93-001891CON Martin H.M.A., Inc., D/B/A Sandypines Hospital vs. Agency For Health Care Administration Status: Closed Recommended Order on Monday, March 14, 1994.

Summary: Proposal to convert 15 child/adolesent psychiatric beds to 15 adult psychiatric beds was not subject of CON and required CON review.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MARTIN H.M.A., INC., d/b/a )

SANDYPINES HOSPITAL, )

)

Petitioner, )

)

vs. ) CASE NO. 93-1891

)

STATE OF FLORIDA, AGENCY FOR )

HEALTH CARE ADMINISTRATION, )

)

Respondent. )

_________________________________)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly

designated Hearing Officer, William J. Kendrick, held a formal hearing in the

above-styled case on November 2, 1993, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Robert S. Cohen, Esquire

Pennington & Haben, P.A.

Post Office Box 10095

Tallahassee, Florida 32302

For Respondent: Edward Labrador, Esquire

Richard A. Patterson, Esquire

Agency for Health Care Administration

Suite 301 - The Atrium

325 John Knox Road

Tallahassee, Florida 32303

STATEMENT OF THE ISSUES

At issue in this proceeding is whether petitioner's request to modify its

certificate of need from a 60-bed child/adolescent psychiatric hospital to a 45-

bed child/adolescent and 15-bed adult psychiatric facility should be approved.

PRELIMINARY STATEMENT

By letter of March 5, 1993, respondent, Agency for Health Care

Administration (AHCA), notified petitioner, Martin H.M.A., Inc., d/b/a

SandyPines Hospital (SandyPines), that its request to modify Certificate of Need

(CON) Number 4004 from a 60-bed child and adolescent psychiatric hospital to a

45-bed child/adolescent and 15-bed adult psychiatric facility was denied.

SandyPines filed a petition for formal administrative proceedings to challenge

AHCA's decision, and the matter was referred to the Division of Administrative

Hearings for the assignment of a Hearing Officer to conduct a formal hearing

pursuant to Section 120.57(1), Florida Statutes.

At hearing, petitioner called Gene Nelson, accepted as an expert in health

care planning and certificate of need program administration, as a witness, and

its exhibits 1 and 2 were received into evidence. Respondent called Elizabeth

Dudek, accepted as an expert in health care planning and certificate of need

program administration, as a witness, and its exhibits 1-16 were received into

evidence. Official recognition was taken of the final order rendered in Florida

League of Hospitals, Inc. v Department of Health and Rehabilitative Services, 12

FALR 4126. A copy of such order was marked as respondent's exhibit 17.1

The transcript of hearing was filed November 8, 1993, and the parties were

granted leave until January 21, 1994, to file proposed recommended orders.

Consequently, the parties waived the requirement that a recommended order be

rendered within thirty days after the transcript is filed. 60Q-2.031, Florida

Administrative Code. The parties' proposed findings are addressed in the

appendix to this recommended order.

FINDINGS OF FACT

Case status

1. In February 1993, petitioner, Martin H.M.A., Inc., d/b/a SandyPines

Hospital (SandyPines), filed an application with the respondent, Agency for

Health Care Administration (AHCA), for a modification of its certificate of need

(CON) from a 60-bed child/adolescent psychiatric hospital to a 45-bed

child/adolescent and 15-bed adult psychiatric hospital. Upon review, AHCA

concluded that SandyPines' request could not be accommodated under the

modification provisions of Rule 59C-1.019, Florida Administrative Code, and

required certificate of need review. Accordingly, AHCA proposed to deny

SandyPines' request, and these formal proceedings to review, de novo, the

agency's decision were commenced at SandyPines' request.

The applicant

2. SandyPines is the holder of certificate of need number 4004 which

authorized it to construct a 60-bed child/adolescent psychiatric facility. That

facility was constructed and is currently in operation in Tequesta, Martin

County, Florida.

3. SandyPines is now, and has been since it commenced operations in

January 1990, licensed as a Class III Special Psychiatric Hospital with 60

psychiatric child/adolescent beds. It has never provided adult inpatient

psychiatric services and, until approximately October 18, 1993, had never

provided any adult outpatient psychiatric services. The adult outpatient

psychiatric services currently provided by SandyPines are not subject to CON

review.

SandyPines's fiscal problems

4. When SandyPines opened in January 1990, no managed care organizations

existed in its local market; however, with each passing year managed care has

become more prevalent such that currently 45-50 percent of SandyPines admissions

are covered by some form of managed care. This has significantly adversely

affected SandyPines' revenues such that it lost approximately $600,000 last

fiscal year and, absent increased occupancy levels, its continued viability is,

at best, questionable. Indeed, if SandyPines continues to operate as currently

configured, it projects a loss for the fiscal year ending September 30, 1994, of

$1,099,777.

5. Occupancy levels are low, however, for District IX as a whole, due in

large measure to the demands for managed care. For the six-month period ending

June 1993, the average occupancy rate for child/adolescent psychiatric beds was

35 percent and for adult psychiatric beds 65 percent.

6. To address its faltering business, SandyPines has, as heretofore noted,

begun to provide adult psychiatric services on an outpatient basis; however,

unless it can combine inpatient adult psychiatric services with the program it

is doubtful that its adult program will prove successful. In this regard,

SandyPines offered proof, which is credited, that patients and their physicians

are looking for what has been termed "one-stop shopping." The patient does not

want to go to one facility for outpatient care and another facility for

inpatient care, and the referring physicians would rather send all of their

patients to one facility that offers a full spectrum of services. Therefore,

from a marketing perspective, the addition of adult inpatient psychiatric

services at SandyPines would have a positive effect.

7. Whether modification of SandyPines' CON to allow inpatient adult

psychiatric services will increase the hospital's daily census and utilization

sufficiently to assure its viability is, at best, fairly debatable.

8. To analyze the impact of redesignating 15 child/adolescent beds to 15

adult psychiatric beds, SandyPines made an assumption of an average daily census

of 10.5 patients on the 15-bed adult psychiatric unit. Based on such

assumption, SandyPines calculated a net income from that unit, for the fiscal

year ending September 30, 1994, assuming it opened April 1, 1994, of $589,664,

and a net loss for the facility as a whole of $510,113, as opposed to a net loss

of $1,099,777 without the adult unit. Based on the same assumptions, SandyPines

calculated a net income for the fiscal year ending September 30, 1985, for the

adult unit at $1,111,008, and a net income for the facility as a whole with an

adult unit at $44,980.

9. As heretofore noted, SandyPines' ability to achieve an average daily

census of 10.5 patients is, at best, fairly debatable. To SandyPines' credit,

it has an active advertising and marketing department comprised of six people

and its director of marketing and business development. This marketing group is

constantly striving to develop relationships with referral sources and to

develop programs to meet market needs and demands. There was, however, no proof

of record to demonstrate any existent commitments in the community or any

objective data to support the conclusion that SandyPines could reasonably expect

to attain an average daily census of 10.5 patients. Moreover, four of

SandyPines' potential competitors for adult psychiatric patients exhibited more

than a 78 percent occupancy rate for the first six months of 1993, which may be

reflective of among other attributes, a strong existent referral pattern, and

the overall District average was only 65 percent, which reflects significant

unused capacity. On balance, the proof is not compelling that SandyPines could

achieve the occupancy levels it projected.

10. Whether SandyPines achieved its projected occupancy levels for adult

services or some lesser level would not, however, significantly adversely impact

existing providers. Moreover, the redesignation of beds and the necessary

modification of the facility to meet required legal standards of separation of

adult and child/adolescent units would require no more than $50,000-$80,000; a

capital expenditure well below that which would require CON review.

Is modification appropriate

11. Pertinent to this case, Rule 59C-1.109, Florida Administrative Code,

provides:

(1) A modification is defined as an alteration to an

issued, valid certificate of need or to the condition

or conditions on the face of a certificate of need for

which a license has been issued, where such an

alteration does not result in a project subject to

review as specified in . . . subsection 408.036(1)

. . ., Florida Statutes.

12. Subsection 408.036(1), Florida Statutes, provides in pertinent part:

. . . all health-care-related projects, as described in

paragraphs (a)-(n), are subject to review and must file

an application for a certificate of need with the

department. The department is exclusively responsible

for determining whether a health-care-related project

is subject to review under [ss.408.031-408.045].

* * *

(e) Any change in licensed bed capacity.

* * *

(h) The establishment of inpatient institutional

health services by a health care facility, or a

substantial change in such services . . .

* * *

(1) A change in the number of psychiatric . . . beds.

13. Finally, pursuant to the Legislature mandate of Section 408.034(3),

Florida Statutes, to "establish, by rule, uniform need methodologies for health

services and health facilities," AHCA has promulgated Rule 59C-1.040, Florida

Administrative Code, which establishes discrete methodologies for calculating

the need for the establishment of inpatient adult psychiatric services and

inpatient child/adolescent psychiatric services, and provides for the

identification of the number of hospital inpatient psychiatric beds for adults

and children/adolescents by facility. As heretofore noted, SandyPines' license

designates it as a "Class III Special Psychiatric hospital with 60 Psychiatric

Child/Adolescent beds," and the inventory established pursuant to Rule 59C-

1.040(11), Florida Administrative Code, has identified SandyPines' beds as

child/adolescent.

14. Resolution of the parties' dispute as to whether SandyPines' proposed

conversion of beds from child/adolescent to adult is subject to CON review under

Section 408.036(1)(e), (h) and (l), Florida Statutes, and therefore not

susceptible to modification under Rule 59C-1.109(1), resolves itself to an

interpretation of Section 408.306(1), Florida statutes, and the provisions of

Chapter 59C-1, Florida Administrative Code.

15. SandyPines contends that hospital inpatient psychiatric services, as

used in Chapter 408, Florida Statutes, and Chapter 59C-1, Florida Administrative

Code, is a generic term for the treatment of psychiatric disorders and that its

proposal to treat adults, as opposed to children/adolescents, is not a change in

health services. Accordingly, SandyPines concludes that the proposed conversion

does not constitute "[a] change in licensed bed capacity," "the establishment of

inpatient institutional health services by a health care facility, or a

substantial change in such services," or " change in the number of psychiatric

beds," such that CON review would be required under Section 408.306(e), (h) and

(l), Florida Statutes.

16. Contrasted with SandyPines' position, AHCA interprets the foregoing

provisions of law, when read in para materia, and with particular reference to

Rule 59C-1.040, Florida Administrative Code, as establishing two discrete types

of inpatient psychiatric services, to wit: child/adolescent and adult.

17. The separate CON review criteria established by Rule 59C-1.040,

Florida Administrative Code, for child/adolescent and adult inpatient

psychiatric services is consistent with AHCA's interpretation. Indeed, the

rule, among other things, establishes separate bed need methodologies, fixed

need pools, bed inventories, utilization thresholds, and minimum unit sizes for

child/adolescent and adult services. Granting SandyPines' request would run

counter to these CON review criteria by, among other things, altering the

District IX inventory of child/adolescent and adult psychiatric beds, as well as

awarding adult psychiatric beds when there is no need under the established

methodology. Finally, consistent with the provisions of Section 395.003(4),

Florida Statutes, the agency has issued SandyPines a license "which specifies

the service categories and the number of hospital beds in each bed category [60

psychiatric child/adolescent beds] for which [the] license [was issued]."

Granting SandyPines' request would constitute a change in its "licensed bed

capacity."

18. Considering the foregoing provisions of law, it is concluded that the

interpretation advanced by SandyPines is strained, and the interpretation

advanced by AHCA is reasonable. Accordingly, it is found that SandyPines'

proposed conversion of 15 child/adolescent psychiatric beds to 15 adult

psychiatric beds is subject to CON review because such conversion constitutes

"[a] change in licensed bed capacity," "the establishment of inpatient

institutional health services by a health care facility, or a substantial change

in such services," or "a change in the number of psychiatric beds." Section

408.036(e), (h) and (l), Florida Statutes

CONCLUSIONS OF LAW

19. The Division of Administrative Hearings has jurisdiction over the

parties to, and the subject matter of, these proceedings. Section 120.57(1),

Florida Statutes.

20. At issue in this proceeding is whether SandyPines' request for

modification should be approved. As the applicant, SandyPines has the burden of

demonstrating its entitlement to the modification. Florida Department of

Transportation v. J.W.C. Co., Inc., 396 So.2d 778 (Fla. 1st DCA 1981), and

Balino v. Department of Health and Rehabilitative Services, 348 So.2d 349 (Fla.

1st DCA 1977). Here, SandyPines has failed to sustain its burden of proof.

21. Generally, an administrative construction of a statute by an agency

responsible for its administration is entitled to great deference and should not

be overturned unless clearly erroneous. Department of Environmental Regulation

v. Goldring, 477 So.2d 532 (Fla. 1985); All Seasons Resorts, Inc. v. Division of

Land Sales, Condominiums and Mobile Homes, 455 So.2d 544 (Fla. 1st DCA 1984);

and Sans Souci v. Division of Land Sales and Condominiums, 421 So.2d 623 (Fla.

1st DCA 1982). The same deference has been accorded to rules and to the meaning

assigned them by officials charged with their administration. Pan American

World Airways, Inc. v. Florida Public Service Commission, 427 So.2d 716 (Fla.

1983); and State Department of Commerce, Division of Labor v. Matthews Corp.,

358 So.2d 256 (Fla. 1st DCA 1978). Moreover, the agency's interpretation does

not have to be the only one or the most desirable one; it is enough if it is

permissible. Pan American World Airways, Inc. v. Florida Public Service

Commission, supra; and Florida Power Corp. v. Department of Environmental

Regulation, 431 So.2d 684 (Fla. 1st DCA 1983).

22. Here, considering the provisions of Rule 59C-1.040, Florida

Administrative Code, AHCA's interpretation of the provisions of its modification

rule, and more specifically the provisions of Section 408.036(e), (h) and (l),

Florida Statutes, which delineate projects subject to CON review, as precluding

SandyPines' requested modification is permissible, and not clearly erroneous.

Accordingly AHCA's refusal to approve SandyPines' requested modification was

appropriate.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is

RECOMMENDED that a final order be rendered denying SandyPines' request to

modify its certificate of need from a 60-bed child/adolescent psychiatric

hospital to a 45-bed child/adolescent and 15-bed adult psychiatric facility.

DONE AND ORDERED in Tallahassee, Leon County, Florida, this 14th day of

March 1994.

___________________________________

WILLIAM J. KENDRICK

Hearing Officer

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 14th day of March 1994.

ENDNOTE

1/ At hearing, certain objections to the deposition testimony of Putnam Moreman

and Andy Fuhrman, received as petitioner's exhibits 1 and 2 respectively, were

raised, and disposition of those objections was reserved for this recommended

order. As to Mr. Moreman's deposition testimony, respondent objected to column

1 of page one of deposition exhibit 1 [the "(unaudited) Fiscal Year ended

9/30/93" data]. That objection is overruled. As to Mr. Fuhrman's deposition

testimony, respondent objected to his testimony at pages 26-30 [more

specifically his response at page 30, lines 3-6]. That objection is sustained.

APPENDIX

Petitioner's proposed findings of fact are addressed as follows:

1. Addressed in paragraph 1.

2. Addressed or subsumed in paragraph 15.

3-5. Addressed in paragraphs 6 and 9.

6-8. Addressed in paragraph 6.

9 & 10. Addressed in paragraphs 4-6, otherwise unnecessary detail.

11 & 12. Rejected as not relevant, there being no competent proof to

demonstrate the reason for such facilities' actions.

13. Addressed in paragraphs 7-9.

14. Rejected as not persuasive.

15. Rejected as speculative.

16. Addressed in paragraph 10.

17. Addressed in paragraph 9.

18-20. Adopted in paragraph 8.

21. Adopted in paragraphs 7-9.

22-26 Addressed in paragraph 4, otherwise unnecessary detail.

27-29. Addressed in paragraphs 4-9.

30-32. Addressed in paragraph 10.

33. Not relevant.

Respondent' proposed findings of fact are addressed as follows:

1. Addressed in paragraph 3.

2 & 3. Addressed in paragraph 1.

4. Addressed in paragraphs 2 and 3.

5-9. Addressed in paragraphs 14, and 16-18.

COPIES FURNISHED:

Robert S. Cohen, Esquire

Pennington & Haben, P.A.

Post Office Box 10095

Tallahassee, Florida 32302

Edward Labrador, Esquire

Richard A. Patterson, Esquire

Agency for Health Care Administration

Suite 301 - The Atrium

325 John Knox Road

Tallahassee, Florida 32303

Sam Power,

Agency Clerk, The Atrium, Suite 301

325 John Knox Road

Tallahassee, Florida 32303

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this recommended

order. All agencies allow each party at least 10 days in which to submit

written exceptions. Some agencies allow a larger period within which to submit

written exceptions. You should contact the agency that will issue the final

order in this case concerning agency rules on the deadline for filing exceptions

to this recommended order. Any exceptions to this recommended order should be

filed with the agency that will issue the final order in this case.