annual average occupancy rate exceeds 75 percent for the 12-month base period (again, in this case, from July, 1989, through June, 1990.) See F.A.C. Rule 10-5.038(7)(e). During the 12-month base period from July, 1989, through June, 1990, Riverside's occupancy averaged 72.40%, not high enough to be approved under F.A.C. Rule 10-5.038(7)(e). Observation Bed Days. Three types of beds days are included in a category of so-called "outpatient observation bed days." First, "twenty-three hour patients" are patients who are not eligible for inpatient services under the Health Care Finance Administration (HCFA) criteria for the Medicare program. Second, "observation patients" are similar non-Medicare patients. Third, some outpatients (or ambulatory surgery patients) also use beds for part of a day. With new cost containment and review/regulation developments in hospital care, more patients are spending up to 23 hours in the hospital before a decision is made that further hospitalization in not needed. As a result, "observation" bed use has increased. Outpatient observation services have been recognized and defined by HCFA. Blue Cross and Blue Shield of Florida (the Medicare intermediary) and the Health Care Cost Containment Board (HCCCB) have addressed issues such as reimbursement, billing and reporting of observation beds. Services are provided to "observation bed" patients under doctor's orders, including diagnostic services, observation and monitoring by nursing personnel and/or medical intervention or treatment. Calculation of occupancy rates under the HRS need methodology does not take into account the so-called "observation bed days." 2/ There was no evidence that any part of District V or the West Pasco Subdistrict are inaccessible geographically. Other Need Factors. The evidence showed that there is a seasonal peak utilization and occupancy of acute care beds in District V and in the West Pasco Subdistrict during approximately October or November through March or April each year. This seasonal peak is reflected by the statistics. As previously stated, Riverside's occupancy averaged 72.40% during the period from July, 1989, through June, 1990. During the first quarter of 1990, occupancy was 86.83%. Riverside's average occupancy for calendar year 1990 was 73.87%. For the period from March, 1990, through February, 1991, average occupancy for Riverside's acute care beds was 71.2%. 3/ For the period from March, 1990, through February, 1991, occupancy for Riverside's obstetrics beds was 92.9%. There is no acute care pediatric unit in the West Pasco subdistrict. Subdistrict residents (as well as others in Riverside's general service area) needing level II pediatric services generally go to a Pinellas County or East Pasco County hospital for them. Given the choice, some but not all of these patients likely would prefer to get these services at Riverside, depending primarily on the severity of the particular medical needs. But the evidence did not quantify the number predicted to switch to Riverside. Also, occupancy of pediatric beds in Pasco county was less than 15% during 1987 and 1988. Medical Care for the Poor. The State Health Plan also notes that the uncompensated care burden on hospitals has grown during the 1980s because of a growing number of low-income persons; simultaneously, the proportion of persons covered by Medicaid has dropped. Numerous statewide studies, moreover, have shown that hospitals' uncompensated care is increasing at the same time that their ability to absorb the cost of care is decreasing. Riverside's predecessor bought the hospital from Pasco County in 1982. As a condition to the purchase, Riverside's predecessor agreed to provide Medicaid and indigent care for Pasco County in perpetuity. When Riverside purchased the hospital on December 29, 1983, it assumed the contractual obligation to provide Medicaid and indigent care in perpetuity. Riverside is a disproportionate share provider within the meaning of the State and local health plans. Approximately, 13% of Riverside's total annual patient days are for Medicaid patients. In 1990, 2,647 of Riverside's obstetrical, and 4,272 of its non-obstetrical patient days, were Medicaid. Riverside's charity care deduction from gross patient revenue for fiscal year 1990 was 1.07% of gross patient revenue. Riverside's Medicaid deduction from gross patient revenue for fiscal year 1990 was 5.96% of gross patient revenue. Approximately, 14.8% of Riversides's services go to Medicaid and indigent patients. Although Riverside has only 14% of the beds in the West Pasco subdistrict, it does more than 90% of the non-emergency, non-OB Medicaid care. Approval of the Riverside application would enable Riverside to spread its administrative and overhead costs over a larger base, thereby reducing average charges. Approval of the Riverside application also would make Riverside more profitable and thereby better able to absorb the cost of the Medicaid and indigent care it provides. If Riverside converts existing acute care beds to pediatric or OB beds, it probably would have to squeeze out paying patients during seasonal occupancy peaks, thereby losing more revenue and profits. Competition. If the Riverside application is approved, Riverside's share of the market represented by the West Pasco subdistrict will rise from approximately 14% to approximately 18%. HCA controls the rest of the market. There are no existing OB beds in the West Pasco subdistrict other than at Riverside. The HCA hospital in New Port Richey had an OB unit which it recently abandoned. As a result of the grant of Bayonet Point's application, CON Action No. 6583, with which Riverside had been in direct competition in this application review cycle, Bayonet Point now is approved for a seven-bed OB unit as part of its bed complement. Upgrading its existing OB unit and adding 14 more OB beds will enable Riverside to capture more private paying patients, which will better enable it to compete with the HCA hospitals. At present, Riverside's OB unit is utilized almost exclusively by indigent and Medicaid patients because of the hospital's contract with Pasco County. This unit now is operating at close to absolute capacity. With the upgrades and additional beds, Riverside can work to capture some private pay patients; without them, Bayonet Point will capture the private pay patients. Financial Feasibility. Riverside operated at a deficit from 1983 essentially to the present. By the end of 1990, Riverside had accumulated a deficit of $8.8 million. Riverside's corporate parent, American Healthcare Management, Inc. (AHM), was funding the deficit. From 1985 through December, 1989, AHM was in Chapter 11 bankruptcy proceedings. During that time period, there was legitimate concern whether AHM would be able to continue to fund Riverside deficits. AHM emerged from bankruptcy in December, 1989, stronger financially. It has since become stronger still. AHM reduced its debt by approximately $88 million. Part of the debt reduction was achieved by the sale of $43 million of underperforming assets. In addition, $45 million of bond debt was exchanged for common stock on September 30, 1991. The interest savings on the bond-for-stock exchange is $6 million a year. As a result, AHM's current debt-to-equity ratio is approximately $160 million to $130 million. AHM's corporate staff has been reduced from about 102 to 65. Its corporate office were transferred from expensive quarters in Dallas, Texas, to less expensive quarters in King of Prussia, Pennsylvania. Corporate expenses have been greatly reduced as a result. Accounts receivable have been reduced by better collection methods, and the $43 million of assets sold to reduce corporate debt had been underperforming. AHM had $21 million cash and short-term investments as of December 31, 1989. As of the date of the final hearing, it had $18 million cash and short- term investments. Riverside's gross margin (profit) for the first nine months of 1991 was $4 million. After depreciation, amortization, and interest and home office costs, Riverside generated approximately $1.2 million for the first nine months of 1991. Internal cash flow generated by AHM and Riverside would be sufficient to finance Riverside's application project. Since the capital costs of Riverside's proposed project are relatively small, financial feasibility is relatively easy to achieve. Besides costing relatively little, the 31 new beds will not increase intercompany interest or management fees significantly. In addition, the 31 new beds would enable Riverside to better compete for private pay patients. Given the expected utilization of the new beds, the proposed project will be to the financial benefit of the applicant. The pro forma bears this out. It projects 75.11% occupancy for the 31 new beds in the second year of operation (July, 1994, to June, 1995). (This projection does not include expected "observation bed days.") A profit of $2,477,199 for the 31 beds is projected for the second year of operation (not counting any portion of the preexisting intercompany interest or management fees).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that HRS enter a final order denying the Riverside application for a certificate of need, CON Action No. 6582, for the addition of 31 acute care beds. RECOMMENDED this 28th day of January, 1992, in Tallahassee, Florida. J. LAWRENCE JOHNSTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of January, 1992.
