Conclusions Having reviewed the administrative complaint dated July 20, 2009, attached hereto and incorporated herein (Ex. 1), and all other matters of record, the Agency for Health Care Administration ("Agency") has entered into a Settlement Agreement (Ex. 2) with the other party to these proceedings, and being otherwise well-advised in the premises, finds and concludes as follows: ORDERED: The attached Settlement Agreement is approved and adopted as part of this Final Order, and the parties are directed to comply with the terms of the Settlement Agreement. Respondent shall pay an administrative fine in the amount of $750. The administrative fine is due and payable within thirty (30) days of the date of rendition of this Order. Checks should be made payable to the "Agency for Health Care Administration." The check, along with a reference to these case numbers, should be sent directly to: Filed November 9, 2009 12:07 PM Division of Administrative Hearings. Agency for Health Care Administration Office of Finance and Accounting Revenue Management Unit 2727 Mahan Drive, MS# 14 Tallahassee, Florida 32308 Unpaid amounts pursuant to this Order will be subject to statutory interest and may be collected by all methods legally available. Respondent's petition for formal administrative proceedings is hereby dismissed. Each party shall bear its own costs and attorney's fees. The above-styled case is hereb DONE and ORDERED this /4day 2ref( inTallahassee, Leon County, Florida. A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF AHCA, AND A SECOND COPY, ALONG WITH FILING FEE AS PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW OF PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED. Copies furnished to: D. Bland Eng, CEO Palms West Hospital 13001 Southern Boulevard Loxahatchee, Florida 33470 (U. S. Mail) Nelson E. Rodney Assistant General Counsel Agency for Health Care Administration 8350 NW 52nd Terrace, Suite 103 Miami, Florida 33166 (Interoffice Mail) Richard M. Ellis, Esq. Attorney for Respondent Rutledge, Ecenia & Purnell 119 South Monroe Street Suite 202 Tallahassee, Florida 32301 (U.S. Mail) Finance & Accounting Agency for Health Care Administration Revenue Management Unit 2727 Mahan Drive, MS #14 Tallahassee, Florida 32308 (Interoffice Mail) Jan Mills Agency for Health Care Administration 2727 Mahan Drive, Bldg #3, MS #3 Tallahassee, Florida 32308 (Interoffice Mail) Hospital Unit Agency for Health Care Administration 2727 Mahan Drive MS #31 Tallahassee, Florida 32308 (Interoffice Mail) Hon. Errol H. Powell Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (U.S. Mail) CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of this Final Order was 2rlJZ: served on the above-named per s :nd entities by U.S. Mail, or the method designated, on this the y of ,d& , ? Richard Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308-5403 (850) 922-5873 l. STATE OF FLORIDA
The Issue Whether there is need for a new hospital in AHCA Acute Care Subdistrict 5-2 (eastern Pasco County)? If so, whether AHCA should approve either CON 9975 or CON 9977?
Findings Of Fact The Applicants and Background Pasco-Pinellas Pasco-Pinellas, the applicant for CON 9975, is a joint venture between two nonprofit healthcare organizations: University Community Hospital, Inc. (UCH) and Adventist Health System Sunbelt Healthcare Corporation (Adventist). A not-for-profit healthcare system, UCH has served the Tampa Bay area for the last 40 years. It owns and operates two hospitals in Hillsborough County and one in Pinellas County. UCH has approximately $100 million available for capital expenditures to fund the hospital proposed by CON 9975. One of its Hillsborough County facilities, University Community Hospital, is located on Fletcher Avenue in northern Hillsborough County, AHCA Health Planning District VI. Across the street from the main campus of the University of South Florida (USF) and its College of Medicine, University Community Hospital has an agreement with USF for GME. University Community Hospital at present serves the Wesley Chapel area in eastern Pasco County. The other member of the joint venture, Adventist, is a financially successful not-for-profit healthcare organization. It operates 17 hospitals in the state of Florida. As of December 31, 2007, Adventist's cash on hand, including investments, exceeded $3.6 billion and net revenue for 2007 was approximately $368 million. The joint venture between UCH and Adventist was formed to establish a hospital to serve the Wesley Chapel area of Pasco County and to provide other healthcare services in the county. At present, the two members of the joint venture compete to serve the Wesley Chapel area through University Community Hospital and Adventist's Florida Hospital Zephyrhills (FHZ), a 154-bed general acute care hospital in Pasco County. The collaboration of competing hospitals in seeking approval for a new hospital through Florida's CON process is unusual. But by bringing the similar missions, strength in community interests and capable leadership of UCH and Adventist together, the Pasco Pinellas joint venture poses potential healthcare benefits to eastern Pasco County. BayCare The Applicant for CON 9977, BayCare of Southeast Pasco, Inc., is a not-for-profit corporation formed to develop the hospital proposed in the application. The sole member of BayCare is BayCare Health System, Inc. ("BayCare System"). BayCare System is the largest full-service community- based health care system in the Tampa Bay area. It operates 9 nonprofit hospitals and 11 ambulatory/outpatient centers in Hillsborough, Pasco and Pinellas counties. Initially organized in 1997 under a joint operating agreement between several hospitals, BayCare System's purpose has been to compete effectively in managed care operations in order to reduce the expenses of the individual organizations that are its members. In the first 5 years of operation, BayCare System saved its members a total of $90 million because of the enhanced cost efficiencies it achieved through business function consolidations and group purchasing. Its members are all not-for-profit hospitals. BayCare System's focus is on the treatment of one patient at a time. Its mission is to improve the lives of people in the community it serves, to operate effectively as a group of not-for-profit hospitals, and to provide high quality, compassionate healthcare. BayCare's application, because it provides potential for its proposal with its teaching aspects, draws significant and considerable support from USF, a national research university. USF has a College of Medicine, a College of Nursing, and a College of Public Health, collectively "USF Health." USF Health will collaborate with BayCare in the development of the hospital BayCare proposes, should it be approved and should its teaching functions come to fruition. The Agency The Agency for Health Care Administration is the state agency that administers the CON program pursuant to Section 408.034, Florida Statutes. It will make the final decisions to approve or deny the two CON applications at issue in this proceeding. Community Community Hospital is a general acute care for profit hospital with 386 beds. It is located within the City of New Port Richey in western Pasco County, Acute Care Subdistrict 5-1. With the exception of neonatal intensive care, open heart surgery and organ transplantation, Community is a full- service community hospital. It provides OB services. It is licensed for 46 adult psychiatric beds. It offers a variety of outpatient services including outpatient surgery, endoscopy, and outpatient procedures and lab testing. Its medical staff consists of approximately 400 physicians. Community serves patients without regard to ability to pay, and does not discriminate in any manner. Accredited by the Joint Commission on Accreditation of Hospital Organizations, it has received numerous awards and recognition for the quality of its health care services. Community's hospital facility is over 30 years old. Access to the campus from US 19, the closest major thoroughfare approximately 1.5 miles away, is gained via a two-lane street through a residential area. Land-locked but for the two-lane street, the campus is sandwiched between the residences and a high school. There are no medical office buildings ("MOB") owned by Community on the campus; less than 20 acres in size, it is completely built out. Community's Replacement Hospital Community has a replacement hospital facility currently under construction in Acute Care Subdistrict 5-2. Approximately five miles southeast of Community's New Port Richey location, the replacement facility is located at the intersection of Little Road and State Road 54. Expected to open in late 2010 at a cost in excess of $200 million, it is to be known as Medical Center of Trinity ("Trinity"). All current Community services will be offered at Trinity. At the same time, the new hospital will offer many advantages over the old facility. Trinity will initially be five stories in height, with fewer licensed beds, but constructed with the ability to expand. It will offer new medical equipment with the latest technology. Situated on 52 acres, with a new three-story MOB adjacent to the hospital, Trinity has plans to add a second MOB at some time in the future. Unlike existing Community Hospital, Trinity will have all private rooms. Its more efficient layout among service areas will improve efficiencies and patient satisfaction. Trinity's location is more accessible than Community's current location in New Port Richey. It is on State Road 54 (SR 54), a six-lane highway that runs east/west through Pasco County. The road has recently undergone major construction and expansion which was nearly complete at the time of hearing. Suncoast Parkway (a/k/a Veterans Expressway), furthermore, is an expressway toll road system that runs north/south from Hernando County through Pasco County to Tampa airport. From the intersection of Suncoast Parkway and SR 54, it takes approximately seven minutes to reach Trinity. Little Road runs north/south along the Trinity site, and north through Pasco County to Regional Medical Center Bayonet Point ("Bayonet Point"). Community's poor financial performance in recent years is expected to improve after the opening of Trinity. The Proposals Although both applicants propose a new hospital in roughly the same location in Subdistrict 5-2, the two are different both in scope and approach. Pasco-Pinellas' Proposal Pasco-Pinellas proposes to build an 80-bed acute care hospital on Bruce B. Downs Boulevard in the area known as Wesley Chapel in eastern Pasco County. If approved and constructed, the hospital will include 36 medical/surgical beds, 8 labor/delivery/recovery/post partum beds, 12 critical care beds, and 24 progressive care beds. The project would involve 184,000 gross square feet of new construction, at a total estimated cost of $121 million. Pasco-Pinellas proposes a typical primary service area (PSA). Five and one-half zip codes comprise the PSA; Pinellas- Pasco reasonably projects 82% of its admissions will come from the PSA. Two and one-half zip codes comprise the secondary service area (SSA). The zip code that is shared by the PSA and the SSA (33559) is split roughly in half between Pasco County and Hillsborough County. The half that is in Pasco County is in Pasco-Pinellas' PSA. The five full zip codes in the PSA are 33541, 33543, 33544, 34639, and 33576. The two full zip codes in the SSA are 33549 and 33647. Pasco-Pinellas' in-migration from outside its proposed service area (the PSA and the SSA) is forecast by Pasco- Pinellas's health planner at 12%. For a community hospital in the Wesley Chapel area without tertiary services, the in- migration percentage projected by Pasco-Pinellas is reasonable. BayCare's Proposal BayCare proposes to establish a general acute care hospital with 130 beds. The application proposes that it be collaboratively developed by BayCare System and USF Health so as to provide teaching functions associated with the USF College of Medicine and other health-related university components of USF Health. Consisting of approximately 476,000 square feet of new construction at an estimated total project cost of approximately $308 million, the hospital will have 92 medical/surgical beds, 24 critical care beds, and 14 post-partum beds. Like Pasco-Pinellas' proposal, BayCare's proposed hospital will be located on Bruce B. Downs Boulevard in the Wesley Chapel area of southeastern Pasco County. BayCare's proposed PSA is circular. The center point of the PSA is the proposed BayCare hospital site in the Wesley Chapel area. The circumference is along a series of seven-mile radii so that the diameter of the circular PSA is 14 miles. The seven-mile radius was chosen to approximate a fifteen-minute travel time by automobile from the outer edge of the circular PSA to the hospital site. BayCare's PSA includes some part of seven zip codes. Two are Wesley Chapel zip codes: 33543 and 33544. Two are Lutz area zip codes: 33549 and 33559. Two are Land O'Lakes zip codes: 34639 and 34638, and one is a zip code in Hillsborough County: 33647. Relative to typical PSAs for most proposed hospitals, the PSA proposed by BayCare's application was described at hearing by BayCare's health planner as "small." See Tr. 1855. For calendar years 2013 and 2014, BayCare projects that 19,0976 and 20,008 patient days, respectively, will be generated from within the PSA. These projections constitute a projection of 60% of all patient days projected for the two years, a percentage substantially lower than would be generated from a typical PSA. The remaining 40% of projected patient days is roughly double what would be expected from beyond a PSA under a more typical proposal. The high number of projected patient days for patients originating outside the PSA was explained at hearing by BayCare's health planner. The involvement of the USF Physician's Group and the "teaching" nature of the proposal "pumps up and provides an additive level of in-migration that would not be experienced without the USF combination with BayCare in [the] project." Tr. 1856-7. Pasco County Hospitals There are five hospitals in Pasco County. Two in western Pasco County will continue to remain in Subdistrict 5-1 in the near future: Regional Medical Center Bayonet Point, located in northwest Pasco County and Morton Plant North Bay Hospital, located in New Port Richey. Two are in eastern Pasco County, Subdistrict 5-2: Pasco Regional Medical Center in east central Pasco County, and FHZ, located in southeast Pasco. The fifth is Community/Trinity. No Need for Both Hospitals None of the parties contends there is need for both hospitals. Nor would such a contention be reasonable. Indeed, the record does not demonstrate need for both a new 80-bed community hospital as proposed by Pinellas-Pasco and a new 130- bed hospital that BayCare denominates a "teaching" hospital, each with an intended location on Bruce B. Downs Boulevard in the Wesley Chapel area of southeastern Pasco County in Subdistrict 5-2. The question remains: is there a need for one new hospital? If so, which of the two applications, if either, should be approved? Need for a New Hospital; Access Enhancement Among the counties in the Tampa Bay area, Pasco County has been the fastest growing in recent years. From 1990 to 2000, its population grew 22.6%. Three times higher than the state average, this represents tremendous growth for any locale. The Wesley Chapel area of south Pasco County roughly coincides with the PSAs of the two applicants. Dramatic growth over the last 20 years has marked the Wesley Chapel area's transformation from an agricultural area to a suburban community. North of Hillsborough County and its largest city, Tampa, improvements in the transportation network has made south Pasco County and in particular, the Wesley Chapel area, a bedroom community for workers commuting to Tampa. Claritas, a national demographic data service, is a generally accepted population projection source for CON applications. Claritas projects the growth in Pasco County to continue. For example, the projected population for Pasco- Pinellas' proposed PSA, which substantially overlaps with BayCare's proposed PSA, is 113,397 in 2011 and 118,505 in 2012. The Claritas projections are based on the most recent decennial U.S. Census, that is, 2000, and do not take into account data of impending population growth, such as new housing starts and new schools. Claritas, therefore, may understate projections in areas that have experienced more recent, rapid growth. The University of Florida Bureau of Economic and Business Research ("BEBR") also provides reliable population data by county. In the year 2000, the census for the Pasco County population was 344,765. By 2030, that population is projected by BEBR to grow to 526,100 based on low projections, 681,100 based on medium projections, and 876,900 based on high projections. For the high projection rate, this would constitute a 154% increase in population. Even assuming the low growth rate, the population would increase by 53%. According to BEBR data, the county can be expected to grow at a rate of 4.71% per year. Another source of population data relied upon by population experts is Demographics USA. The Demographics USA data shows a substantial growth in population for Pasco County. According to Demographics USA, the population for Pasco County can be expected to grow from 343,795 in the year 2000 to 440,527 in the year 2010 and then to 504,277 by the year 2015. Based on the Demographics USA data, the county can be expected to grow at a rate of 3.11% per year. The Wesley Chapel area is considered to be the area of Pasco County with the most development and development potential now and in the future. Of 175 major projects actively undergoing development in Pasco County, 76 are in the Wesley Chapel area. Between 2010 and 2012, the population in the area is projected to grow by 5,000 persons per year. With the increase in the general population in the area comes an expected increase in the need for schools. Of 37 schools identified by the Pasco County School Board to be built in the near future, 19 are to be located in the Wesley Chapel area. Whether the historic growth rate of the last few decades will continue for sure is an open question with the downturn in the economy and the housing market that commenced in Pasco County in mid-2007. Absent a major recession, however, it is reasonable to expect growth in the Wesley Chapel area to continue even if not at a rate as rapid as in the recent past. Whatever the future holds for Wesley Chapel's growth rate, there is clearly a demand for inpatient general acute care services in the Wesley Chapel area. The total non-tertiary discharges from the Pasco-Pinellas service area was 15,777, excluding newborns, for the 12-month period ending June 30, 2006. As a result, AHCA found the existing and growing population in the Wesley Chapel area warranted a new hospital. Along with significant growth in the Wesley Chapel area comes resulting traffic and healthcare and hospital access issues. Drive time analysis shows the average drive time from each of the Pasco-Pinellas PSA six area zip codes to the eight area hospitals in 2007 to be 46.11 minutes. The analysis shows that future drive time is expected to be lengthier, strengthening the need for a hospital in the Wesley Chapel area. In 2012, the average time increase is expected to 57.68 minutes. A Drive Time Study Report prepared by Diaz Pearson & Associates compared drive times to the proposed site for Pasco- Pinellas hospital to eight existing hospitals: UCH, Pasco Regional, FHZ, Tampa General, University Community Hospital on Dale Mabry in Tampa, St. Joseph's North, St. Joseph's in Tampa, and the site for Community's replacement hospital. The study concluded: The results of this travel study demonstrate that the vehicular travel times for access to the proposed PPHCHS Hospital [Pasco- Pinellas' Hospital] are consistently LESS for residents within the six Zip codes of the Primary Service Area for years 2007, 2011, and 2012 than for comparable trips to any of the eight area hospitals for alternate choice. Pasco-Pinellas 36, p. 27. Of particular note are the travel times from each of the six zip codes in Pasco-Pinellas' PSA to UCH, FHZ, and Tampa General. For example, a patient driving from the centroid point in zip code 33559 to UCH would take 24.28 minutes and to FHZ would take 37.97 minutes in 2007. This increases to 29.55 minutes and 50.94 minutes in 2012. Another example, the time it takes a patient to travel from zip code 33541 to Tampa General was 75.51 minutes in 2007. In 2012, the travel time is projected to increase approximately 20 minutes to 95.33 minutes. In contrast, a new hospital in the Wesley Chapel area would decrease travel times significantly for patients in the six zip code areas of the Pasco-Pinellas PSA. For example, in 2007, it would only take a zip code 33559 patient 11.41 minutes to reach the proposed site for Pasco-Pinellas. This represents a time savings of 12.87 minutes compared to the average driving time to UCH and 26.56 minutes compared to the average driving time to FHZ. In 2012, the reduction in time to drive to Pasco- Pinellas' proposed hospital site instead of UCH is 18.34 minutes and for FHZ, it is 39.53 minutes. The time savings for patients from the 33541 zip code traveling to Tampa General for non- tertiary services is even greater. Using Pasco-Pinellas' site in the Wesley Chapel area would save the patient 52.67 minutes in 2007 and is projected to save 63.88 minutes in 2012. Anecdotal evidence supports the need for a new hospital in the Wesley Chapel area. Dr. Niraj Patel practices obstetrics and gynecology in the Wesley Chapel area. A drive for him in good traffic is typically 20 minutes to UCH (the only hospital at which he practices because the distance between area hospitals is too great). In morning traffic during "rush" periods, the drive can exceed 40 minutes. Caught in such a drive in January of 2008, Dr. Patel missed the delivery of a patient's baby. He was required to appear before the UCH Medical Staff's credentials committee to "explain the situation . . . [because it] was the third or fourth [such] episode." Pasco-Pinellas 47, p. 11. As Dr. Patel explained in a pre- hearing deposition, "it doesn't fare well for me . . . credential and requirement wise but it doesn't fare well for the patient [who] had to be delivered by the nursing staff which [without a physician present] increases patient risk and [the chance] of complication[s]." Id. A new hospital in the Wesley Chapel area will provide residents of the Pasco-Pinellas PSA or the BayCare PSA with shorter travel time to a hospital compared to the time necessary to reach one of the eight existing hospitals in the region. In 2007, residents of the six zip codes in the Pasco-Pinellas' PSA could be expected to access Pasco-Pinellas' proposed hospital in a range of 10.9 to 21.8 minutes. For the year 2012, the time can be reasonably predicted to range from 17 to 31.4 minutes. In comparison the drive times to the eight hospitals in the region for residents of Pasco-Pinellas' PSA are significantly longer. In 2007, it took a resident in zip code 34639 approximately 55 minutes to get to UCH and 73 minutes to get to St. Joseph's Tampa. By 2012, those drive times are reasonably projected to increase to 64 minutes and 83 minutes, respectively. Simply put, travel times are expected to increase as the population increases in coming years. The site of Pasco-Pinellas' hospital is approximately one mile from the site of the proposed BayCare hospital. The travel times suggested for the residents of the Pasco-Pinellas PSA to the proposed Pasco-Pinellas hospital can be expected to be similar to travel times to the proposed BayCare hospital. Given the proximity of the two proposed sites, either will significantly reduce travel time to hospitals for patients in the Wesley Chapel area. The existence in the Wesley Chapel area of a community hospital with an emergency room and primary inpatient services will benefit doctors, patients and their families. Heightened driving concerns among elderly patients and traffic congestion and inadequate roadways that delay Emergency Medical services support the need for a Wesley Chapel area hospital. The support is based not only on 2007 travel times but also on the reasonable expectation that travel time will be greater in the future. Existing hospitals are capable of absorbing the increased need for acute care hospital services that result from the increased growth that is reasonably projected to occur in Subdistrict 5-2. If there is to be a new hospital in the subdistrict, the Wesley Chapel area is the best location for it. A new hospital in the Wesley Chapel area will enhance access to acute care services for residents of Subdistrict 5-2. Preliminary Agency Action; the SAAR The Agency determined that there is a need for a new hospital in the Wesley Chapel Area when it issued its State Agency Action Report on CONs 9975 and 9977. The Agency also determined that between the two applications, Pasco-Pinellas was superior and should therefore be approved over BayCare's. This determination was founded primarily on Pasco-Pinellas' application being more reasonable in terms of size and impacts on existing providers. The Agency maintained at hearing the position it took in it preliminary action memorialized by the SAAR. Jeffrey Gregg, Chief of AHCA's Bureau of Health Facility Regulation received in this proceeding as an expert in health planning and CON Review explained when called to the stand to testify: The proposal by [Pasco-Pinellas] was on the smaller side and gave us more comfort [than BayCare's] . . . [W]hile we . . . agree with these applicants that there is a hospital in the future of [the Wesley Chapel area], we are more comfortable with the conservative approach, the smaller approach [of Pasco- Pinellas], particularly given that should it be necessary in the future, any hospital can add beds, acute care beds, merely by notifying us. And we were more comfortable that [Pasco-Pinellas'] approach would be able to expand access and improve services for people in this area while at the same time minimally impacting all of the competitors. Tr. 1995. As detailed below, AHCA's determination that the Pasco-Pinellas application is superior to BayCare's is supported by the record even if the basis for the determination made on the state of the record is not quite the same as the basis advanced at hearing by AHCA. Size and Cost Pasco-Pinellas proposed hospital involves about 184,000 square feet of new construction at a cost of approximately $121 million dollars. It is much smaller and less costly than BayCare's proposed hospital of 476,000 square feet of new construction for about $308 million. The Pasco-Pinellas proposal is more reasonably sized to meet the needs of the Wesley Chapel area and, in turn, Subdistrict 5-2. The difference in size and cost of the two proposals, however, is a function of a major difference in approach in the applications. Pasco-Pinellas' proposal is for a typical community hospital that would start out with a bed size within a range that includes 80 beds. BayCare, on the other hand, proposes to serve not only the Wesley Chapel area and Subdistrict 5-2, but also a substantial population of patients to be drawn to the subdistrict particularly from Hillsborough County. Patients migrating to the hospital from outside the subdistrict will for the most part be the product of BayCare's affiliation with USF Health and its service to the USF College of Medicine in its proposal denominated in the application as a "teaching hospital." Need for a New Teaching Hospital "Teaching hospital" is a term defined in the Health Facility and Services Development Act, sections 408.031-408.045, Florida Statutes: "Teaching hospital" means any Florida hospital officially affiliated with an accredited Florida medical school which exhibits activity in the area of graduate medical education as reflected by at least seven different graduate medical education programs accredited by the Accreditation Council for Graduate Medical Education or the Council of Postdoctoral Training of the American Osteopathic Association and the presence of 100 or more full-time equivalent resident physicians. The Director of the Agency for Health Care Administration shall be responsible for determining which hospital meets this definition. § 408.07(45), Fla. Stat. The Agency has not determined that BayCare's proposal meets the statutory definition as directed by the statute for it to qualify as a "teaching hospital." The record indicates that the proposal is not a typical teaching hospital. For example, teaching hospitals in the United States are usually located near indigent populations to achieve the efficiency of training future practitioners with treating people who otherwise could not afford services. BayCare's proposal in a small county with a more affluent population does not serve that purpose. BayCare contends neither that it is a "statutory" teaching hospital nor that it should be determined by the Agency to meet the statutory definition of "teaching hospital." Instead it grounds its case for need in the teaching functions its proposal would fulfill for USF Health and in particular for the GME needs of the students of the USF College of Medicine and the results those teaching functions would produce. Considerable testimony was offered by BayCare at hearing with regard to GME and the needs and aspirations of the USF College of Medicine. The Dean of the College, Stephen K. Klasko, M.D., spiritedly and eloquently related a narrative of need which was supported and amplified by other witnesses including faculty members at the college. There were many elements to the narrative. Highlights include the hybrid nature of the USF College of Medicine, "acting like a research intensive medical school . . . in a community-based body" (tr. 1132)," its on-going successful striving towards becoming an academic center for world class physicians as evidenced by this year's receipt of a research grant from the National Institute for Health, "the largest . . . given to a medical school in the last four or five years," id., and the GME challenges the college faces in the Tampa Bay area such as the recent loss of its anesthesiology residency program. BayCare's opponents point out the many ways in which the proposal is not only not a statutory teaching hospital but does not fit a nationwide model for teaching hospitals. BayCare counters that its model is one of many different models for a teaching facility. Whatever the merits of the various assertions of the parties on the point, USF's need for a teaching facility will be filled at least in part by the BayCare proposal. It is not an exaggeration, moreover, to call USF's need in this regard compelling. USF's institution-specific need, however, does not fall under any of the CON review criteria. See paragraphs 167- 8, below, in the Conclusions of Law. Perhaps not unmindful of the limits of the criteria, BayCare's presented other evidence that flows from the teaching function of the BayCare proposal. Relevant to the general criterion of "need" in subsection (1) of the Statutory CON Review Criteria, the evidence relates to physician shortages. The Physician Shortage There is a shortage of physicians in the district as there is in Pasco County. The problem has statewide dimensions. The state is not doing enough to replace aging doctors in Florida with younger doctors. Nor are aging doctors providing sufficient emergency room call coverage. The physician shortage both in general and in emergency rooms in the state is likely to increase. Residents are more likely to remain and practice in the community in which they train. Residents in the Tampa Bay area, in particular, are more likely to remain in the Tampa Bay area to practice. Even 20 residents per year in training at BayCare's proposed hospital would make a difference in existing physician shortages. Should BayCare's proposed hospital be built and operated as contemplated, the teaching functions that BayCare's application proposes to offer at the hospital would serve as a step, however small, toward meeting Florida's physician shortage as well as the shortage in District V, Pasco County, Subdistrict 5-2 and the Tampa Bay area. Nonetheless, there is a feature of this case that undermines BayCare's claim that the proposal will aid the physician shortage and its denomination in the application of the proposal as a "teaching hospital." The feature is present in the agreement between USF and BayCare (the "BayCare and USF Agreement) to make the BayCare proposed hospital a University Hospital. The BayCare and USF Agreement The BayCare and USF Agreement contains a section devoted to implementation and termination. The following is excerpted from the section's six separately numbered paragraphs: The Parties [the University of South Florida Board of Trustees or USF and BayCare Health System, Inc.] shall negotiate in good faith all other terms and conditions relating to the execution and implementation of this Agreement, including, without limitation, any revisions to the provisions of the Articles of Incorporation and Bylaws of the Hospital Corporation, the terms and conditions of the Health Affiliation Agreement, the design and layout of the University Hospital . . . [etc.] and such other documents and instruments as the Parties may find necessary or desirable to implement the terms of this Agreement. In the event the Parties are unable to agree on all such terms and conditions and all such documents required to implement the terms and provisions of this Agreement despite their good faith efforts to do so, either Party shall have the option after a period of at least twenty four months from the Effective Date or six months after the final approval of the Certificate of Need for the University Hospital is received, whichever is longer, to terminate this Agreement on the terms described in this [s]ection . . . . BayCare 2, Appendix C, BayCare and USF Agreement, Section G, p. 8. (Emphasis supplied.) For USF to terminate, the terms include payment to BayCare of $500,000 and agreement that for five years after termination it will not enter into an affiliation or other agreement with any other provider for the establishment of a university hospital in Pasco County. See id. The ability of USF to terminate the agreement is not "at will." It requires good faith efforts to have been made at implementations that fail to work. Furthermore, termination is not without consequences. But the termination provision in the agreement is consistent with the lack of a condition in BayCare's application that the BayCare proposal be a teaching hospital, "one more detail that made [AHCA officials] scratch our heads about the characterization of this hospital as a teaching hospital." Tr. 2011. It is also consistent with USF's support for "legislation that would be statewide that would allow state medical schools at some point, if they chose to, to make it easier . . . to have a hospital or research hospital on campus . . . [of which] USF would be one . . . " Tr. 1190-91. Adverse Impact Providers Outside the District Evidence was produced at hearing about the adverse impact of approval of either of the two applications on providers outside the district. Objections to the evidence were taken under advisement pending consideration of post-hearing memoranda submitted by the parties. Upon consideration of the memoranda, the objections are sustained. See paragraphs 159-66, below, in the Conclusions of Law. Providers Within the District The Pasco-Pinellas proposal will have minimal impact on Community/Trinity Medical Center. Its impact on other hospitals will be minimal with the exception of its two partner hospitals--UCH and FHZ--and of those two, only FHZ is in the District. There will be no adverse impact on Community as a result of the BayCare proposal. There is little patient flow from eastern Pasco to the western Pasco hospitals. Only about 1% of the patients in eastern Pasco travel west for services at Community, Morton Plant or Bayonet Point. It is reasonable to project that there will be no material change in Community's patient draw as a result of the new Trinity Medical Center. The projections by Community's health care and financial experts of patient days that would be lost and adverse financial impact to Community/Trinity should the BayCare proposal be approved were based on faulty assumptions. The majority of the adverse impact from BayCare's proposal, as in the case of Pasco-Pinellas' proposal, will be on UCH and FHZ. Availability of Resources Nursing and Non-Nursing Staff Pasco-Pinellas should be able to recruit and retain nursing and other staff for its hospital based on the Adventist experience at FHZ. The nursing vacancy at FHZ is 1% lower than the vacancy rate reported by the Florida Hospital Association (7.5% and 8.5%, respectively.) The turn-over rate for nurses at FHZ is 12%, significantly lower than the national rate in the 18-19% range. Recruitment of nurses has been successful at FHZ particularly in the last few years. In 2007, FHZ hired 100 nurses and reduced its use of agency nursing staff by roughly 75%. Among its different recruitment tactics have been a foreign nursing program, education and training incentives, scholarships at local colleges and specialty pay programs. Pasco-Pinellas will use many of the same recruiting techniques that have been successful at FHZ. It is reasonably anticipated that the same recruitment practices employed by FHZ will work for Pasco-Pinellas. Many members of the current nursing staff at FHZ, moreover, live in the Wesley Chapel area and have expressed an interest in working at Pasco-Pinellas. Retention programs at FHZ have been aimed at retaining better nurses. These include the magnet concept and a self- governance program with "a unit based council and nursing council so nurses . . . practicing . . . at the bedside have the opportunity to help govern the practice of nursing." Tr. 225-6. Retention programs similar to those used at FHZ will be implemented at Pasco-Pinellas. Schedule 6 in Pasco-Pinellas application reflects anticipated staffing for its new hospital. The staffing model is consistent with staffing at other Adventist facilities, specifically FHZ. The average salaries and wages are based on actual salaries inflated forward to the projected date of opening. The FTEs per adjusted occupied bed are adequate and consistent with the staffing patterns at FHZ. All necessary staffing positions are accounted for and the number of FTEs and salaries are sufficient for the hospital to operate and provide high quality of care. The registered nurse FTEs, as opposed to LPNs and lower-level nursing care, in Schedule 6 offer optimal staffing to provide high quality care and positive patient safety. The nursing salaries are adequate for the time frame in which Pasco-Pinellas will open with a one-time 5% increase and a 4% increase per year from present until opening. Schedule 6 supports the reasonable expectation that Pasco-Pinellas will be able to recruit and hire nursing staff and retain an adequate staff. The proposed staffing pattern in Schedule 6 of the Pasco-Pinellas application, which includes nursing staff, moreover, is reasonable. BayCare has a comprehensive recruitment program for recruiting and retaining nursing personnel as well. The strategies include a partnership with the nursing programs at USF and St. Petersburg College. BayCare System provides additional training to its nurses and with regard to salaries has committed to remaining competitive in the market. BayCare's recruitment and retention initiatives have been successful. In the 2008 year to date at the time of hearing, BayCare System had been able to hire more experienced nurses that it did in 2007 for the same time period. Overall, the BayCare System has a turnover rate of about 15%. The RN vacancy is 10% with a 13% turnover rate. These figures are comparable to state and national figures; in some cases they are lower. With regard to non-nursing employees or team members, BayCare System also had developed recruitment initiatives that are targeted toward those individuals. BayCare System has a positive reputation in the community as a good place to work. As an example, the three St. Joseph's hospitals (St. Joseph', Women's and Children's) and South Florida Baptist received recognition among the "Best Work Places in Health Care" for the years 2005 and 2006. The award recognizes outstanding practices related to employees. BayCare has the ability to recruit and retain the staff necessary to staff the proposed BayCare SE Pasco hospital. The staffing projections in Schedule 6 of BayCare's application, which includes nursing staff, are reasonable. Physician Support Despite the physician shortage, both applicants should be able to adequately staff their hospitals with physicians as shown by the evidence with regard to physician support for the hospitals. Florida Medical Clinic (FMC), a multi-specialty physician group practice with 85 physicians, is the primary physician group that serves the Wesley Chapel area. Thirty percent of its members are family practitioners or specialists in internal medicine. The remainder of the members cover 20 or so specialties that include both secondary and tertiary specialties. FMC has determined that it will support the Pasco- Pinellas proposal through its physicians, admissions and outpatients activity. Ninety percent or more of the clinic's patients use the UCH and FHZ facilities. FMC has a long- standing relationship with the administrators, personnel, and strategic issues of FHZ and UCH and is comfortable developing future plans for a hospital facility in Wesley Chapel with the two organizations FMC is able to meet the needs of the Wesley Chapel community both today and in the future. In addition, there are numerous other individual physicians who practice in the Wesley Chapel area who "predominantly support University Community Medical Center and Florida Hospital in Zephyrhills." Tr. 63. Having relationships with physicians already in a market when a hospital is being developed is advantageous to the new hospital. Among other advantages, it minimizes resources used to recruit and move new physicians into the area. In contrast to support for the Pasco-Pinellas proposal, FMC has not made a commitment to BayCare as to its proposal because of lack of knowledge about the structure of the facility, its strategic plans and whether or not FMC's interests align with the BayCare proposal but it has not foreclosed such a commitment. The USF physicians group will be a source of many of the physicians who will staff the BayCare proposed hospital, a likely reason for FMC's lukewarm to non-existing support for BayCare's proposal. USF emergency physicians will staff the Emergency Department. The BayCare System has approximately 28 physicians with privileges at BayCare System facilities with offices in the Wesley Chapel area. The proposed BayCare hospital will be staffed by recruited physicians and USF faculty physicians. Other physicians from the Wesley Chapel area provided testimony of their support for the BayCare proposal. It is reasonable to anticipate that some local Wesley Chapel area physicians will join the medical staff of the proposed BayCare hospital. Despite the physician shortages in the subdistrict, District V and the Tampa Bay area, both Pasco-Pinellas and BayCare will be able to staff their hospitals adequately with physicians. Charity and Medicaid; Conditions Pasco-Pinellas committed to a number of conditions of its applications. These include a 12.6% commitment to charity and Medicaid; the establishment of funding for a clinic for the underserved, provision of educational programs for the community, and two neonatal transports and funding for local fire and rescue services. BayCare projects a 6.1% level of charity care, 2.4% higher than Pasco-Pinellas' charity care commitment. It projects 10.3% of its Medicaid and Medicaid HMO patients will be attributable to Medicaid and Medicaid HMO patients versus 8.9% at Pasco-Pinellas. BayCare System has a history of providing services to Medicaid and Charity Patients. In 2006, for example, as not- for-profit entities, BayCare System facilities and related entities provided a total community benefit of $135 million in uncompensated care. Approximately 50% was pure charity care. BayCare System facilities currently serve patients from the Wesley Chapel area, including, of course, Medicaid and charity patients. BayCare System facilities provide 57% of the charity care and 31% of the Medicaid in the market. St. Joseph's Children's Hospital and St. Joseph's Women's Hospital operate at approximately 50-to-60% Medicaid and un-reimbursed care. St. Joseph's Hospital currently serves approximately 20% of the patients from the Wesley Chapel area. St. Joseph's, however, provides 36% of the total charity, Medicaid, and Medicaid HMO care rendered to patients who reside in the Wesley Chapel area. Thus, the facilities within the BayCare System have a demonstrated track record of providing care without regard to a patient's resources. In light of the record, it is reasonable to expect BayCare to carry on in the same vein under the BayCare proposal. Utilization Schedule 5 relates to projected utilization after project completion. The projections in the schedule in Pasco- Pinellas' application were developed by looking at service area population, applying a use rate growth and taking a market share by individual zip code. They are based on the expectation that the hospital would be operating at approximately 70% occupancy in its third year of operation, which equates to an average census of approximately 56 patients. The assumptions contained in the schedule are reasonable. The utilization projections in Schedule 5 in Pasco- Pinellas' application are reasonable; they indicate that an 80- bed hospital is appropriate to meet the need for a new hospital in the Wesley Chapel area of the subdistrict. BayCare will able to achieve its projected utilization from its primary service area and from the 40% of its patients it expects to receive by way of in-migration. The population forecast and market share forecast for the primary service area are reasonable. While the support among local physicians is much stronger for the Pasco-Pinellas proposal, it is likely that they will admit patients to the BayCare proposed hospital since it will be in the Wesley Chapel area, the area of the subdistrict that is most suitable for a new hospital. The 40% projected in-migration from outside of the seven mile service area is a reasonable projection. It is reasonable to expect that the bulk of these admissions will come from USF physicians located at the USF north Hillsborough campus. Projected Revenues Schedule 7A governs projected revenues. The payor mix in Schedule 7A of Pasco-Pinellas' application is based on historic admission and patient days by payor class occurring in the proposed Pasco-Pinellas service area based on the most recent available AHCA data. Gross charges and net revenues were developed based on historical data from FHZ as reported to AHCA. These figures were inflated forward using a net increase over all in revenue payments of approximately 3%. The projected revenues including net revenues in Schedule 7A of Pasco- Pinellas' application are reasonable and consistent with the marketplace. The payor mix in BayCare's Schedule 7A was based on an analysis of patient discharge data from the proposed primary service area plus an analysis of the experience of other BayCare System facilities in the same market. It is a reasonable payor mix. It allows for consideration of the experience of BayCare System, including the high level of charity care and Medicaid and Medicaid HMO services and at the same time reflects that the Wesley Chapel area is more affluent and younger than other areas of Pasco and Hillsborough Counties. BayCare's revenue assumptions were based on an analysis of gross and net revenue per patient day from another BayCare System facility, South Florida Baptist. Financial class specific projected patient days were applied to derive a gross and net revenue number for each of the three pro forma years for the proposed project denominated by Schedule 7A as "Projected Operating Year 1, 2 and 3" and ending "12/31/11, 12/31/12 and 12/31/13" respectively as indicated by BayCare in the application. See BayCare 2, pp. 133-135. The 2006 South Florida Baptist gross and net revenue per patient day were trended forward for each of the three projected operating years to reach the projected revenue figures in Schedule 7A. The projected revenues in Schedule 7A of the BayCare application are reasonable. Projected Income and Expenses Schedule 8A in a CON application contains projected income and expenses for the proposal. Pasco-Pinellas' application used a methodology in Schedule 8 that its expert had used in other CON cases. The methodology is consistent with methodologies of other health care experts and has been accepted in recommended and final orders in CON cases. The projections in Schedule 8 of Pasco-Pinellas' application are appropriate and reasonable. BayCare's methodology used to project income and expenses in Schedule 8A is also appropriate and reasonable. BayCare's healthcare finance expert asked BayCare financial analysts to look at his initial projections. They recommended that expenses be increased in physical therapy, radiology lab and pharmacy and that expense be reduced in plant operations. The recommendations were accepted; the projections were adjusted. Medicare GME reimbursement in year 3 of operations was assumed to be $1.7 million. If no addition Medicare GME reimbursement were received, BayCare's proposal would still show a profit of $2.8 million by year 3. It is virtually certain, moreover, that some portion of the $1.7 million included in calculation of BayCare's income projections will be realized. However valid criticism of the inclusion of the $1.7 million, BayCare's proposal remains financially feasible in the long- term. Financial Feasibility Pasco-Pinellas proved the immediate and long-term financial feasibility of its proposal. The schedules in its application related to financial feasibility used reasonable methodologies that yielded reasonable projections. Analysis of capital costs and funding is contained in Schedules 1 through 3. Schedule 1 presents an accurate summation of total project cost. That figure, $121 million, is a reasonable and typical cost for a new 80-bed community hospital. The $149 million on Schedule 2 reflects an accurate summation of anticipated capital costs, including the hospital project and necessary capital expenditures for the first tow or three years of operation. Schedule 3 set forth the sources of funding, a combination of equity and debt financing, discussed below. Both UCH and Adventist are financially successful systems. They will have not difficulty funding the Pasco- Pinellas proposal. As of December 31, 2007, Adventist's net revenue was approximately $368 million. About $100 million in funds were available to UCH at the time of hearing to contribute to development of the project. Due to the financial strength of its members, Pasco- Pinellas will easily be able to fund the project through a combination of equity and debt. The equity, $45 million, will be provided equally by Adventist and UCH, $22.5 million each. The remaining $76 million will be financed through tax-free bonds issued by Ziegler Securities. The project is immediately financially feasible. The Pasco-Pinellas project is also financially feasible in the long-term. Schedule 8 in the application, year 3, shows the project will generate a return of approximately $5.3 million in revenue over expenses, an amount that "more than meet[s] the test for financial feasibility in the long-term." Id. Based on the sources of BayCare System, BayCare has access to the financial resources to implement its proposed hospital. Funding for the hospital will come from BayCare System on the basis of 50% debt and 50% equity investment. As of early 2008, BayCare System had approximately $1.2 billion in unrestricted cash on hand. BayCare System's financial strength will allow BayCare to obtain the financing it needs for the project. Schedule 3 of the BayCare application sets forth an accurate and reasonable statement of the sources of funds necessary to develop the project. The immediate financial feasibility of BayCare's proposal is demonstrated by the evidence presented by BayCare. By year three of the pro forma, the BayCare proposal is reasonably projected to generate a net income over expenses in the amount of $4,498,637. BayCare demonstrated that the proposal's long-term financial feasibility. Costs and Construction Methods The costs and methods of the proposed construction of the Pasco-Pinellas project are reasonable. The facility is adequately sized and programmed for the services included in the Pasco-Pinellas application. All of the departments, including central storage, fall within an appropriate benchmark range for community hospitals. The 2,300 square feet per bed is reasonable as are the construction costs when compared to similar community hospitals. The proposed Pasco-Pinellas facility meets the codes for all of the services included in the application. The design of the Pasco-Pinellas facility enable expansion. The designed expansion capabilities are reasonable, logical and appropriate to meet the needs of the Wesley Chapel community. The drawings contained in the CON application show an efficient community hospital. The departments allow for efficient intra-department circulation and department-to- department circulation. There are adequate separation of public and staff flow corridors. All of the areas and departments as shown in the Pasco-Pinellas plans are code compliant. The layout of the patient rooms is consistent with industry standards for the design of single patient rooms. The number and size of the operating rooms are adequate and appropriate for an 80-bed community hospital not offering tertiary services. The emergency department, including the trauma room, complies with code and its layout is adequate and appropriate for an 80-bed hospital. The ambulance entrance in relation to the trauma bay allows for efficient location of patients based on acuity level. The number of treatment beds, treatment bays, including observation areas, provide adequate emergency department capacity. The Schedule 1 costs set forth in the BayCare application are reasonable. These costs include projected costs associated with necessary medical equipment. The medical equipment costs set forth in Schedule 1 are reasonable and BayCare has properly accounted for the items and costs of equipment necessary to operate the hospital. The Schedule 9 construction costs of approximately $180 million are reasonable as are the construction costs per square foot ($347 versus $325 for Pasco-Pinellas). Contingencies and escalation factors have been built into the projected costs. Facilities, Sites, Related Costs At the time the UCH and Adventist joint venture was formed, UCH had a parcel of land under contract located on State Road 54 across from the Saddlebrook Resort (the "UCH Parcel"). When it filed its application, Pasco-Pinellas hoped the UCH Parcel would serve as the site of its hospital. In fact, Pasco- Pinellas touted the location of the parcel for meeting the need of the growing population in Pasco County when it represented in the application that the UCH Parcel is the center point of the Wesley Chapel area. Close to Interstate 75, the UCH Parcel is a good location for a hospital. Pasco-Pinellas' aspiration for the use of the parcel was defeated, however, when the Pasco County denied a request to re-zone the UCH Parcel for use as a hospital. After the inability to have the UCH Parcel re-zoned, Pasco-Pinellas changed the site for the hospital to a parcel owned by FHZ (the "Pasco-Pinellas Site"). Located on Bruce B. Downs Boulevard, a major north-south corridor in the Wesley Chapel area, the site is 51.5 acres. The Pasco-Pinellas Site had been purchased by FHZ in 2001 with the intention of using it for a hospital. Subject to a height variance to allow a seven-story building, the site is zoned for special use as a hospital and related medical uses. The site has good visibility and access from Bruce B. Downs Boulevard as evidenced by its compliance with the State Road 581 (Bruce B. Downs Boulevard) access management plan. It meets other regulatory requirements such as the minimum spacing criteria for Pasco County. The Pasco-Pinellas Site is governed by a development order associated with the Wiregrass Ranch Development of Regional Impact (the "Wiregrass DRI DO"). The Wiregrass DRI DO "indicates that the phasing schedule assumed 100 hospital beds would be developed within the building phase." Tr. 597. As explained at hearing by Lara Daly, Pasco-Pinellas' expert in civil engineering and property site development, there are other aspects of the Wiregrass DRI DO, "like trade-off matrices" and "entitlement advancements" that indicate "entitlements are not limited on a parcel-by-parcel basis." Tr. 598. The assumption, therefore, does not necessarily restrict the number of hospital beds on the Pasco-Pinellas Site; rather it allows impacts associated with 100 hospital beds. The number of allowable beds may be increased following action taken under other provisions of the Wiregrass DRI DO. A significant portion of the Pasco-Pinellas Site is wetlands: some of low quality, some of high quality. The higher quality wetlands, referred to in the record as "a high quality category 1 wetland as defined by Pasco County," tr. 552, (the "Category 1 Wetland") are on the north and east perimeter of the site. The project is designed so as to have no impacts on the Category 1 Wetland. The only potential impact to these high quality wetlands is if there were a county-mandated road to be built in their vicinity. The lesser quality wetlands located in the interior of the site are herbaceous in nature or an open water feature that is "an older borrow pit that naturalized over time." Tr. 552-53. These lower quality wetlands constitute roughly 11.5 acres of the site. They will be impacted by the project but it is reasonable to expect that the impacts will be permitted. As Ms. Daly put it at hearing, "[a]fter reviewing, running stormwater models, looking at the proposed wetland impacts, coming up with appropriate mitigation ratios based on our experience elsewhere on the Wiregrass site, the site will accommodate all the necessary wetland and floodplain historic basin compensation . . . ." Tr. 550. The costs contained in Schedule 1 of the application were arrived assuming the use of the UCH Parcel as the site for the Pasco-Pinellas project. The Pasco-Pinellas Site requires expenditures for site preparation and other expenditures, such as wetland mitigation, related to the site that were not required had the UCH Parcel been used. For example, three potential foundation systems have been suggested for the hospital because of the wetland and subsurface conditions on the Pasco-Pinellas Site had the UCH Parcel been the site. Using the most expensive of the three, however, would not cause Pasco- Pinellas to exceed the construction costs contained in Schedule 1 of the CON Application. The land acquisition costs were reasonably projected to be less for the Pinellas-Pasco Site than for the UCH Parcel as reflected in the application. All told, the estimated project cost using the Pasco-Pinellas site was not materially different from the cost projected in the application and presented the possibility of being less than the $121 million reflected in the application. Likewise, the equipment cost figure shown in Schedule 1 of the Pasco-Pinellas application is reasonable and achievable. The total of the costs for the project sited at the Pasco-Pinellas Site, despite the change of site that occurred after the filing of the application, should not exceed the total of the costs listed in the Pasco-Pinellas application. The preponderance of the evidence is that the Pasco- Pinellas Site should ultimately qualify as an appropriate, developable site for the Pasco-Pinellas project. The BayCare site, north of Highway 56 and bordering I-75, (the "BayCare Site") includes two parcels of 54 and 17 acres. The 54 contiguous acres will be used for the hospital, outpatient services, and a planned medical office building. The 17 acres will be used for research space, physician office space, and academic training space necessary for the research and education function at the project. BayCare has the appropriate zoning and approvals necessary to develop the hospital. The hospital will have all private beds. It will be fully digital and will rely on electronic medical records. The BayCare Site is well suited for construction of the hospital and related buildings. The available footprint and design of the hospital, which includes shelled-in space, will readily allow for future expansion of the hospital up to 300 beds. Design of the BayCare facility is based on principles of family-centered care, flexibility to allow for change and future growth, efficiency, a quality of environment for teaching, a sustainable, green building, and patient safety. A "health building" with improved environmental quality and energy efficiency, the facility will seek LEED certification given to facilities constructed to have minimal adverse environmental impact. In keeping with the teaching function intended by the application, the facility's design includes additional work space, reading areas, sleep areas and conference rooms to facilitate teaching. Overall, the BayCare facility is twice as large as the Pasco-Pinellas facility. Size has its advantages. For example, it allows for larger treatment patient areas. But the facility is much more expensive to build. It is reasonably projected to cost more than $180 million above the costs associated with the Pasco-Pinellas facility which is more than twice as much. The high expense associated with the BayCare facility is shown by its cost per bed: in excess of $2 million-- much more than the cost per bed of the Pasco-Pinellas facility.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Agency for Health Care Administration approve CON 9975, Pasco-Pinellas' application for a new hospital in AHCA Subdistrict 5-2, and deny CON 9977, BayCare's application for a new hospital in the same subdistrict. DONE AND ENTERED this 28th day of October, 2008, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of October, 2008. COPIES FURNISHED: Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Karin M. Byrne, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Stephen K. Boone, Esquire Boone, Boone, Boone, Koda & Frook, P.A. 1001 Avenida Del Circo Post Office Box 1596 Venice, Florida 34284 Jonathan L. Rue, Esquire Parker, Hudson, Rainer & Dobbs, LLP 1500 Marquis Two Tower 285 Peachtree Center Avenue Northeast Atlanta, Georgia 30303 Robert A. Weiss, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 R. David Prescott, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551
The Issue Whether Certificate of Need (CON) Application No. 10009, filed by HealthSouth Rehabilitation Hospital of Ocala, LLC (the applicant or HS-Ocala) to establish a new freestanding 40-bed comprehensive medical rehabilitation (CMR) hospital in Marion County, Agency for Health Care Administration (AHCA or Agency) District 3, satisfies, on balance, the applicable statutory and rule review criteria for approval.
Findings Of Fact The Parties The Applicant HS-Ocala is a wholly-owned subsidiary of HealthSouth Corporation (HealthSouth). Founded in 1984, HealthSouth is the nation's largest provider of inpatient rehabilitative healthcare services in terms of revenue, number of hospitals, and patients treated. HealthSouth employs over 22,000 people in approximately 93 rehabilitation hospitals, six long-term care hospitals, approximately 48 outpatient rehabilitation satellites and 25 hospital-based home health agencies across 26 states and Puerto Rico. All HealthSouth facilities, including the facilities in Florida, are either accredited by the Joint Commission (f/k/a the Joint Commission on Accreditation of Healthcare Organizations – JCAHO) or the Commission on Accreditation of Rehabilitation Facilities (CARF) or both. HealthSouth has created specific programs for different conditions, including a specialized Stroke Rehabilitation Program nationwide. HealthSouth is one of only four hospital companies receiving Joint Commission Stroke Rehabilitation Certification: 21 of 25 hospitals that have this certification are HealthSouth facilities. HealthSouth owns and operates nine freestanding CMR hospitals in Florida. HealthSouth also owns and operates a 40- bed long-term acute care hospital in Sarasota and owns eight outpatient centers in the state. HealthSouth will provide patients with an interdisciplinary team that includes the services of a physician/physiatrist, physical therapists, occupational therapists, speech/language pathologists, psychologists, rehabilitative nurses, case managers, therapeutic recreation specialists, dieticians, and respiratory therapists. Shands Shands Teaching Hospital and Clinics, Inc., was incorporated in 1979 as a Florida not-for-profit corporation. Shands is located in Gainesville, Florida, and operates a health care delivery system that includes the flagship teaching hospital for the School of Medicine of the University of Florida and Shands Rehab Hospital (a division of Shands), a 40-bed freestanding inpatient rehabilitation hospital. Shands serves patients throughout District 3, as well as other areas of Florida. Co-located in the same building with Shands Rehab Hospital is Shands Vista (a division of Shands), an inpatient psychiatric and substance abuse facility licensed to operate 81 beds, of which 57 are psychiatric and 24 are substance abuse. Shands also operates Shands AGH, a 367-bed acute care community hospital in Gainesville; Shands at Lake Shore, a 99- bed acute care community hospital located in Starke, Florida; and Shands Live Oak, a 15-bed acute care hospital located in Live Oak, Florida. Another subsidiary of Shands is Shands Jacksonville Medical Center, a 696-bed teaching hospital in Jacksonville, Florida. Shands Rehab is accredited by the Joint Commission, the Florida Brain and Spinal Cord Injury Program and CARF. Shands Rehab offers a full array of CMR services. Patients at Shands Rehab are served by an interdisciplinary team. LRMC LRMC is a 309-bed acute care hospital located in Leesburg, Florida. LRMC provides a broad array of services including open-heart surgery and neurosurgery and also offers stroke specialty service. LRMC's CMR unit, also known as the Ohme Rehabilitation Center (Ohme), is a 15-bed hospital-based CMR unit located in its North Campus in Leesburg, Florida. Ohme is accredited by the Joint Commission and CARF. CARF has also accredited Ohme as a stroke specialty program. LRMC is part of the Central Florida Health Alliance, which also includes The Villages Regional Hospital (120 beds) located within the development known as The Villages, located in Lake, Sumter, and Marion Counties, and north of LRMC. The Villages is located approximately 15-to-20 minutes from LRMC. Ohme's patients work with an interdisciplinary team of professionals, including a medical director, case managers, registered nurses, rehabilitation techs, certified nursing assistants, physical therapists, occupational therapists, speech/language pathologists, recreational therapists, rehabilitation therapists, social workers, and dieticians. AHCA AHCA is the state health planning agency and administers the CON program pursuant to the Health Facility and Services Development Act, Sections 408.031-.0455, Florida Statutes. CMR Services and Facilities CMR facilities are licensed pursuant to Chapter 395, Florida Statutes. CMR services are defined by Section 408.032(17), Florida Statutes, as tertiary health services, which "means a health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost- effectiveness of such service." Id. The services are integrated and intensive, provided in an inpatient setting by a multidisciplinary team to patients with severe physical disabilities, such as stroke, spinal cord or brain injury, congenital deformities, amputation, major multiple trauma, femur fracture, neurological disorders, polyarthritis, and burns. The patients served by CMR facilities are clinically complex and require an acute care level of nursing and rehabilitative therapies. Facilities such as the one proposed are reimbursed prospectively by the Medicare program under the inpatient rehabilitation prospective payment system, 42 C.F.R. Part 412, and are exempt from the Medicare inpatient prospective patient system for short-term acute care inpatient hospitals. To be eligible for Medicare reimbursement as an inpatient rehabilitation facility, 60 percent of the patients admitted to a CMR facility must have a medical condition that falls within one or more of 13 diagnoses established by the Centers for Medicare and Medicaid Services (CMS), which indicate a need for intensive rehabilitative services. These are commonly known as the "CMS-13" criteria. The CMS-13 criteria include: stroke, spinal cord injury, congenital deformity, amputation, major multiple trauma, femur fracture (hip fracture), brain injury, neurological disorders, burns, active polyarthritis, systemic vasculidities, advanced osteoarthritis, and knee or hip replacement with additional co-morbidities. If a CMR facility falls below the 60 percent threshold, it will be reimbursed by CMS as a short-term acute care inpatient hospital. In addition to the above requirements, the federal government mandates that a patient admitted to a CMR facility must require an acute care level of nursing services; that physicians determine the admission of the patient to be medically necessary; and that the patient be able to tolerate three hours of therapy services per day (900 minutes over five days) over a five-day period administered by licensed therapists. Therapy services included in the three-hour requirement include physical, occupational, speech, recreational, neuropsychological, and prosthetics and orthotic. Services or treatments rendered by aides may not be included in the three-hour per day minimum therapy requirement; however, services or treatments provided by licensed assistants can be included in the three-hour per day requirement. Unlike acute care services, access to CMR services is non-emergent. The process used to identify and admit patients from an acute care setting to a CMR facility begins early in the patient's stay, e.g., at an acute care facility. (Patients can be admitted from other entities or from home, but most are admitted from hospitals.) Typically, a patient will be assessed upon admission to an acute care hospital to determine what services they will need upon leaving the hospital. The assessment process involves discharge planners, case managers, physicians, nurses, the patient's insurance provider, and the patient and his or her family. In making the decision as to where a patient should be discharged, those involved in the decision-making process determine the amount of therapy the patient can tolerate; the age of the patient; and any co-morbidities or other conditions the patient may have. Once a decision is made as to what types of post-acute care services are needed, the acute care hospital's discharge planner or case manager is charged with coordinating the required care for the patient. CMR services include the close involvement of a physician (physiatrist) and the availability of 24-hour nursing care because the patients requiring CMR services typically have significant medical conditions and co-morbidities. In the CMR setting, nurses are trained to be a part of the entire therapeutic team. In coordinating post-acute care for a patient, some Marion County acute care hospitals such as Munroe Regional use the Allscripts or ECIN electronic referral system. Other local hospitals, such as Ocala Regional and West Marion, do not. However, the director of admissions at TimberRidge has access to patient charts at Ocala Regional and West Marion. (It appears that eight Ocala-area SNFs are listed on the ECIN system.) The ECIN system allows hospitals to transmit a patient's medical information to post-acute care facilities for consideration for admission in electronic format. The system also allows a hospital and the potential discharge facility to communicate if additional information or explanation is needed. The system is viewed as a valuable tool because it allows CMR facilities to obtain detailed information on potential admissions without having to travel to the referring facility to review medical records. The Allscripts system is also utilized by a CMR facility to assist with placement decisions at the time the patient is discharged from the CMR facility. Once the patient is referred to a CMR facility, the CMR admissions team receives the patient's information and begins its own assessment to determine whether the patient is a good candidate for admission. Typically, a nurse liaison is assigned to a referred case and gathers information on the patient to be used in the admissions decision. A patient assessment sheet is typically completed and the CMR admitting physician will be called on to review the information. The admitting physician will look for information regarding the nature and extent of a patient's illnesses and whether the patient had any complications that could affect the patient's ability to participate in rehabilitation. The ability to participate in rehabilitation is significant to a CMR facility because the patient is typically expected to begin exercising as soon as possible after admission. All of the above factors are considered in addition to the CMS-13 criteria. Even if a patient falls within one of the CMS-13 diagnosis codes, the CMR facility staff also determines if the patient requires at least two disciplines of therapy as required by Medicare. A patient who does not meet this criterion may not be considered a candidate for admission to a CMR facility notwithstanding the fact that he or she may fall within one of the CMS-13 diagnoses. Utilizing all of the above indicators, a final decision is made and communicated to the acute care facility or other referring entity to coordinate the transfer of the patient or re-refer the patient to a more appropriate setting. When a patient is admitted to a CMR facility, a patient assessment instrument that captures the patient's diagnostic and functional abilities must be completed. During this admission assessment process, the patient's level of independent functioning is measured for a number of activities. This comprehensive review of the patient's functions is performed within three days of admission. This measurement is known as the patient's functional independence measurement (FIM) score. The FIM score is both a quality and outcome and progress measure. The FIM measures 18 items on a scale of 1 (most severe) to 7 (independent). FIM scores are not utilized in the skilled nursing home industry, which has made it more difficult to compare the care delivered in CMR facilities and skilled nursing homes. All CMR providers utilize FIM scores. The FIM score in part determines the level of reimbursement the facility receives from Medicare because it indicates that the patient will typically require more services. FIM scores are measured again upon discharge. The Proposal HS-Ocala proposes to build a new 40-bed freestanding CMR hospital in Ocala, Florida, at a cost of $19,620,449 in a 49,900 square foot facility. All of the beds will be private. This prototype has been built by HealthSouth at least ten times since 2001, including twice within Florida. HS-Ocala plans to build the hospital on 6.2 acres located on Southwest 19th Avenue Road in, Ocala, Florida. The property is a portion of the approximately 7.63-acre tract identified as Marion County tax parcel number 23721-003-00. HealthSouth has an active contract to purchase the property. The projected construction cost contained in the application is $9,237,800 or $185.12 per gross square feet. The applicant agreed to condition the proposed project on the following: providing a minimum of 2.5 percent of the hospital's annual inpatient patient days to Medicaid and charity patients; implementing a Stroke Rehabilitation Program to begin upon licensure; obtaining Joint Commission Certification of its stroke rehabilitation program; and providing an AutoAmbulator and other appropriate technology upon licensure. In its preliminary approval of the application, AHCA conditioned the approval on the conditions indicated above, and that the facility is located in close proximity to the intersections triangulated by Interstate 75, SR 200, SR 40, and U.S. Highway 27. The applicant proposes to offer a full range of CMR services. The applicant does not propose to have a spinal cord or brain injury unit. These patients are typically transferred to a facility like Shands Rehab consistent with the tertiary nature of CMR services. HealthSouth CMR facilities have traditionally offered high quality CMR services at all of its facilities, including the nine facilities in Florida. Consistent with the general description of CMR services provided herein, HealthSouth has developed diagnostically distinct programs which offer specialized inpatient and outpatient services with an interdisciplinary approach. These programs are developed and implemented at each HealthSouth facility consistent with the needs of the market. These specific programs improve outcomes for the patients. HealthSouth's interdisciplinary therapy team primarily consists of physical, occupational, and speech therapists. The physical therapy team integrates with the other interdisciplinary team members, including physicians, nurses, prosthetists, orthotics, and other team members. From the initial assessment, the interdisciplinary team develops a plan of care through treatment interventions provided to the patient. A comprehensive review of the patient's functionality, including the FIM score determination, is performed on each patient is performed within three days of admission. Throughout the patient's stay, patient goals are constantly being assessed and implemented. Conferences are held with the patient and family to make sure the goals are being accomplished. The team also evaluates the home setting and prepares the patient and the family for discharge. HealthSouth's main mission is to provide quality outcomes. The outcomes are measured on admission, throughout the patient's stay and on discharge. HealthSouth takes the necessary measures to assure that it provides the patient with at least three hours of therapy a day. HealthSouth uses state-of-the-art technology as part of its ongoing quality initiatives. The Ocala facility will have access to state-of-the-art equipment including the AutoAmbulator, a device developed and implemented by HealthSouth and only offered at most of the HealthSouth facilities in the United States. (The AutoAmbulator is a sophisticated treadmill using the therapeutic concept of body weight supported ambulation and robotics to help patients with gait disorders. The equipment has produced quality outcomes for HealthSouth patients. There are no studies that compare the use of this device with other similar devise such as a LocoMat.) HealthSouth also proposes to offer other technology such as the Balance Master (assessment of balance); EquiTest (used to diagnose and treat imbalance and postural instability); Visipitch (computerized analysis of voice); SaeboFlex wrist splint and exercise station (promotes increased function in shoulder, wrist, elbow, and hand); Interactive Metronome (promotes motor learning); and VitalStim (targets swallow function); and Bioness (helps patients regain lost mobility for upper and lower extremities). See T. 707-16. HealthSouth tracks and measures quality provided to the patient pursuant to its contract with the Uniform Data System for Medical Rehabilitation, which is the most widely used system in the country. This system tracks function outcomes for CMR patients through the use of FIM data captured from approximately 900 rehabilitation hospitals in the United States. HealthSouth monitors patient satisfaction outcomes. Each HealthSouth CMR facility has a quality review council that examines patient safety measures, FIM outcome data, patient satisfaction data, and infection controls. HealthSouth encourages family participation before admission, during treatment, and after the patient is discharged from one of its CMR facilities. Travel barriers may impact the ability of family members to access a CMR facility. District 3 and the Proposed Service Area (PSA) District 3 is the largest health service planning district in the state of Florida composed of 16 counties, including Hamilton, Suwannee, Lafayette, Dixie, Columbia, Gilchrist, Levy, Union, Bradford, Putnam, Alachua, Marion, Citrus, Hernando, Sumter, and Lake. § 408.032(5), Fla. Stat. District 3 encompasses more than 11,000 square miles with nearly 1.6 million residents. Much of District 3 is rural covering approximately 20 percent of the state's land areas, but home to approximately eight percent of the state's population. Marion County is the most populated county within District 3 with more than 317,000 residents. There is a natural geographic barrier in the area with the forest to the east of Marion County. The service area for the proposed facility defined in the application comprises zip codes in Marion County and the easternmost portion of Levy County. A portion of zip code 32784 is located in Lake County. As of calendar year 2007, the total population for all of the zip codes within the PSA was 334,868 and is projected to increase to 377,543 by calendar year 2012, a 12.7 percent increase. The applicant projects receiving approximately 95 percent of its patients from within the PSA. Ms. Kelleher and Ms. Greenberg developed the PSA with the assistance of Wanda Pearman of Dixon Hughes. The process included the creation of various maps outlining the service area as it evolved prior to filing the application. The process utilized an August 2007 market analysis performed by Dixon Hughes on 27 or 28 markets across the United States, including the Marion County/Ocala market. The August 2007 market analysis was not performed specifically for the purpose of the CON Application. Rather, it was performed on potential markets across the country as a "50,000-foot" level market analysis of demographics and lack of CMR services in an effort to identify potential markets. HealthSouth would use the information to look further into each identified potential market and decide what the appropriate service area would be. Beginning on January 22, 2008, a number of zip codes were realigned and deleted from the original Dixon Hughes document to form the service area identified in the application. The HealthSouth team examined existing in and out- migration patterns for existing hospitals within Marion County. Existing roadways were driven. Local providers, including local doctors, were contacted and provided favorable comments regarding the proposed project. The Villages were excluded because they were not in close proximity to Ocala. Any area south of the Marion County line was also excluded due to travel distances. The analysis led to the conclusion that the Ocala area has developed into its own medical market and that the placement of a CMR facility in the Ocala area would not overlap with Ohme's or Shands Rehab's service areas such that their CMR services (quality of care, e.g.) would be compromised in any significant way. It was also important to the applicant that trauma patients, spinal cord and brain injury patients would continue to go to the Shands system for their post-acute care. From a demographic standpoint, 2007 data indicated that approximately 23 percent of the residents in the Ocala area are 65 years of age or older (increasing to approximately 25 percent by 2012) compared to the statewide average of 17 percent. This age cohort is expected to increase approximately 20 percent between 2007 and 2012 with some zip codes increasing between 24 and 37 percent. Approximately 75 percent of CMR patients are covered under Medicare and Medicare managed care. Statutory and Rule Review Criteria Section 408.035(1)(a): The need for the health care facilities and health services being proposed. "A favorable need determination for proposed new or expanded [CMR] inpatient services shall not normally be made unless a bed need exists according to the numeric need methodology in paragraph (5)(c) of this rule." Fla. Admin. Code R. 59C-1.039(5)(a). "The future need for [CMR] inpatient services shall be determined twice a year and published by the agency as a fixed need pool for the applicable planning horizon." Fla. Admin. Code R. 59C-1.039(5)(b). Pursuant to the Agency's need methodology, Florida Administrative Code Rule 59C-1.039(5)(c), the Agency published a fixed need pool of zero (0) for CMR beds for District 3 in the CON batching cycle at issue in this case in the Florida Administrative Weekly, Volume 34, Number 4 (January 25, 2008). By Agency precedent, this determination creates a presumption of no need. The applicant seeks approval based on "not normal" circumstances. Generally, pursuant to Subsection 408.035(1)(a), the need for a tertiary health service such as CMR is to be determined on a district-wide basis. See T. 2324, 2327-2332. But see Conclusions of Law 349-52. By its express terms, Subsection 408.035(1)(b) requires consideration of the stated criteria in reference to the service district of the applicant. Using the applicant's service area approach yields bed need projections in excess of those established by the Agency's rule, in large part because the applicant established a PSA using a series of zip codes in an area where there is no existing CMR facility. The applicant ultimately concluded that the PSA is a unique (and not-normal) market for which CMR services are unavailable. The Agency preliminarily approved the project based on the applicant's representations in its CON application of need for the service in the 25 zip code area. See generally T. 2327- 2390. The Agency considered several factors including the disparity in the "conversion rate" of patients who reside in the 25 zip codes comprising the applicant's PSA compared to other areas of the state where HealthSouth operates CMR hospitals; transportation difficulties; letters of support; and physician concerns in transferring patients to existing hospitals in the District. B. Section 408.035(1)(b): 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. Availability, accessibility, and utilization There are four acute care hospitals, ten skilled nursing facilities, and one long-term care hospital within the PSA. The acute care hospitals are: Munroe Regional Medical Center (Munroe Regional)(421 beds); Ocala Regional Medical Center (ORMC) (200 beds); West Marion Community Hospital (West Marion)(70 beds), a satellite of Ocala Regional Medical Center; and Nature Coast Regional Hospital (Nature Coast) (40 beds). The long-term care hospital, Kindred Hospital Ocala (31 beds), is located on the fifth floor of Munroe Regional. There is no persuasive evidence that area hospitals are experiencing problems placing patients in post-acute care settings. Munroe Regional has an average daily census of approximately 300 and offers open-heart surgery, cardiovascular services and neurological services, and orthopedic surgery. HS-Ocala's application contained numerous letters of support, including letters from ORMC and West Coast.2/ See HS Ex. 1 at 663-705 and JPS at HealthSouth's exhibit list, p. 1, n.1. Most of the letters were not authenticated. There was no objection to letters of support submitted by Drs. Tabbaa and Canon and the letter of support submitted by Linda F. Berry, RN, PCRM, employed with the University of Florida College of Medicine, Department of Orthopaedics and Rehabilitation, apparently as a case manager. Id. T. 497-98, 504-505, 525-27, 579; HS Ex. 1 at 664 and 667; HS Ex. 24. There are three existing CMR facilities in District 3. HealthSouth Rehabilitation Hospital-Spring Hill (Spring Hill), in Hernando County, is a 70-bed (16 private and 54 semi- private rooms) freestanding rehabilitation hospital and has been approved to add ten beds pursuant to a CON exemption. Spring Hill is approximately 70 miles from the downtown Ocala area. Spring Hill's primary service area is Hernando County and a small piece of Pasco County and Spring Hill receives 85-to-90 percent of its patients from its primary service area. (In seeking approval of the original 60-bed Spring Hill hospital around the Fall of 1999, the applicant used Marion County data to support its argument that there was a need for the facility and included Marion County as part of its defined service area.) Between 2004 and 2007, Spring Hill comprised 60 beds, a majority of which were semi-private. During that same time period, the average daily census at Spring Hill ranged from 50 to 57, with the average number of available beds ranging from three to ten. In 2008 and thus far in 2009, Spring Hill was at 92 and 94 percent occupancy, respectively, with an ADC of 64 and 66 for these years for 70 beds. Shands Rehab Hospital is a 40-bed freestanding rehabilitation hospital, and is part of the larger Shands Health Care System (with over 1,000 acute care beds) described above and which provides over 70 percent of the referrals to the Shands Rehab unit. Shands Rehab has 16 private and 24 semi-private beds. Shands Rehab is located approximately 40 miles from the downtown Ocala area or the center point of the PSA. There are two primary physician groups that work within Shands Rehab: University of Florida Division of Physical Medicine and Rehabilitation, which includes Shands Rehab's medical director, Dr. James Atchison and Southeastern Integrated Medical (SIMED). While it may vary from week to week, SIMED covers approximately 60 percent of the inpatient population at Shands Rehab, whereas Dr. Atchison's group has the remaining 40 percent. The two physician groups have agreed to accept only two unfunded (charity) patients each "at any particular time," although for key diagnostic groups that are seen regularly, such as brain and spinal cord injury and stroke patients, the physicians will consider serving them if Shands Rehab is the best facility for the patient. Dr. Atchison further explained that if Shands Rehab did not have an opening for an unfunded patient on a particular day, the referring facility would be told to consider waiting a few days to refer a patient as an alternative pathway with the decision to refer or not left with the referring facility. No such restriction exists for other patients including Medicaid patients. (From approximately April 2006 through November 2008, it appears that a few patients were not admitted to Shands Rehab because the allotted charity beds (not other beds) were full, including approximately three patients at Munroe Regional and one patient from West Marion Community Hospital.) Between 2004 and 2007, Shands Rehab operated with an average daily census (ADC) of between 26 and 31, and runs at functional capacity at an ADC of 39 for its 40 beds. T. 1653, 1688; HS Ex. 66 at 25, 41, and 53. But see SL Ex. 212 for years 2004 through 2007 - ADC range of 25 to 28 and an average of 12 to 15 available beds. For 2008, the ADC was 29 and up to 31 in 2009. HS Ex. 69 at 144. Shands Rehab has a strong referral base from within the Shands Health Care System. Shands Rehab does not admit many patients from the Ocala area acute care hospitals and has not been successful in increasing referrals from the "northern tier" in and around Lake City, and "southern tier" in and around the Ocala area, notwithstanding a potential patient population to be served. But see Findings of Fact (FOF) 319-20. LRMC's Ohme Rehabilitation Center is a 15-bed unit (seven private and eight semi-private beds) located in the north campus of and approximately one mile from LRMC. Ohme is located approximately 50 miles from the downtown Ocala area. The CMR unit is located on the third floor of a building that also houses the 120-bed nursing home on the second floor. The gym for the CMR unit is located on the first floor of the same building. Between 2004 and 2007, the ADC at LRMC ran between 11 and 12 beds and the available number of beds ranged between three and four. In or around 2006, LRMC received an exemption from the Agency to add seven beds to its existing CMR facility. However, at the time of the final hearing the exemption granted to LRMC had expired. It appears that LRMC's senior executive team decided not to add the beds in light of a declining census and because of the significant expense to satisfy code requirements. LRMC considers the Spring Hill location as a distinct medical market. Since 2005, approximately 90 percent of Ohme's CMR patients were admitted from hospitals within the LRMC system or hospitals within the Lake County area. Since 2005, between 69 to 77 percent of the CMR patient admissions have come from LRMC. See also FOFs 328-339. A negligible number of patients have been referred to and admitted from Ocala area acute care hospitals, i.e., Munroe Regional, Nature Coast Regional Hospital, Ocala Regional Medical Center, and West Marion Community Hospital. The persuasive evidence indicates that LRMC does not do any meaningful marketing in the Ocala area for CMR patients. Sixteen CMR beds have also been approved for Seven Rivers Medical Center in Citrus County. The Seven Rivers unit was scheduled to become operational by June 2009. However, testimony indicated that the beds were still under development at the time of the hearing. For the year ending December 31, 2007, the occupancy rate for all CMR beds in District 3 was 82 percent. As noted, there are ten skilled nursing facilities in the PSA with 1,552 licensed beds. TimberRidge Nursing and Rehabilitation Center (TimberRidge), is a skilled nursing facility (SNF) and comprises 180 beds (174 semi-private and six private) and owned by Munroe Regional. TimberRidge provides nursing and rehabilitative care based on a patient's needs and is Medicare-certified. TimberRidge is located on the west side of Interstate 75 next to Munroe Regional's new freestanding emergency department. TimberRidge is not at functional capacity and had 50 available beds at the time of this hearing. Approximately 40-to-50 percent of TimberRidge's admissions come from Munroe Regional and approximately 25-to-30 percent from Ocala Regional and the same percentage from West Marion. (If Munroe Regional has 100 discharges, TimberRidge receives 20 percent of those which comprise 40-to-50 percent of TimberRidge's admissions.) TimberRidge and Oakhurst Rehab and Nursing Center are the Ocala area largest SNF recipients of discharges from Munroe Regional. TimberRidge has not had a physiatrist on staff for approximately seven years. The applicant argued that approval of the proposed facility would promote quality of care based on the assertion that patients in the PSA are not being admitted to a CMR facility but are instead admitted to a "lesser, and often inappropriate, level of care" such as long-term acute care hospitals or SNFs. However, this contention was not persuasively supported by the facts. The issue of whether patients are better served in one post-acute care setting versus another, and in particular, whether particular patients should be admitted to SNF or CMR facilities, including resulting outcomes, is a debated topic. In response to the debate, CMS has engaged the services of Research Triangle Institute (RTI) to conduct a study known as the CARE Project. The CARE Project was created to undertake research to develop a common tool or instrument that could be used to assess patients in multiple settings so that home health agencies, CMRs, and SNFs would be able to report comparative data. CMRs and SNFs provide different levels of care service. SNFs, even when providing rehabilitation services and therapies, do not provide the level of intense interdisciplinary rehabilitation services provided at CMR facilities. In general, a SNF, such as TimberRidge, offering rehabilitation services in a distinct portion of the SNF, provides appropriate rehab care for the patients it serves. TimberRidge, however, is not a pure substitute for a CMR facility. Richard Soehner, the Administrator for TimberRidge testified in opposition to HS-Ocala's representation that SNFs are often inappropriate levels of care for patients needing inpatient rehabilitation. TimberRidge's 180 beds are split into three 60-bed wings -- West, East, and South. The West Wing houses the most acute, intensive rehabilitation patients. Additionally, the rehabilitation population overflows into the East Wing. The remainder of the East Wing and South Wing house long-term residents. TimberRidge provides nursing and rehabilitation services to geriatric patients in and around Ocala. Employees of TimberRidge are involved in daily communications with discharge planners at hospitals, and help to determine whether TimberRidge can accept a resident. A registered nurse will often visit patients in hospitals and discharge planners to gather necessary information for admission to TimberRidge. TimberRidge employs or contracts with 30 to 35 therapists and has a medical director. Rehabilitation therapy disciplines include physical, occupational, and speech therapy. Therapists are available seven days a week and coordinate a patient's particular clinical needs with one another. Nursing care is provided 24-hours a day. After admission, each patient at TimberRidge undergoes a lengthy assessment process by therapy staff, nursing staff, social services, activities, dining services, and dietician. Then, a care plan is formed that outlines the goals and objectives and how these goals and objectives are going to be reached by the interdisciplinary care plan team. Physician orders and a therapist's judgment are used to determine how much therapy a patient can tolerate and what the patient needs. TimberRidge also receives input from families from the assessment standpoint. Families are encouraged to visit, attend and participate in care-planning meetings. Families are a key component of successful rehabilitation. Family members are also provided training by nurses or therapists. In like manner, families are an important component of the patient services offered at CMR facilities. Mr. Soehner reviewed HS-Ocala Exhibit 1, Bates Stamp 556, which contains the chart summarizing differences in care between area SNFs and Florida CMR hospitals. Although not a clinician, he testified the average charges for therapy of $62 per patient day indicated in the exhibit is diluted because the calculation includes patient or resident days related to patients not receiving rehab therapy. As a SNF administrator, Mr. Soehner knows of no correlation in the size of gym space or lack of gym space being detrimental to care provided. Therapy is still provided with successful outcomes. (On average, among CMR facilities in Florida, more space is devoted to gym space as a percent of the total square footage, than in Ocala area SNFs.) The chart on HS-Ocala Exhibit 1, Bates Stamp 556, states that the average pharmacy and lab charges are $16 and $2 a day, respectively, which would indicate that the patients are not receiving very much medication or lab work. However, this data tends to dilute the numbers for pharmacy and lab charges per patient day because the total patient days used includes long-term patients. Notwithstanding the testimony of Mr. Soehner, Ms. Greenberg's analysis of the different levels of service generally offered at SNFs and CMR facilities is at least consistent with the finding that CMR facilities offer more intense levels of rehabilitation services (for the categories shown) to its patients. Patients are admitted to a SNF. The first five days are considered to be an initial assessment period. TimberRidge provides different levels of rehabilitation based on a patient's needs. The Medicare program has established Resource Utilization Groups or RUGs. SNFs are reimbursed according to dollar allocations among the various RUG codes. But, RUGs are not outcome based. Each code represents a specific skilled level code or reimbursement code. The "R" codes are rehabilitation codes. There are several rehabilitation RUGs. There are five ultrahigh categories, i.e., RUX, RUL, RUC, RUB, and RUA. This means that each patient in this ultrahigh category must receive a minimum of 720 minutes (12 hours) of therapy over a five-day period (within a seven-day period) and includes more than one discipline. This also equates to 2.40 hours per day. (The rehab very high category requires 500 minutes of therapy per week.) In contrast, a person in a CMR facility must be able to tolerate three hours per day of therapy over a five-day period, whereas a patient receiving rehab in a SNF may have a minimum of approximately 2.40 hours per day if they are classified in the ultra high category. There are other levels of rehabilitation categories very high, high medium, and low, with RUG subcategories within each. For example, there are five RUG classifications within the very high category, e.g., RVC, RVB, RVA, RVX, and RVL. The RUGs categories are represented by a three-digit alpha code, with the first two digits representing the level of rehab, e.g., RU being rehab ultrahigh, and the last character, C, B, A, X, or L representing activities of daily living scores and the nursing care needs of the patient.3/ The RUG category for a patient can change throughout their stay. In other words, a patient may initially be assigned and placed in an ultra-high RUG category and later assigned a lower category. The RUG factors, like RUC (ultra high), are a measure of the intensity of therapy. It does not necessarily mean that the patient is any sicker than other patients, but it does mean that at least they have the stamina to tolerate more therapy. Medicare reimburses SNFs for rehabilitation services based on RUG scores and the amount of rehabilitation therapy a patient receives, whereas Medicare pays a CMR facility a total amount depending on a particular diagnosis of a patient. Like Ms. Gill, Mr. Soehner testified that reimbursement is determined by a comprehensive assessment, including the amount of rehabilitation projected or provided. Although it is not an outcome based reimbursement system, the RUG system is designed to reimburse a skilled nursing facility based on the resources a patient is expected to consume while admitted. TimberRidge's goal is to provide patients the services needed to attain and maintain the highest level of functioning the patient can sustain regardless of whether TimberRidge is reimbursed for it. In rare cases, this goal may allow for three hours of therapy a day, but for most cases, the patient cannot tolerate that intense level of care nor is it medically necessary. Ms. Gill examined data regarding rehabilitation patients admitted and discharged from TimberRidge by RUG classification based on age and length of stay during 2008.4/ Patients fitting within the rehab ultra high and very high, high, medium, and low were separated from the other rehab categories. The ultra-high category was chosen because any patient admitted to a SNF and deemed appropriate for any category lower than ultra high means that the patient cannot tolerate any more than 500 minutes (two and a half hours of therapy a day) of therapy a week, which would disqualify them from admission to a CMR facility. Thus, the ultra-high category was chosen as a proxy for CMR services, at least for therapy utilization. Approximate 35.8 percent of the ultra-high patients were over the age of 75 and 28.9 percent were 85 and older. Approximately 60 percent of the patient population is over 75 years of age, which is different from what one would normally see in a CMR facility. Of the 881 total rehab patients admitted and discharged from TimberRidge in 2008, 461 (or approximately 52 percent) were placed in the ultra-high category and 420 in the remaining rehab categories. (Based on a 2008 Medicare cost report, TimberRidge's ultra-high RUGs have grown from 26 percent to 50 percent, which, according to Ms. Greenberg, places TimberRidge on par with the state averages.) The ultra-high category has increased significantly since 2001. Of the 461 patients, 28.7 percent returned to home; 43.8 percent returned to home with home health; 18.7 percent returned to a hospital; and other small percentages were discharged to other settings. The percentages are slightly higher for those patients returning to home and some with home health when age is considered. Patients in the other rehab categories (very high, high, medium and low) had lower percentages of patients discharged to the home (20.1 percent) and home with home health (30.8 percent) and a higher percentage discharged to a hospital (27.2 percent). It is a fair inference that these patients may not have been able to tolerate significant therapy and were also sicker and with co-morbidities. The number of patients in the ultra-high and high RUG therapy categories is consistent with statewide averages and is normal. The same is true for the level of RUG therapy provided by SNFs in areas where HealthSouth has a CMR facility. The applicant views this information as an indication that SNFs are "filling a role, but they are not filling a gap." TimberRidge has won the local area's rehabilitation award and Reader's Choice award as the area's number one nursing home. The facility receives a lot of repeat business and referrals. There is a fair inference that TimberRidge is an appropriate placement for patients. TimberRidge is not at functional capacity; as of June 22, 2009, TimberRidge had 50 available beds. The evidence at the hearing demonstrated that the care provided through SNFs in the Ocala area is appropriate and produces quality outcomes. On the other hand, the rehabilitation services provided to SNF rehabilitation patients is not a pure substitute for the rehabilitation services, including therapies, provided at a CMR facility for patients requiring that particular service. Also, as noted herein, there are several material differences between CMRs and SNFs.5/ Thirty-to-50 percent of the patients at a SNF such as TimberRidge could be placed in a CMR or in a SNF. Overall, patients receiving rehabilitation services in the Ocala area appear to be receiving appropriate care, and the quality and intensity of care being provided by the existing SNF rehabilitation providers is equivalent to, if not better, than national averages and does not present a not normal circumstance. Alternative bed-need methodologies HS-Ocala's healthcare planner performed several bed- need analyses. The applicant assumed that 95 percent of the patients would come from within the proposed service area of 25 zip codes. The first methodology considered bed need by age mix. The bed-need methodology yielded a need for 45, 46, and 48 beds by 2010-2012 at 85 percent occupancy. The second bed need was based on a discharge use rate for freestanding CMR market areas versus the areas that did not have a freestanding CMR. This methodology yielded a bed need of 53, 55, and 57 for 2010-2012 with the same occupancy rate. A third bed-need approach was based on an analysis of CMS 13 diagnostic codes in relation to the population within the proposed 25 zip code service area. This analysis is also known as the conversion rate analysis. Based on this analysis, the applicant projected a bed need of 51, 52, and 54, for years 2010, 2011, and 2012, respectively. The applicant projected that 12 of the 54 beds or 22 percent of the bed need is potentially attributable to stroke patients and 42 to non-stroke patients. These projections are based on a 15 percent conversion rate. The "conversion rate" The argument that "not normal" circumstances exist in District 3 is based in large part on a comparison of "conversion rates" in various areas of the state with the proposed service area. The "conversion rate" is a ratio calculated by the applicant to determine the utilization of CMR services by Medicare fee-for-service patients in the primary service area of each of HealthSouth's facilities. HealthSouth has used this conversion rate as a means of evaluating the success of its facilities since approximately 2004. The calculation begins by determining the primary service area for each HealthSouth Florida facility. The applicant defines the primary service area of any particular facility as the zip codes from which that facility derives between 75 percent and 85 percent of its patients. The HealthCare Concepts Group of Dixon Hughes, a consulting firm retained by HealthSouth, determined the zip codes comprising the primary service area for each HealthSouth Florida facility using HealthSouth patient admission information (not Medicare or MedPar data) for calendar year 2007. Dixon Hughes determined the zip codes from which each facility derived approximately 80 percent of its patient admissions for each HealthSouth CMR facility. Although Dixon Hughes sought a goal of 80 percent, the percentage of patient admissions comprising the primary service area for the Florida facilities used in calculating the conversion rate varied somewhat, ranging from as low as 73.6 percent at HealthSouth Treasure Coast, to as high as 90.83 percent at HealthSouth Sea Pines. HS Ex. 53A, Bates Stamp 515-44. After establishing the zip codes comprising the primary service area of each facility, Dixon Hughes requested another consulting firm, Health InfoTechnic (HIT), to provide summary data for certain CMS-13 discharges and admissions for each primary service area for the nine HealthSouth CMR facilities. This CMS-13 data was collected from HIT in 2008 and available to HealthSouth in January of 2009. The summary tabulated data provided by HIT was generated from the MedPar database (approximately 13,300,000 records per year) for federal fiscal year 2006 (October 2005 through September 2006). (HIT received the MedPar data file around September 2007.) MedPar data only includes fee-for-service patients and does not include any Medicare HMO or Medicare Advantage patients. The MedPar database records and generates information contained in the medical history of patients covered by the Medicare fee-for-service program and discharged from acute care hospitals. The MedPar database records up to nine diagnosis codes for each patient. Using the MedPar database, HIT first determined the number of Medicare fee-for-service patients discharged from only acute care hospitals who resided in a HealthSouth facility's primary service area (by zip code provided by Dixon Hughes) and who had one of the CMS-13 diagnosis codes in their medical history. These were identified as CMS "qualifying patients." Once the qualifying patients were identified, HIT determined how many of those qualifying patients (within the primary service area for each HealthSouth CMR facility) were discharged to a CMR facility anywhere in the United States. HIT used the diagnosis procedure codes that are HIPPA protected fields to determine whether the patient is a CMS qualified patient. Other information, such as the patient's name, date of birth, and the codes are prohibited from release. HIT is prohibited by CMS and pursuant to a data use agreement from providing any of the underlying claims data to anyone including HealthSouth. The number of diagnosis codes examined to determine whether a patient qualified as a potential admission to a CMR facility under CMR rules varied depending on the particular impairment group being examined. For example, for brain injury and for burns, only two of the nine available diagnosis codes were examined. For stroke, only four of the nine available diagnosis codes were examined. For joint replacement and hip fractures, all nine available procedure codes were examined. No evidence was presented to determine the number of diagnosis codes examined for the other CMS-13 diagnoses, such as amputation, major multiple trauma, neurological disorders, spinal cord injury, congenital deformities, osteoarthritis, rheumatoid arthritis, and systemic vasculidities. A patient with a psychiatric or obstetrical condition who may have also had a qualifying CMS-13 diagnosis code in his or her medical history was automatically excluded from the total CMS-13 qualifying patients for purposes of determining the conversion rate. Patients who died in an acute care hospital were not excluded. Patients in rehab facilities were excluded. A summary of the analysis generated by HIT was provided to Dixon Hughes in order to calculate a conversion rate for each of the nine HealthSouth Florida facilities by dividing the number of qualifying patients discharged to a CMR facility by the total number of qualifying patients. For example, for HealthSouth Spring Hill, there were 1,206 total CMS-13 cases (by discharge and derived from MedPar data and HIT) that were discharged from acute care hospitals for patients residing within one of the zip codes within the facility's primary service area. Of the 1,206 patient discharges, 305 or approximately 23 percent were discharged to a CMR facility somewhere in the United States. See, e.g., HS Ex. 53A at 2. The 23 percent number is the conversion rate for that facility. (Again, in order to establish the zip codes for each HealthSouth CMR facility, all of the admissions (not just Medicare fee-for-service) were recorded from HealthSouth's internal admission data.)6/ The conversion rate for each of HealthSouth's nine Florida facilities, as determined in the manner described above, is contained in HS-Ocala Exhibit 53, Bates Stamp 484. The numbers on HS-Ocala Exhibit 53 are a subset of all the CMS 13 discharges because the data used is MedPar data. As stated by Mr. Edward Stall for Dixon Hughes, the conversion rate is not a market penetration rate. "It's really a measure of does a specific market utilize rehab care or does it not? It's more of an indicator of reasonable access to care" for the nine HealthSouth CMR facilities. Ms. Greenberg opined that the conversion rate was synonymous with a penetration rate, i.e., it is a determinant of what percentage of patients are likely users of a service. Ms. Bedard considers a conversion rate to mean the number of patients coming to rehab. She was not used to seeing data arrayed in the manner depicted on HS-Ocala Exhibit 53, Bates Stamp 484. The applicant originally calculated a conversion rate of 17.7 percent. However, the applicant was unable to produce any persuasive documentation supporting the calculation and, upon attempting to recreate the conversion rate, arrived at an average conversion rate of 17.9 percent. The Ocala Conversion Rate Once the PSA was defined, the applicant determined the Ocala Conversion Rate using the area from which the proposed facility would generate 95 percent of its patients. The Ocala Conversion Rate was generated using discharge information from the AHCA database for calendar year 2006, rather than MedPar data. Unlike the MedPar database, the AHCA database captures discharge information for all patients discharged from acute care hospitals, regardless of payor. Also unlike the MedPar database, the AHCA database records up to 31 diagnosis codes for each. The AHCA database is far less restrictive than the MedPar data base. The AHCA database was used to determine the Ocala conversion rate "because that's the universe of the patients that [the applicant] will serve." She did not use MedPar data because it contains only Medicare fee-for-service patients only. She used MedPar data to determine the conversion rate for the nine HealthSouth facilities because HealthSouth uses MedPar data as a benchmark to compare their market across the country and the data was available. Using the AHCA database, it was determined the number of patients residing in each of the 25 zip codes comprising the PSA who were discharged from an acute care hospital with a medical history including one or more CMS-13 diagnosis code In short, the applicant's analysis assumed that any discharge with a CMS-13 diagnosis code in the patient's medical history as described in the above paragraph would be a "qualifying patient" for purposes of calculating the Ocala Conversion Rate. This method yielded a total of 3,658 qualifying patients from the PSA for calendar year 2006. This method is also called a resident service rate. Of the 3,658 discharges, approximately 80 percent came from the four acute care hospitals in the service area; two percent from Leesburg; and 10 percent from Shands. The remaining discharges came from facilities outside the service area other than the facilities mentioned. Having identified the qualifying patients, the AHCA rehab data base was used to determine how many of the qualifying patients were discharged to a CMR facility. The determination of the number of patients discharged to a CMR facility included patients discharged to a CMR facility anywhere. This method yielded a total of 90 qualifying patients who were discharged to a CMR facility.7/ Dividing the number of qualifying patients discharged to CMR facilities (90) by the total number of qualifying patients (3,658) yielded the Ocala Conversion Rate of 2.46 percent. HS-Ocala contends that the Ocala Conversion Rate of 2.46 percent is unacceptably low compared to the 17-to-18 percent average conversion rate for HealthSouth's nine Florida facilities. According to the applicant, this comparison indicates "not normal" circumstances which are indicative of artificial geographic and programmatic barriers to accessibility to CMR services to residents of the proposed PSA. However, there are numerous problems with the conversion rate approach that make it inappropriate for use in determining need. The "conversion rate" is a self-defined concept unique to HealthSouth. It is not a use rate, nor a concept recognized in any rule governing the CON process, or recognized in the discipline of health planning, but it is used by HealthSouth. Rather, the conversion rate analysis is a marketing tool that is driven by and relies solely on HealthSouth's own experience. The HealthSouth Conversion Rate is driven by, among other things, HealthSouth's determination of what constitutes a primary service area for its own facilities. HealthSouth is the sole determinant of what constitutes a particular facility's primary service area. Because the calculation of the HealthSouth Conversion Rate begins with the determination of each HealthSouth facility's primary service area, the procedure cannot truly be replicated except in those areas where existing HealthSouth facilities are located. For example, there is no way to determine if Orange County has a conversion rate consistent with the HealthSouth Conversion Rate because HealthSouth does not have an established facility with a primary service area there. HealthSouth's determination of what constitutes the service area of the proposed Ocala facility also drives the determination of the Ocala Conversion Rate. Because there is no existing HealthSouth facility in the PSA, there is no historical HealthSouth patient admission data from which to determine a primary service area. Instead, HealthSouth "carved out" a 25 zip-code area within District 3 from which it claims the proposed Ocala facility will derive approximately 95 percent of its patient admissions. Even among the nine HealthSouth facilities in Florida, the areas HealthSouth has designated as the primary service area varies greatly. For example, while the primary service area for HealthSouth Treasure Coast constitutes the area from which the facility derives approximately 73.6 percent of its admissions, the primary service area for HealthSouth Sea Pines constitutes the area from which that facility derives approximately 90.83 percent of its admissions. Put another way, the primary service area of HealthSouth Sea Pines is over 23 percent larger in terms of admissions than the primary service area of HealthSouth Treasure Coast. The record is devoid of any explanation of whether this difference affects the HealthSouth Conversion Rate and, if so, how. Moreover, the variance in the conversion rate among HealthSouth's nine Florida facilities is also substantial, ranging from a low of 10.8 percent at HealthSouth Treasure Coast to a high of 25.29 percent at HealthSouth Spring Hill. There is no persuasive evidence in the record to explain why the conversion rate for HealthSouth Spring Hill is almost two and a half times that of HealthSouth Treasure Coast. According to the applicant, based on 93 HealthSouth markets around the United States, HealthSouth's conversion rate is approximately 16 percent. As noted above, the PSA constitutes the area from which the proposed facility will derive approximately 95 percent of its admissions. This service area is almost 30 percent larger in terms of patient admissions than that for HealthSouth Treasure Coast and is over 18 percent larger than the stated goal of 80 percent used to determine the HealthSouth Conversion Rate. The result of the larger patient origin percentage for the PSA is that it tends to overstate the potential demand for CMR services. The conversion rate is also driven by the manner in which HealthSouth chose to analyze the patient data to calculate the rate. HealthSouth used MedPar data, which only captures Medicare fee-for-service patients, for the calculation of the HealthSouth Conversion Rate. HealthSouth further limited the potential pool of patients by only using a portion of the data available in the MedPar database. For example, HealthSouth's consultant reviewed only primary and secondary diagnosis codes for certain CMS-13 categories, four diagnosis codes for others, and potentially all nine diagnosis codes in the MedPar database for other CMS-13 diagnosis categories. However, when the PSA conversion rate was determined, the potential patient pool was not limited in a similar manner. Rather, there was testimony that the use of the AHCA database, which includes patients from all payors, increased the pool of CMS-13 qualifying patients used for the calculation of the Ocala conversion rate. Since the MedPar data is a subset of the AHCA data, the number 3,658 would have been approximately 70 percent of 3,658 if MedPar data was used. Stated otherwise, the 3,658 number contains approximately 30 percent more people than would have been included if MedPar data was used. The MedPar database captures far less diagnosis codes than the AHCA database. This difference serves to further inflate the pool of CMS-13 qualifying patients in the PSA. Although the applicant could have evaluated the patient population for the PSA in the same manner that HealthSouth did to arrive at the HealthSouth Conversion Rate, the applicant chose not to do so. The MedPar and AHCA databases are not comparable. Mr. Balsano, in an attempt to compare apples-to-apples, calculated a conversion rate for HealthSouth's nine Florida facilities using AHCA data limited to Medicare fee-for-service patients only. Utilizing the same zip codes that HealthSouth used to calculate the HealthSouth Conversion Rate, Mr. Balsano calculated a conversion rate of 13.2 percent for the nine HealthSouth facilities, compared to the 17.9 percent determined using the MedPar database. Thus, the AHCA database, even when limited to Medicare fee-for-service like MedPar, yields a lower conversion rate. Mr. Denney, with HIT, testified that there are several reasons not to use the AHCA database for such an analysis. For example, the discharge status codes used by AHCA are not the same as universal billing codes and are not always in what are called UB04, or universal bill 04, codes as used by MedPar. Another problem with using the AHCA database is that Florida law allows distinct rehabilitation units of acute care hospitals not to report admissions to AHCA. The inconsistencies described herein do not allow for a valid comparison of the HealthSouth and Ocala Conversion Rates. The HealthSouth Spring Hill Case Study The application also contains a historical analysis of the conversion rate for the HealthSouth Spring Hill facility to support the argument that there is a need for the proposed facility. HS Ex. 1, Bates Stamp 550. Ms. Greenberg testified at length regarding the method by which she personally conducted the HealthSouth Spring Hill Case Study, including the method she used to determine the Spring Hill conversion rate utilized in the case study. Ms. Greenberg performed the Spring Hill Case Study using the AHCA database for calendar year 2006, but limited to only Medicare fee-for-service patients, arriving at the conversion rate for Spring Hill of 25.6 percent for calendar year (CY) 2006 (4.3 percent in CY 2002 prior to operation). This means that 25.6 percent of the CMS 13 discharges were residents within Spring Hill's primary service area (as defined by the applicant) who went to a CMR facility somewhere. (In HS-Ocala Ex. 53, Bates Stamp 484, the conversion rate is 25.3 percent.) Ms. Greenberg testified that the similarity in the numbers generated using the AHCA database limited only to Medicare fee-for-service and those generated using the MedPar database supports her conclusion that the MedPar and AHCA databases are comparable data sources. It was ultimately acknowledged that, in fact, like the HealthSouth Conversion Rate, the Spring Hill Case Study presented on pages 41-43 of the CON Application was derived from a summary of MedPar data for fiscal years 2002 and 2006 (October 1, 2005-September 30, 2006) that HealthSouth provided to Ms. Greenberg. The actual MedPar database was not reviewed. Rather, the analysis for the Spring Hill Case Study consisted of calculating the percentages based on the summary MedPar data provided by HealthSouth. Because the HealthSouth Spring Hill Conversion Rate was calculated in the same fashion as was the HealthSouth Conversion Rate, it does not reasonably serve as a comparison to the Ocala Conversion Rate for the same reasons. A conversion rate for the HealthSouth Spring Hill facility was calculated using the AHCA database prior to completing the application. However, that calculation was not included in the application. The summary data sheet, HS-Ocala Ex. 53, was sent to counsel for Shands and LRMC in a letter dated April 24, 2009. The information was then conveyed with the HealthSouth Conversion Rate to the applicant's health care planner. The underlying work papers were not saved. The applicant had to examine the 2006 Medpar data base and rerun the numbers. HS Ex. 53. The applicant produced a document indicating the reworked HealthSouth Conversion Rate along with the April 24, 2009, letter (written to counsel for Shands). HS Ex. 53, Bates Stamp 484. The document appearing as HS-Ocala Ex. 53, Bates Stamp 484 is a recreation of the numbers given to Ms. Greenberg. The underlying data upon which the applicant based the HealthSouth Conversion Rate, including the zip codes comprising the primary service area for the HealthSouth facilities, was available and in HealthSouth's possession (its computers) throughout the discovery phase of this proceeding. While some summary documents were provided, the underlying data which apparently would support the evidence was not. Instead, Mr. Stall and Mr. Denney described the process that was used to calculate the HealthSouth Conversion Rate. However, the testimony only served to further highlight some of the inconsistencies between the methodologies used to calculate the HealthSouth and Ocala conversion rates and to further support the conclusion that the rates are not necessarily comparable. Without the underlying data, it was difficult to confirm the comparison between the Spring Hill Conversion Rate and the Ocala Conversion Rate. Geographic and Programmatic Access The applicant alleges that there are geographic and clinical (programmatic) access problems that compromise the level of care and clinical outcomes of patients who would benefit from CMR services. Family travel distance can impact a patient's decision to access CMR services. The family access issue described by the applicant in this proceeding is not unique to District 3 or Marion County. Transportation of patients from acute care to CMR facilities is accomplished by emergency vehicles and, in some instances other forms of transport, including family automobiles. Potential patients within the applicant's PSA would not have typical or not normal problems accessing existing CMR providers in District 3. Shands provides free transportation to families who visit patients at its facility, and to those who need to be involved in the discharge planning process. Shands also provides other accommodations either free or at reduced costs. HealthSouth has a corporate policy of not providing transportation for Medicare patients to bring their family members to one of its CMR facilities for visits. The same policy applies for all patients. For HealthSouth, it is a compliance issue and considered an improper inducement. T. 544. Whether free transportation is improper is not resolved based on the record in this proceeding. But see HS Ex. 76. Interstate 75 is the main road through the Ocala area and runs north to Gainesville and south to Leesburg. Interstate 75 is a four-lane road and even six lanes in some instances. There are segments of road configurations which are composed of two-lane black tops with little or no lighting. Roadway segments north and south of the PSA are often rural with soft shoulders. There is evidence that some of these roads north and south out of the PSA are congested depending on the time of day and other conditions. The forest east of Marion County represents a natural geographic barrier. Florida Administrative Code Rule 59C-1.039(6) addresses the access standards for patients in need of CMR services. CMR "inpatient services should be available within a maximum ground travel time of 2 hours under average travel conditions for at least 90 percent of the district's total population." The applicant, and Shands and LRMC jointly, engaged traffic experts to conduct travel time studies to measure the length of time it takes for residents of the area to reach area hospitals. The applicant's travel expert, Lorin Brissett of Kimley-Horn and Associates, Inc., conducted a travel time study from Shands Rehab Hospital and LRMC to various locations or points within the PSA. Locations 1 through 4 were based on zip code information provided by the applicant in terms of the general coverage of the PSA, and denote the centroid of different population densities in the four quadrants of the PSA.8/ Location 5 represented the approximate center of the City of Ocala and the PSA. Mr. Brissett used a floating car method in performing the travel time study between locations one through four and location five. This method involves the driver attempting to pass as many cars as passed him, that is, the car would float with the traffic. Two runs were performed for each of the routes, going from locations one through four to location five. Two runs were performed for each return route. The runs were performed during peak travel times (typically between 4:00 p.m. and 6:00 p.m.) on a typical weekday, that is, Tuesday, Wednesday, or Thursday. The weather was clear and no accidents were noted. The travel study indicated that the average travel time to and from Shands was 52 minutes, with a high of 67 minutes and a low of 33 minutes. The average travel time from and to LRMC was 63 minutes, with a high of 90 minutes and a low of 37 minutes. The overall average travel time was 46 minutes from the center of the PSA to either Shands or LRMC. Mr. Brissett also commented that these travel times may be a bit longer for elderly drivers and that elderly drivers tend to travel more on local roads. Also, older drivers are not likely to drive using the floating car method. (None of the drivers used in the study were 65 years of age or older.) The travel study also noted that many of the roadway segments were rural in nature and there were conditions where the road was not properly lit. Mr. Brissett was not asked to conduct any study that would indicate what percentage of the District 3 population would be within two hours' average travel time to any existing CMR facility in District 3. Mr. Brissett was not asked to conduct travel studies for any CMR facility in District 3 other than Shands and LRMC and he did not do so. Mr. Brissett stated that rural roadways are not unique to Marion and Levy Counties, but exist in other Florida counties as well. Mr. Brissett concluded that anyone within the five zones would be able to access Shands Rehab Hospital in less than 70 minutes, even driving from 4:00 p.m. to 6:00 p.m., although it may take the elderly a bit longer. The travel expert retained by Shands and LRMC, William Tipton, Jr., based travel time runs on the location of the existing CMR facilities and population data for 2008 and 2013 published by AHCA for District 3. According to Mr. Tipton, "[l]ooking at the district and knowing the road systems available and the orientation of the populations to the existing facilities, it was evident that the adjacent counties to existing facilities could certainly make their runs within the access rule standard of less than two hours" or "substantially less time than two hours by each of the existing facilities within District III." Mr. Tipton's team conducted two runs in the morning peak hour, 7 a.m. to 9 a.m.; two runs in the midday off-peak hour, 11 a.m to 1 p.m.; and two runs in the evening peak hour, 4 p.m. to 6 p.m. to arrive at a complete cross section of the different travel patterns throughout the day.9/ Additionally, one of the test drivers in Mr. Tipton's team, was 70 years old and accomplished runs on 441 from Ocala to Shands, and on U.S. Highway 441 from Ocala down to Leesburg Regional Medical Center, and also the Interstate 75 runs. The elderly test driver's results were consistent with other runs accomplished by non- elderly drivers. Mr. Tipton's team also used the floating car method, but adjusted the methodology so that none of the drivers exceeded the posted speed limit by more than five miles per hour. In Mr. Tipton's opinion, this adjustment would give results that are more typical of what an average driver would do and more accurately reflects the driving patterns of elderly drivers. Mr. Tipton's results show that all of the facilities could be reached by at least 90 percent of the population in one hour or less; half the time required by rule. The roads traveled for Mr. Tipton's analysis were typical roadways found throughout central Florida. Mr. Tipton's study concluded that existing CMR facilities could be accessed within the requirements in Florida Administrative Code Rule 59C-1.039(6) and that a geographic access issue for an elderly person or someone else did not exist. Although the applicant argued that conditions existed that led to patients and family members not accessing CMR services, no testimony at hearing from area residents supported the contention. No residents of the PSA testified as to their personal experiences accessing existing CMR hospitals in the District. Rather, several of the applicant's expert witnesses testified as to their experience with local road conditions driving from the PSA to and from Shands Rehab and LRMC. Dr. Lohan opined that elderly persons may find it more difficult to drive at night versus the daytime, which is consistent with the evidence in this record. Further, the transportation of patients to CMR facilities is not problematic because they are usually transported by ambulance or similar method of transport. It does not appear that patient safety or quality of care has been compromised because of the alleged travel times and distances to existing CMR hospitals. On the other hand, the construction of the proposed facility would reduce the average travel time to an existing CMR hospital for persons residing within the PSA. However, the number of persons whose travel time will likely be enhanced was not persuasively quantified by the applicant, aside from projecting occupancy rates for the first two years of operation. It is expected that patients with multiple trauma, brain, and spinal cord injuries would most likely be referred to Shands Rehab. For the most part, patients with brain and spinal cord injuries are receiving rehabilitation and typically are referred to Shands Rehab. The applicant does not propose a spinal cord and brain injury unit like the service offered at HealthSouth's Spring Hill facility. Consequently, whatever travel challenges might exist for these patients and their families would still exist even after HealthSouth is approved. The testimony was consistent that, in part due to the nature of CMR services as tertiary, patients and their families at times experience problems accessing such services. These problems, or challenges, include not only the time and distance required to reach such facilities, but other factors, such as whether a patient should be admitted to a CMR facility rather than to other post-acute care settings and whether the patient's insurance policy provides coverage for such services. The testimony was also consistent that these challenges occur not only throughout Florida but, in fact, occur throughout the nation on a daily basis. These challenges do not represent "not normal" circumstances but are normal. Quality of Care No evidence was presented indicating any deficiencies in the quality of care provided by Shands or LRMC. The services or equipment to be provided at the proposed facility are not necessarily superior to the services that are provided at Shands or LRMC. The applicant will offer the use of an AutoAmbulator to its patients. The AutoAmbulator was developed for and is exclusively available at HealthSouth facilities. No independent study indicates that the use of the AutoAmbulator results in better outcomes for patients, compared to similar equipment used at existing District 3 CMR facilities. Economic Access Notwithstanding the applicant's proposed commitment to provide at least 2.5 percent of its annual inpatient days to Medicaid and charity patients, there is no persuasive evidence that there are financial barriers to access CMR services by the residents of the PSA. It was not proven that the resident population of the PSA, including the medically indigent, Medicare recipients, and the elderly, has been or is likely to be denied access based on economic factors. See Fla. Admin. Code R. 59C-1.030(2). Section 408.035(1)(c): The ability of the applicant to provide quality of care and the applicant's record of providing quality of care. The applicant's quality of care will benefit from the hospital's affiliation with its parent, HealthSouth, which offers high quality CMR services country-wide. HealthSouth has invested in state-of-the-art quality measurement systems to monitor processes and outcomes, allowing each facility to maintain high standards of quality of care. The applicant has demonstrated that it has the ability to adequately staff the facility and will provide high quality of care. Section 408.035(1)(d): The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. HealthSouth is a publicly traded corporation and is the largest provider in inpatient rehabilitative health services in the United States in terms of revenue, number of hospitals, and patient treated. HealthSouth has the financial resources needed to ensure project accomplishment and operation of the proposed project. HealthSouth is committed to assisting the applicant with fiscal and legal services, specialized accounting functions, and reimbursement expertise and information system services. There continues to be a shortage of healthcare personnel in Florida and it is inevitable that a portion of the staff for the proposed facility may come from other facilities in District 3. Nevertheless, the applicant is able to draw upon the managerial resources and broad range of established and services provided by HealthSouth, including the recruitment and retention of staff. The applicant has the available resources, including health and management personnel for the completion and operation of the project. Schedule 6 of the application describes the applicant's estimate of the projected staff and staff needed for the project HealthSouth will need 17 new RNs in Year Two based on its staffing projections. HealthSouth recruits personnel to staff its facilities locally as well as on a national and international level. HealthSouth also satisfies its staffing demands internally, as its employees have the ability to transfer from one HealthSouth facility to another. HealthSouth has been successful in recruiting therapists and nurses to staff its facilities. HealthSouth uses a variety of tools to recruit its nurses, and once hired, HealthSouth invests significant efforts in training its employees. From time-to-time, HealthSouth has paid for contract nurses to fulfill its staffing demands. HealthSouth is not expected to limit its recruiting efforts to the Ocala area, but will recruit from other areas as is necessary to appropriately staff the facility. There was a difference of opinion offered by the parties' experts as to whether the applicant's staffing projections in its application were reasonable. Testimony from the applicant's experts indicated that the staffing projections included in the application were reasonable and appropriate based upon the projected occupancy and utilization numbers for the proposed facility. Shands' and LRMC's experts testified that the applicant's projected therapist staffing needs in the application were inadequate to fulfill the projected utilization by patients at the proposed facility. It was also estimated that the FTEs projected in the application for therapy staff was short by anywhere from four- to-five FTEs. Despite the challenges presented by medical personnel shortages and the shortfall in the staffing needs projected in the CON application, it is reasonable to conclude that the applicant will be able to recruit the staff needed for the proposed facility. Staffing of the proposed facility may impair to some degree the ability of Shands and LRMC to staff their facilities, but not to the extent that the services and the quality of care provided will be reduced. Weighing all the testimony presented on this issue, the evidence supports the conclusion that the applicant's staffing projections are reasonable. The proposed average annual salaries in Schedule 6A are reasonable. Appropriate funds have been budgeted for management personnel. Section 408.035(1)(e): The extent to which the proposed services will enhance access to health care for residents of the service district. The applicant's proposed CMR facility will enhance access to health care for the residents of that portion of District 3 within the PSA, except for patients with brain injury or spinal cord injury who are expected to go to Shands. Notwithstanding historical referral and admission patterns, at the very least, Shands and LRMC are viable alternatives for the residents needing CMR services residing within the applicant's PSA. Section 408.035(1)(f): The immediate and long-term financial feasibility of the proposal. Immediate Financial Feasibility Immediate or short-term financial feasibility refers to the ability of an applicant to fund construction, start-up, and operation of the proposed project. By rule, the Agency incorporated by reference Schedule 3 among other portions of the CON application. Fla. Admin. Code R. 59C-1.008(1)(f). The applicant's witnesses testified it was feasible for the project to be financed internally or by a third party in which case the third party would finance the acquisition of the property and the construction of the building and the applicant would lease the property from the third party. In support of its ability to obtain financing for the project, the applicant submitted a letter from GE Healthcare Financial Services (GE) with its application. The letter from GE did not represent a binding or enforceable commitment to provide the financing described in the letter. Notwithstanding the testimony regarding the GE letter, the ability of the applicant to obtain funding through a third party or to internally finance the building and startup costs of the project was established. Neither Shands' nor LRMC's witnesses disagreed with the applicant's ability to obtain sufficient funds for capital and initial operating expenses. The project is financially feasible in the short- term. Long-term Financial Feasibility Long-term financial feasibility is generally referred to as the ability of a project to show a profit at the end of its second year of operation. The projected utilization of a proposed facility is a critical factor to assess when determining whether the facility will be financially feasible in the long-term, given that projected revenues and expenses are driven by utilization projections. Schedules 7 and 8 set forth the financial projections for the project for years one and two. The applicant projects a net profit for Year Two from operations of $483,512 (net operating revenue minus total operating expenses) and an overall net profit of $299,777. These dollar amounts are derived based on projected utilization of the project in Year Two minus projected expenses. Shands and LRMC contend that HealthSouth overstated projected revenues and understated projected expenses. The projected revenues appear to be overstated, whereas the projected expenses appear to be reasonable. The projected utilization was determined by applying the "conversion rate" equal to 15 percent of the discharges identified. The conversion rate was then applied, which is based only on Medicare fee-for-service patients, to both Medicare and non-Medicare patients. Application of the use rate to the projected population in the proposed service area yielded 9,828 patient days and approximately 677 admissions in the second year of the facility's operation. The patient days projected in turn yielded an occupancy rate of 67.3 percent in year two. HS-Ocala Ex. 1, Bates Stamp 639-640. The 3,658 patients identified by Ms. Greenberg as potential patients requiring CMR services generated 90 admissions to a CMR facility in 2006. It is not reasonable to assume that the population defined in the PSA area will generate almost six times the number of admissions to CMR facilities that are presently generated. The applicant also assumed that 95 percent of the patients would come from the PSA area and five percent from other areas (in-migration). Mr. Balsano noted the financial projections are based upon the assumption that CMR admissions of patients residing in the PSA would increase from 90 patients in 2006 to approximately 644 patients by Year Two of the proposed project. Mr. Balsano testified that such a significant increase is not a reasonable assumption and overstates the market. As a result, Mr. Balsano's opinion was that revenues included in the applicant's financial projections were significantly overstated and that he had serious concerns about the proposed project's financial feasibility. The applicant did not provide financial projections assuming it would build and own the proposed facility itself without the involvement of a third party. According to Mr. House, this was because the costs were greater to HealthSouth if it were to utilize third party financing, so basing the financial projections on such a scenario presented a more conservative picture of the financial projections. Mr. House testified that the financial projections included in the application were reasonable. The rent expense included in the financial projections in Schedule 8 of the application included a cushion of approximately $371,000. Applying the cushion results in an increase in year two profit from $483,512 to $854,512. It appears that funding is available on the same terms as proposed in the GE letter and that that the rent projections are reasonable. Schedule 8 of the application did not include a management fee charged by HealthSouth to its subsidiaries despite the fact that the application's narrative assumptions represented that a management fee of five percent was included. Ms. Greenberg prepared the assumptions and she inadvertently indicated that a management fee was included. The actual management fee charged by HealthSouth at the time of the hearing was approximately three percent (2.78 percent in 2008). If the management fee referenced in the application is factored into the equation at the rate of five percent, it adds $515,548 in expenses to the project. If the management fee is factored at the rate of three percent, it adds $309,328 in expenses to the project expenses. Ms. Greenberg stated that the rent expense included in the financial projections did not include an adjustment for sales tax. At 6.5 percent, this would add approximately $95,000 to the expenses. Assuming this additional expense for Year Two, the effect would be to reduce the net profit from operations from $854,512 to $759,512, which would not affect the long-term financial feasibility of the project. Mr. Balsano also opined that the real estate taxes included in the financial projections were understated by approximately $158,000. In response, Ms. Greenberg opined that if a shortage existed, it would be between $113,341 and $153,244, with an average of $133,293. When coupled with the omitted sales tax (-$95,000), and after adjusting for the inflated rent expense (+$371,000), this reduces Schedule 8, Line 27 from $854,512 ($483,512 plus $371,000) to approximately $450,184 (-$309,328/management fee of three percent and -$95,000/sales tax on rent at 6.5 percent). The profitability in year two would be reduced further if the real estate taxes are considered, i.e., $316,891(Greenberg projection) versus $292,184 (Balsano projection). Further, according to Mr. Balsano, the staff projections included in the application are understated by $469,391 assuming a shortage of 6.2 FTEs, or approximately $300,000 assuming a shortage of four FTEs. The applicant did not concede a shortfall existed. Also, as noted herein, the staffing projections are reasonable and there is no projected shortage. In balancing the net effect of the adjustments suggested by Shands and LRMC and the applicant's responses, it is concluded that the project will be profitable in Year Two if the applicant achieves the projected net operating revenue on Schedule 8A, Line 1. (It was conceded that if the management fee charged by HealthSouth to its subsidiaries was 2.7 percent as opposed to five percent as stated in the application's assumptions, a $20,000 profit in year two would be projected.) While reasonable persons could differ as to whether the expenses in the financial projections included in Schedule 8A are reasonable, the long-term financial feasibility of the proposed project is based upon revenues which are calculated using the projected utilization from Schedule 5 of the application. The projected utilization is driven by the conversion rate calculated by the applicant that materially overstates the potential market for these services in the proposed PSA. Because the applicant's revenue projections are not reasonable, the proposed facility is not likely to be financially feasible in the long-term. Section 408.035(1)(g): The extent to which the proposal will foster competition that promotes quality and cost- effectiveness. Mr. Gregg testified that there is no evidence within the Agency's ability to analyze whether the application will foster competition that promotes quality and cost-effectiveness. However, as Mr. Gregg testified, the ability of healthcare providers to promote competition is very limited because payors have very narrow policies about what they will pay. The overwhelming portion of patients who require CMR services are served by the Medicare program. There is no price competition involved in the provision of the services proposed in this application. 306 There is no persuasive evidence showing that competition for the services proposed is lacking, that the quality of the care provided to residents of the District is other than excellent, or that the services or equipment proposed are superior to those already available to patients in the District. While approval of the project will likely provide some residents of the PSA a closer alternative to CMR services and perhaps some savings in terms of travel expenses and time, no persuasive evidence proved that the project is likely to foster competition that promotes quality and cost-effectiveness. Section 408.035(1)(h): 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 projected costs of construction in Schedule 1 are reasonable. The architectural plans are a reasonable. The architectural design and space for the proposed 40-bed freestanding rehabilitation facility are reasonable. The projected duration for construction of the facility is reasonable. The dates for construction are no longer accurate and would need to be extended due to the timing of the hearing. The projected land cost for the hospital is reasonable. The equipment listed in HS-Ocala Exhibit 6 is reasonable for the proposed facility. The equipment list does not include certain equipment, such as the AutoAmbulator, Bioness, and SaeboFlex, identified on pages 56-57 of the application. The cost of the AutoAmbulator was not included in equipment costs (although it is included on HS-Ocala Exhibit 6 at 8 of 16) because it is part of HealthSouth's research and development budget. The projected costs of the equipment are reasonable. Section 408.035(1)(i): The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent. HealthSouth has a history of providing health care services to Medicaid patients and the medically indigent, notwithstanding compliance issues relating to several of HealthSouth's Florida CMR facilities. Overall and based on the experience of HealthSouth, the applicant meets this criterion. Section 408.035(1)(j): 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. This criterion is not applicable. Adverse Impact Shands and LRMC contend that approval of the proposed project would have a substantial negative impact on their operations. The issue of adverse impact is resolved in favor of Shands and LRMC, although it is a closer call than suggested by these parties, given the historical referral and admission of patients from within the PSA to Shands and LRMC. Consideration of adverse impact on existing providers is relevant to prove standing in a formal hearing involving a CON application pursuant to Section 120.57, Florida Statutes, and is a relevant factor to consider under Section 408.035(2), Florida Statutes, which includes consideration of the impact of approving a new hospital on an existing hospital in the same service district. Baptist Med. Ctr. of Clay, Inc. v. Agency for Health Care Admin. and Orange Park Med. Ctr., Inc. d/b/a Orange Park Med. Ctr., Case Nos. 06-0555CON, 06-0563CON, and 06-0843CON (DOAH Dec. 3, 2007, at ¶ 316; AHCA May 30, 2008), per curiam aff'd, 12 So. 3d 756 (Fla. 1st DCA 2009). Impact on Shands Mr. Balsano and Ms. Greenberg looked at the admissions to Shands from the defined PSA to determine the projected impact of the proposed facility on Shands. For the 12-month period ending June 30, 2007, Shands admitted 119 CMR patients from the zip codes comprising the PSA. To assess impact, Mr. Balsano and Ms. Greenberg agreed that patients with spinal cord or brain injury should not be considered, because those patients will likely continue to be treated at Shands. This left a total of 77 admissions. Mr. Balsano multiplied Shands' average contribution margin per patient, which he calculated to be $6,673, by the 77 patients to conclude that Shands would lose $513,821 in contribution margin. Mr. Balsano also considered the admissions to Shands from the secondary service area for the proposed facility that was referenced in the pre-application materials developed by Dixon Hughes. In 2007, Shands admitted 24 cases from this extended service area after subtracting the brain and spinal cord injury cases. Mr. Balsano concluded that Shands would lose half of those admissions. Applying the contribution margin to those cases resulted in an additional $80,076 of lost contribution for a total of $593,897. Ms. Greenberg disagreed with Mr. Balsano's use of the patients from the extended service area in his analysis of the potential impact on Shands. Ms. Greenberg opined that the use of these patients was inappropriate given the service area defined in the CON application, and the fact that HealthSouth considers the PSA a distinct medical market. Ms. Greenberg testified that major multiple trauma patients would also continue to be treated at Shands and, therefore, should be removed from the pool of at-risk patients. By doing so, Ms. Greenberg determined there were approximately 54 at-risk patients. Ms. Greenberg further reduced this number to account for patients who were admitted to Shands Rehab from within the Shands system because, according to Ms. Greenberg, those patients are likely to continue to be treated at Shands rehab. Applying this methodology to the 54 at-risk patients, Ms. Greenberg determined that the maximum number of at-risk patients was 19.3 and that the minimum number of at-risk patients was 13.5. Ms. Greenberg then multiplied Shands' average contribution margin per patient, which she determined to be $5,98410/ by the minimum and maximum at-risk patients she calculated, to determine that the impact to Shands would range from $80,787 to $115,196 in lost contribution margin. Using the contribution margin determined by Mr. Balsano resulted in a range of impact from $90,086 to $128,789 in lost contribution margin. Assuming consideration of the criticisms, Mr. Balsano testified that his estimate of 77 cases lost from the PSA was reasonable. Mr. Balsano based his conclusion, in part, on the fact that HealthSouth is projecting in excess of 600 admissions from the PSA in the Year Two. According to Mr. Balsano, to meet those projections, it is reasonable to assume the 77 non- spinal/non-traumatic brain injury patients that Shands is currently serving from the PSA will be redirected to the proposed facility. Having considered all of the evidence on this issue, including the historical referrals and admissions of patients to Shands, see, e.g., FOF 87, and while there is a wide variation in projected losses, it is concluded that Shands would lose significant dollars in contribution margin if the proposed facility were constructed. Impact on LRMC Similar to the analysis conducted with respect to Shands, Mr. Balsano looked to the admissions to LRMC from the applicant's HealthSouth defined PSA to determine the projected impact of the proposed facility on LRMC. For the 12-month period ending June 30, 2007, LRMC admitted 13 patients from the zip codes comprising the applicant's PSA. Notwithstanding the financial impact noted herein, from 2006 through 2008, the financial performance (excess revenues over expenses) of LRMC's CMR facility has improved. Mr. Balsano then multiplied LRMC's average contribution margin per patient which he calculated to be $8,007, by these 13 at-risk patients from the applicant's defined PSA to determine that the impact to LRMC for these 13 patients if the proposed facility is built would be $104,091 in lost contribution margin. Mr. Balsano also considered the admissions to LRMC from the extended service area for the proposed facility that was referenced in the pre-application materials developed by Dixon Hughes. In 2007, LRMC admitted 205 cases from the extended service area. Mr. Balsano determined that it was reasonable to assume that LRMC would lose half of those cases. Applying the contribution margin to those cases would result in an additional $824,721 in lost contribution for a total combined impact of $928,812 in lost contribution margin to LRMC if the proposed facility is built. Ms. Greenberg disagreed with Mr. Balsano's use of the patients from the extended service area in his analysis of the potential impact on LRMC. Ms. Greenberg felt that the use of these patients was inappropriate, given the service area defined in the CON application, and the fact that the applicant considers the PSA a distinct medical market. See FOFs 91-92. Ms. Greenberg's impact analysis focused on the hospitals from which LRMC derives its patients. Based on LRMC's data, Ms. Greenberg determined that in 2007, approximately 89 percent of LRMC's patients came from Leesburg Regional, Villages, Waterman or South Lake hospitals. In 2008, approximately 90 percent of LRMC's patients came from those hospitals with 81 percent coming from the Leesburg facilities. Since there were no admissions to LRMC from the three acute care hospitals in Marion County in 2007 and 2008, Ms. Greenberg determined that the likely impact to Leesburg if the proposed facility is built would be zero. For purposes of determining an upper limit of the potential impact on LRMC, Ms. Greenberg assumed that LRMC would lose the 10 percent of patients not coming from Leesburg Regional, Villages, Waterman or South Lake. Multiplying the 10 percent by the 13 total cases admitted to LRMC from the PSA, Ms. Greenberg determined that a total of 1.3 patients were at risk. Multiplying these at-risk patients by the contribution margin used by Ms. Greenberg of $7,27011/ results in an impact to LRMC of $9,451 in lost contribution margin. Notwithstanding the minimal impact to LRMC calculated by Ms. Greenberg, there is considerable overlap, in terms of either like or contiguous zip codes, between the Leesburg area and the PSA. For example, in fiscal year 2008, LRMC admitted eight patients from zip code 34491, three patients from zip code 32195, two patients from zip code 34420, and three patients from zip code 32784, or 16 patients. These zip codes are included in the defined PSA. LRMC admitted 37 patients from zip code 32159, 39 patients from zip code 32162, and 21 patients from zip code 34788, which are all zip codes that are contiguous to the defined PSa. In all, for fiscal year 2008, LRMC admitted 113 patients from zip codes that are either within or contiguous to the PSA. See also T. 2119. Applying Ms. Greenberg's contribution margin for LRMC to those 113 cases results in a loss to LRMC of $821,510. These 113 patients represent approximately 41 percent of LRMC's admissions. According to the Agency, a loss of approximately one-third of LRMC's admissions would be considered a substantial disruption of the patient flow pattern. Additionally, it is reasonable to assume that the applicant may attract patients from zip codes contiguous to its service area. Further, it is expected that the applicant will aggressively market to areas including contiguous zip codes and not stop at a bright line between zip codes. Having considered all of the evidence on this issue, including but not limited to the number of patients admitted from Ocala area hospitals, see, e.g., FOFs 91-92, it is concluded that while there is a wide variation in projected losses, LRMC, like Shands, would potentially lose significant dollars if the proposed facility were constructed. Such a loss in contribution margin and therefore admissions would substantially affect the facility. The loss of the contribution margins, coupled with the potential impact on existing staff and programs, is substantial enough to recognize the standing of Shands and LRMC.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered denying CON Application No. 10009. DONE AND ENTERED this 24th day of November, 2009, in Tallahassee, Leon County, Florida. S CHARLES A. STAMPELOS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 24th day of November, 2009.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: The applicant HCA Health Services of Florida, Inc. (formerly Bayonet Point Hospital, Inc.) proposes to construct and operate a 96-bed acute care hospital in the Springhill area of western Hernando County. It is to be located on the north side of State Road 50 approximately two miles east of the intersection of State Road 50 (a two-lane east-west corridor) and U.S. Highway 19 (the area's main north-south corridor). The proposed facility is to be known as the Oakhill Community Hospital and the cost of the project is $14,952,000. The applicant proposes to serve primarily western Hernando County and two census areas in Pasco County. It is estimated that approximately 12 percent of its patients will come from Pasco County. Its primary service area does not include Citrus County or east Brooksville. An 81 percent occupancy level by the year 1988 is anticipated. The hospital will consist of medical and surgical beds, and its services will include 41 private rooms, 40 semiprivate rooms, three isolation beds, eight ICU/CCU combined beds, two operating rooms, a full-time emergency room, a laboratory, respiratory therapy, a pharmacy, radiology and nuclear medicine. The new facility will share administrative and various ancillary services and equipment with the Bayonet Point Hudson Regional Medical Center located in Pasco County. It will also be able to utilize and benefit from the HCA National Contract in the purchase of equipment and supplies. This will result in cost savings and reduced charges to patients. The western portion of Hernando County, where the Springhill area is located, has experienced a 238 percent population growth in the past ten years. Hernando County is expected to experience a growth rate of 50 percent between 1980 and 1988. The growth in population has been illustrated by the rapid expansion of schools, churches, banks, retail establishments and residential projects. The population in western Hernando County is primarily an elderly population, composed to a large degree of retirees from urban areas. It is estimated that approximately 80 percent of the residents from the Springhill area currently travel out of Hernando County for hospital services. Only one out of fourteen doctors from western Hernando County practices at Lykes Memorial Hospital, the only existing hospital in the County. The closest hospital for residents of western Hernando County is Lykes Memorial Hospital, a county-owned facility some 8.5 to 9 miles from the proposed Oakhill site. Virtually every resident of Hernando County can travel to Lykes Memorial within 30 minutes, though travel times can vary due to the amount of truck traffic on State Road 50, a two-lane road. At a time when it was operating with 140 licensed beds, Lykes Memorial experienced an overall occupancy level of 82 percent for the year 1982 and 94 percent in January and February of 1983. It is not unusual to encounter patients in beds in the hallway at Lykes, and doctors often experience difficulties in scheduling the operating rooms, with elective surgery having to be scheduled two to three weeks in advance. Lykes Memorial has recently received approval for an additional 26 beds and other areas of expansion and renovation are planned. If Lykes did not expand and the proposed facility were not constructed, Lykes Memorial would have substantial problems in meeting patient needs by 1988. The only other facility within 30 minutes driving time for the residents of western Hernando County is the Bayonet Point Hudson Regional Medical Center located in Pasco County. This facility, also owned by HCA, is located some eight miles from the Hernando County line and some 16 miles from the proposed Oakhill site. Driving time between Bayonet Point and the proposed facility is between 20 and 25 minutes. Bayonet Point opened with 200 licensed beds in March of 1981, and has experienced an occupancy level exceeding 90 percent since mid-January, 1983. In March of 1983, its occupancy rate was 94 percent. Bayonet Point derives approximately 23 percent of its patients from Hernando County. While it is estimated that Bayonet Point would lose 50 percent of its Hernando County patients, or 11 or 12 patients a day, should the new Oakhill facility be opened, this was considered to be a beneficial effect. Due to present high occupancy levels, the loss of 11 to 12 patients per day to the new facility would relieve the pressure for beds and enable Bayonet Point to admit waiting patients and improve its quality of care. It was also felt that there is sufficient new development in Pasco County to make up for any loss in patients. There are two hospitals located in Citrus County, the nearest county to the north of Hernando County. Citrus and Hernando Counties are in the same health planning district and are considered together when determining bed needs for those areas. Fifty-five percent of the population of both counties presently reside in Citrus County. Citrus County also has a higher percentage of elderly residents than Hernando County--29 percent compared to 24.5 percent. The rates of growth for the two counties are equivalent. Citrus Memorial Hospital is located at a travel distance of about 43 minutes from the proposed Oakhill site. No evidence was presented at the hearing as to the effect of the new facility on Citrus Memorial Hospital. The petitioner, Medfield Corp., d/b/a Seven Rivers Community Hospital, is a 75-bed hospital located in Crystal River, approximately 41 minutes driving time from the proposed Oakhill site. Seven Rivers presently has a great deal of unused physical capacity, with associated costs, and plans to expand its number of licensed beds without expanding its physical facility. Its application for a Certificate of Need for an additional 15 beds was recently denied by HRS because of the proposed addition of the new Oakhill facility in Hernando County. Seven Rivers estimates that it may lose 50 percent of its projected admissions from the south Citrus County area if the Oakhill facility opens. While it thus perceives a decrease in patient days and income, it was not established that increased costs would be borne by its patients or that its operating margin would decline. Even with the new Oakhill facility, it was not established that the occupancy level of Seven Rivers would be below 80 percent. As noted above, the primary service area proposed by the respondent HCA does not include portions of Citrus County. There appears to be a lack of patient origin studies and area-specific data regarding current hospital utilization in Hernando and Citrus Counties. The parties did agree that, for planning purposes, an 80 percent occupancy standard and the population projections medium range, of the University of Florida, Bureau of Economic and Business Research, should be utilized in projecting bad needs. There are numerous methodologies which can be employed to determine the hospital bed needs of a given area. One such methodology is to utilize the statewide use rate developed by the Task Force on Institutional Need and apply that rate to a specific population, making adjustments for the characteristic of age, since persons 65 and older utilize hospital services approximately three times more than persons under 65. While the statewide use rate includes urban area use rates, it is still appropriate to utilize such rates for Hernando County because retirees come from urban areas and their consumption patterns will therefore be urban, as opposed to rural. Utilization of this methodology (referred to during the hearing as the "Amherst" method) results in a need for 125 additional medical/surgical beds in Hernando County by 1988, and an additional 182 beds for Citrus County by 1988. While not adopted or promulgated in rule form yet, HRS prefers a methodology which is based on use rates for specific services for two different age groups. Use of this "Statewide Uniform Bed Need Methodology" results in a need for 148 additional medical/surgical beds for Citrus and Hernando Counties combined. Other methodologies for determining bed needs for an area include using bed-to-population ratios. Utilizing the ratio in the Florida State Health Plan (1981) for the subject planning area--3.77 beds per 1,000 population, results in an additional bed need of 197 for Hernando and Citrus Counties. The national planning standard of four beds per 1,000 population contained in the Federal Guidelines illustrates a need for 232 beds for the two counties. The area Health System Plans for 1982 through 1986 and for 1983 through 1987, which respectively utilize the ratios of 3.17 and 2.93 beds per thousand population, result in a need for 122 beds (1982-86) and 86 beds (1983-87) for Citrus and Hernando Counties combined. The Health Systems Plans' projections are somewhat suspect inasmuch as a use rate based on patient days at hospitals only within the planning area is utilized. This method does not take into account the outflow of patients from the area. Such a methodology can result in a "self- fulfilling prophecy," with the use rate restraining the number of available beds. The fact that no beds are available in an area would, if use rate were determinative, result in a finding that no beds were needed in that area. Specific area use rate methodologies also fail to address problems of adequacy and accessibility of existing facilities.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the application of HCA Health Services of Florida, Inc. to construct a 96-bed acute care hospital in western Hernando County be GRANTED. Respectfully submitted and entered this 17th day of June, 1983. DIANE D. TREMOR 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 17th day of June, 1983. COPIES FURNISHED: C. Gary Williams, Esquire Michael J. Glazer, Esquire Ausley, McMullen, McGehee, Carothers & Proctor Post Office Box 391 Tallahassee, Florida Robert A. Weiss, Esquire Assistant General Counsel Department of Health and Rehabilitative Services Building 1, Suite 406 1323 Winewood Blvd. Tallahassee, Florida 32301 Jon C. Moyle, Esquire Thomas A. Sheehan, Esquire Moyle, Jones & Flanigan Post Office Box 3888 West Palm Beach, Florida 33402 Donna H. Stinson, Esquire Moyle, Jones & Flanigan 858 Barnett Bank Building Tallahassee, Florida 32301 David H. Pingree Secretary Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Florida 32301
