94-006236CON St. Joseph`s Hospital, Inc. vs. Agency For Health Care Administration Status: Closed Recommended Order on Thursday, January 23, 1997.

Summary: Tarpon Springs case, which invalidated rule on nursing home Certificate of Needs (CON), did not retroactively invalidate the fixed need pool. No beds left. Recommend that CON be denied.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ST. JOSEPH’S HOSPITAL, INC., )

)

Petitioner, )

)

vs. ) CASE NO.: 94-6236

)

STATE OF FLORIDA, AGENCY FOR )

HEALTH CARE ADMINISTRATION, )

)

Respondent. )

___________________________________)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings,

by its duly designated Administrative Law Judge, Mary Clark, held

a formal administrative hearing in the above-styled case on

September 4 and 5, 1996, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Ivan Wood, Esquire

Baker & Hostetler

Suite 2000

100 Louisiana

Houston, Texas 77002

For Respondent: Steven A. Grigas, Esquire

Building 3

2727 Mahan Drive

Tallahassee, Florida 32308-5403

STATEMENT OF THE ISSUES

The central issue for disposition is whether Certificate of

Need no. 7750, for 24 hospital-based skilled nursing unit beds

should be awarded to Petitioner, St. Joseph’s Hospital, Inc. (St.

Joseph’s). To resolve that issue it is necessary to resolve

factual issues regarding the need for the proposed beds and a

legal issue regarding the impact of Health Care and Retirement

Corp. of America v. Tarpon Springs Hospital Foundation, Inc. 671

So.2d 217 (Fla 1 st DCA 1996) ( Tarpon Springs ) on the fixed need

pool published in the first nursing home batching cycle of 1994

in Hillsborough County, District 6, Subdistrict 1.

PRELIMINARY STATEMENT

After St. Josephs received notice of the agency’s intended

denial of Certificate of Need application no. 7750, it filed a

timely petition for formal hearing on October 12, 1994. A series

of other unsuccessful applicants in the batching cycle and

competing health care providers also filed petitions. The cases

were consolidated for hearing in a single proceeding.

In the meantime, on August 22, 1994, James W. York, Division

of Administrative Hearings Hearing Officer (now Administrative

Law Judge) entered his final order in case no. 94-0958RU/94-

1165RU, invalidating rule 59C-1.036(1), Florida Administrative

Code, relating to review of applications for community nursing

home CON’s.

The Final Order was appealed, and during the pendancy of the

appeal the parties in the consolidated cases entered a

stipulation which is described below. After the appellate court

decision was entered in Tarpon Springs , the remaining parties,

St. Joseph’s and AHCA, filed their status report and requested

the final hearing be set.

On August 30, 1996, AHCA filed a motion in limine requesting

an order prohibiting St. Joseph’s from introducing any evidence

relating to a special circumstances justification for the CON

application. After oral argument at the commencement of the

hearing on September 4, 1996, the motion was denied, without

prejudice to AHCA’s right to raise its objections throughout the

proceeding.

At the hearing, St. Joseph’s presented testimony of David

Rogoff, vice-president of planning and marketing; deposition

testimony of Michael Wasylik, MD, chief of orthopedics; Patricia

Snyder, director of rehabilitation services; Rochelle John,

director of medical/surgical services; Debra McElroy, manager of

socialwork; Deborah Pergoliyzi, planning and marketing

coordinator; Charles Secord, director of architecture; and Tommy

Inzina, director of fiscal services. St. Joseph’s exhibits no.

1-3 were received in evidence; exhibit no. 3 was received for the

limited purpose of depicting the existing 19-bed unit.

AHCA presented testimony of Roger Bell, audit evaluation and

review analyst; Alberta Granger, Certificate of Need supervisor;

Elfie Stamm, health services and consultant supervisor; and

Robert Garland, architect. AHCA’s exhibits 2, and 5-12 were

received in evidence.

The transcript of the hearing was filed on October 29, 1996;

by agreement, the parties filed their proposed recommended orders

on December 10, 1996.

FINDINGS OF FACT

The Parties

1. St. Joseph’s Hospital, Inc. (St. Joseph’s) is a not-

for-profit hospital which has operated in the Tampa, Florida area

for over fifty years. It is currently licensed for 883 acute-

care beds; it owns John Knox Village, which includes an adult

congregate living facility and medical center nursing home; and

it offers other services in a continuum of health care. St.

Joseph’s also has a 19-bed, in-hospital skilled nursing care unit

which became operational in early 1995.

2. The Agency for Health Care Administration (agency or

AHCA) is the state agency responsible for administering and

enforcing the certificate of need (CON) process described in

sections 408.031 through 408.045, Florida Statutes (“the Health

Facility and Services Development Act”).

The Process

3. The fixed need pool published by AHCA in vol. 20,

number 15, April 15, 1994, Florida Administrative Weekly ,

projected a need for 94 additional nursing home beds in

Hillsborough County, District 6, Subdistrict 1, for the January

1997 planning horizon. There is no evidence that this fixed need

pool was challenged.

4. Approximately eleven health care providers, including

St. Joseph’s, responded to the fixed need pool notice with

applications for CON’s ranging from 10 to 94 beds. Some of those

applicants, like St. Joseph’s, were hospitals seeking hospital-

based skilled nursing beds.

5. After comparative review of the applications, AHCA

issued its state agency action report (SAAR) on September 16,

1994, denying some and granting others, and explaining the basis

for its intended actions. Some of the beds were awarded for a

hospital-based skilled nursing unit; St. Joseph’s application for

24 in-hospital beds was denied in the comparative review that

determined St. Joseph’s application was inferior to others in

meeting statutory and rule criteria.

6. The applicants’ petitions for formal hearing were

forwarded to the Division of Administrative Hearings by AHCA and

were consolidated in a single proceeding relating to the 94 beds

in District 6, Subdistrict 1.

7. On October 19, 1995, during the pendancy of appeal of

the DOAH Final Order in Tarpon Springs , all of the parties in the

consolidated cases executed and filed a stipulation which

disposes of 93 out of the 94 available beds in the fixed need

pool. The stipulation provides that all of the applicants,

except St. Joseph’s, withdrew their petitions for formal hearing.

As to St. Joseph’s, the stipulation provides:

St. Joseph’s has previously withdrawn its

opposition to the applications of all other

parties to this proceeding by its Notice of

Voluntary Dismissal of Petitions for

Administrative Hearing and Notice of Lack of

Opposition, dated September 13, 1995. St.

Joseph’s and AHCA stipulate that Case No.

94-6236, wherein St. Joseph’s challenged the

denial of its application for certificate of

need 7750 to add 24 skilled nursing unit

beds, should be held in abeyance pending the

final judicial determination of Tarpon

Springs Hospital Foundation, et al. v. Agency

for Health Care Administration, et al .

(Proceeding below DOAH Case Nos. 94-0958RU

and 94-1165RU, reported at 16 FALR 3420,

presently on appeal before the First District

Court of Appeal). St. Joseph’s acknowledges

that the terms of this settlement will

deplete the fixed bed need pool determined to

be available for this application cycle,

assents to the same, and maintains its

position that its application should be

approved notwithstanding the lack of

availability of community nursing home beds

within the fixed bed need pool. All other

parties to this agreement except for AHCA

hereby withdraw their petitions filed in this

proceeding in opposition to the application

of St. Joseph’s for certificate of need 7750

and waive any challenge or protest that they

may have to the issuance of certificate of

need 7750. St. Joseph’s hereby agrees not to

oppose the transfer of up to seven (7) beds

from this application cycle to TGH.

8. After remand of all of the consolidated cases except

St. Joseph’s (DOAH no. 94-6236), AHCA entered its final order on

December 13, 1995, awarding CON’s for 93 beds to various of the

applicants. Some of those 93 beds were awarded for hospital-

based skilled nursing units. This final order depleted the fixed

need pool of all but one bed.

9. In their prehearing stipulation filed on August 29,

1996, AHCA and St. Joseph’s admitted these relevant facts:

a) The appropriate planning area is

Hillsborough County;

b) The appropriate planning horizon for the

application is January 1997.

c) Rule 59C-1.036, Florida Administrative

Code was appropriately used in determining

the bed need for Hillsborough County,

District 6, Subdistrict 1, for the first

nursing home batching cycle of 1994; and

d) The numbers used to derive the project

pool of 94 beds in Hillsborough County,

District 6, Subdistrict 1 for the January

1997 planning horizon were accurate and

appropriate.

10. At the hearing and in its proposed recommended order,

St. Joseph’s concedes that it did not apply for beds under “not

normal” circumstances.

The Project

11. St. Joseph’s proposes to establish a 24 bed, hospital-

based skilled nursing unit in an area of its main hospital

building by converting 24 acute care beds to this use. The

project involves 19,600 square feet of renovation at a total

project cost of $684,731, including conversion costs of $331,940.

Actual out-of-pocket costs for the project are $352.791.

12. The skilled nursing beds within the hospital facility

are intended to contribute to St. Joseph’s goal of providing a

full continuum of care for its patients, with services provided

at different levels for a medically-appropriate and cost-

effective outcome. St. Joseph’s anticipates that the patient

using the skilled nursing (also called “subacute care”) unit

would be one coming from the acute care setting and requiring

less-acute care, but a more intensive level of care and a shorter

length of stay than generally offered in a typical nursing home.

13. All ancillary services and therapies will be available

at the hospital seven days a week. Rehabilitative services,

which are critical to the patient likely to use the skilled

nursing beds, include physical therapy, occupational therapy,

speech and language therapy, and recreation therapy.

Need Analysis/Impact on Existing Programs

14. Virtually all of the referrals to the proposed new beds

will come from within St. Joseph’s. This is the experience of

the new 19 bed unit. The hospital’s doctors and their patients

prefer to not transfer to an outside facility and they plan in

advance, as part of their treatment goals, that the subacute

rehabilitative phase of treatment will be in St. Joseph’s own

skilled nursing unit. The multi-discipline health care team

evaluates and identifies patients who will benefit from such

treatment; patients are not automatically shifted down to the

unit.

15. The existing unit enjoys a near-100 percent occupancy

rate and has a waiting list for patients. Sometimes patients are

held in an acute care bed while awaiting transfer to a vacant bed

in the skilled nursing unit. This is an inappropriate use of the

acute care bed.

16. Few, if any patients would come from other hospitals.

Since many hospitals now have their own skilled nursing units,

there is little exchange of patients. In the experience of St.

Joseph’s staff, other hospitals generally fill their own units

from within in their own “continuum of care” system.

17. John Knox Village is not an alternative for patients

who need to “step-down” from acute to subacute care. John Knox

is eleven miles from St. Joseph’s and does not provide the

intensity of care that is offered in the hospital-based skilled

nursing unit.

18. There are subacute care, or skilled nursing care, beds

in Hillsborough County in free-standing, not hospital-based

units. These alternative facilities are not all fully occupied

and some offer similar services and treat patients comparable to

those treated in the hospital-based units.

19. Evidence that the free-standing skilled nursing

facilities are not appropriate alternatives to St. Joseph’s new

beds was largely anecdotal. Although Dr. Wasylik, St. Joseph’s

chief of orthopedics, is generally familiar with facilities in

which he has patients, his observation that transfer of patients

from St. Joseph’s would not be appropriate is based on his

concern that the “continuity of care” would be disrupted. In

other words, even before surgery and admission to an acute care

bed, a “critical pathway” in the patient’s rehabilitation is

developed. Another facility might have a different pathway that

would disrupt the rehabilitative process. Better continuity of

care, in Wasylik’s view, translates into quicker, and thereby

more cost-effective, recovery.

Financial Considerations

20. Although the agency found some inconsistencies in the

financial data included in St. Joseph’s application, those

inconsistencies affected only the scoring of the application in a

competitive batching cycle. The agency witness who provided

financial review of the application conceded there was no problem

with funding the project, and due to the small size of the

project in relation to the size of St. Joseph’s, the project

would not have a significant impact on the cost of other services

provided by St. Joseph’s.

21. The proposed project would generate a positive

financial return for St. Joseph’s. In the proforma financial

statement included with the application, the hospital used an

occupancy rate of 74%; the actual occupancy rate experienced in

the new 19 bed unit is higher.

22. Some of the probl ems the agency found when reviewing

St. Joseph’s application were adequately explained at hearing.

For example, the actual cost of the project is less than what the

agency found in the financial projections in the application.

Also, if, as the agency contends, St. Joseph’s has over-stated

its projection of Medicaid patients, a lower Medicaid utilization

rate will actually inure to the benefit of St. Joseph’s, since

the Medicaid reimbursement rate is lower than for other payor

sources.

23. While not obvio us on the face of the application, the

financial assumptions provided by St. Joseph’s were sufficient to

extrapolate valid projected salary expenses in the second year of

operation.

24. In summary, a CON application, by necessity, includes

estimates and projections of expenses and revenue generated by

the proposed project. St. Joseph’s now has the experience, which

it did not have when the application was prepared, of the actual

expenses and revenue from its 19 bed unit. That actual

experience helps validate its prediction of financial feasibility

for the proposed 24 beds.

Architectural Issues

25. At hearing, St. Joseph’s clarified its intent to not

delicense nor relocate acute care beds to make room for the

proposed 24 bed skilled nursing unit. Nor does it intend to

“phase in” the skilled nursing beds, if approved. Neither of

these intentions is clear from the face of the application and

the architectural review by the agency raised questions on these

issues.

26. The questions affected St. Joseph’s ov erall standing in

a competitive review process, but are not serious enough to

foreclose approval if the application is considered on its own

merit. The application states that the new beds would be co-

located with the existing 19 beds. But if there is not

sufficient room, as long as St. Joseph’s can accomplish the

project at or below the approved project cost, and as long as St.

Joseph’s obtains agency approval for placing the beds elsewhere

(which approval is routinely granted), the precise location of

the beds within St. Joseph’s facility is not a problem. The beds

may not, nor are they intended to be, co-mingled with acute care

beds in the hospital.

27. Upon construction, the 24 beds will meet all of the

licensure, building code and other regulations applicable to a

skilled nursing unit within an acute care hospital.

Balancing the Criteria and

Summary of Findings

28. There is little dispute that St. Joseph’s has the

financial resources to complete the approved project and to

operate it successfully. Nor is quality of care, either in the

existing facility and projected in the future, an issue of

dispute. The questions raised in the financial review and

architectural review are not impediments to approval.

29. There are two significant problems with St. Joseph’s

proposal. St. Joseph’s serves the entire planning district, and

the impact of new beds must be considered in that district-wide

health-planning perspective. St. Joseph’s generates enough

patients from within its own hospital to fill the beds close to

capacity. Other facilities providing similar services in the

district are not at full capacity. The possibility of those

existing facilities serving as an alternative to new beds was not

adequately explored by St. Joseph’s, but was rejected out of an

abundance of pride in its own fine services, or physician and

patient loyalty. Patient and physician preference does impact

“real world” utilization of health care facilities but cannot

drive the health planning decisions that are made in the CON

process.

30. The second, and most significant impediment to St.

Joseph’s application is that only one bed remains in the fixed

need pool established for the relevant planning horizon. As

discussed below, Tarpon Springs did not invalidate that fixed

need pool. St. Joseph’s application does not reflect a

willingness to accept any fewer than the requested beds, much

less an award of only one single bed. (See, Respondent’s Exhibit

12, CON application, p. 34)

CONCLUSIONS OF LAW

31. The Division of Administra tive Hearings has

jurisdiction in this proceeding pursuant to Sections 120.57(1),

Florida Statutes and 408.039(5), Florida Statutes.

32. As applicant, St. Joseph’s has the burden to establish,

by competent substantial evidence, its entitlement to the CON

which it seeks. Florida Dept. of Transportation v. J.W.C, Inc. ,

396 So.2d 778 (Fla. 1 st DCA 1981). Specifically, it must prove

it meets the criteria in section 408.035, Florida Statutes and

rule 59C-1.030, Florida Administrative Code based on a balanced

consideration of all criteria contained therein. NME Hospitals,

Inc. v. Dept. of Health and Rehabilitative Services , 478 So.2d

1138 (Fla. 1 st DCA 1985); Collier Medical Center, Inc. v.

Department of Health and Rehabilitative Services , 462 So.2d 83

(Fla. 1 st DCA 1985). With a couple of critical exceptions, those

criteria have been met.

33. Section 408.035, Florida Statutes includes several

criteria related to the availability and appropriateness of

alternatives to the applicant’s proposed new services. Those

alternatives exist in the relevant planning district and St.

Joseph’s did not sufficiently explain why they were not

appropriate. Tarpon Springs acknowledges that some skilled

nursing units in free-standing facilities may be alternatives for

patients who do not require access to immediate emergency care.

34. The disposition of this case, however, turns primarily

on a legal interpretation of the decisions in Tarpon Springs .

Contrary to St. Joseph’s claim, that case did not invalidate the

fixed need pool that was established for the planning horizon at

issue.

35. Citing liberally from James W. York’s final order in

DOAH case nos. 94-0958RU/94-1165RU, the appellate court in Tarpon

Springs affirmed his determination of the invalidity of rule 59C-

1.036(1), Florida Administrative Code, because it requires

comparative review of applications for hospital-based skilled

nursing beds and other nursing home beds in a single batching

cycle for a planning district.

36. The Division of Administrative Hearings’ fin al order

and the appellate opinion reference only rule 59C-1.306(1),

Florida Administrative Code, which describes the “agency goal”

and summarizes the process for review of community nursing home

bed applications. This subsection, now invalid, specifically

states that hospital-based skilled nursing beds are included

among the community nursing home beds that are subject to the

entire rule 59C-1.036, Florida Administrative Code, including

obviously, the detailed need methodology described in subsection

(2).

37. Whatever the impact of invalidating subsection (1)

might have prospectively on subsection (2), it is too late for

St. Joseph’s to complain of the methodology used in establishing

the fixed need pool published on April 15, 1994.

38. “Fixed need pool” is described in rule 59C-1.002(21),

Florida Administrative Code as follows:

(21) “Fixed Need Pool” means the

identified numerical need, as published in

the Florida Administrative Weekly, for new

beds or services for the applicable planning

horizon established by the agency in

accordance with need methodologies which are

in effect by rule at the time of publication

of the fixed need pools for the applicable

batching cycle . (emphasis added)

39. Publication of the fixed need pool is addressed, in

pertinent part, in rule 59C-1.008(2), Florida Administrative Code

as follows:

(2) Fixed Need Pools.

(a) Publication of Fixed Need Pools.

1. The agency shall publish in the

Florida Administrative Weekly at least 15

days prior to the letter of intent deadline

for a particular batching cycle the fixed

need pools for the applicable planning

horizon specified for each service in

applicable agency rules contained in 59C-

1.031 to 59C-1.044, F.A.C.

2. Any person who identifies an error

in the fixed need pool numbers must advise

the agency of the error within 10 days of

publication of the number. If the agency

concurs in the error, the fixed need pool

number will be adjusted and republished in

the first available edition of the Florida

Administrative Weekly. Failure to notify the

agency of the error during this time period

will result in no adjustment to the fixed

need pool number for that batching cycle.

Any other adjustments will be made in the

first cycle subsequent to identification of

an error, including those errors identified

through administrative hearings or final

judicial review.

3. Except as provided in subparagraph

2. above, the batching cycle specific fixed

need pools shall not be changed or adjusted

in the future regardless of any future

changes in need methodologies, population

estimates, bed inventories, or other factors

which would lead to different projections of

need, if retroactively applied . (emphasis

added)

40. Persons are thus given an opportunity to challenge the

published need in a given subdistrict at the time of the

publication. St. Joseph’s did not take that opportunity. Now,

in the unique circumstances of this case, the only common-sense

conclusion is that Tarpon Springs affected how the bed pool pie

is sliced, but not the size of the pie. By waiting until the

other competing applicants had withdrawn, St. Joseph’s

effectively avoided review with other non-hospital-based nursing

home bed applicants, and St. Joseph’s appropriately presented a

de novo application based on statutory and other regulatory

criteria. But when St. Joseph’s joined the stipulation which

carved the bed pool pie, it also concurred in a process which

left nothing for itself.

41. In spite of Tarpon Springs , the integrity of the prior

published and unchallenged fixed need pool is preserved as

mandated by Gulf Court Nursing Center v. Department of Health ,

483 So.2d 700 (Fla. 1 st DCA 1985), and Gulf Court’s prolix off-

spring. See, for example, Central Florida Regional Hospital v.

Dept. of Health and Rehabilitative Services , 582 So.2d 1193 (Fla.

5 th DCA 1991) which requires that the agency consistently apply

the same methodology for all applicants in a batching cycle, even

when some were awarded beds through settlement and even though

the methodology was based, in part, on an interpretation that was

later invalidated as an unpromulgated rule.

RECOMMENDATION

Based on the foregoing, it is hereby,

RECOMMENDED:

that the Agency for Health Care Administration enter its final

order denying CON number 7750 to St. Joseph’s Hospital, Inc.

DONE and ENTERED in Tallahassee, Leon County, Florida, this

23 rd day of January 1997.

___________________________________

MARY CLARK

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahas see, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings rd

this 23 day of January, 1997.

COPIES FURNISHED:

Ivan Wood, Esquire

Baker & Hostetler

Suite 2000

100 Louisiana

Houston, Texas 77002

Steven A. Grigas, Esquire

Agency for Health Care Administration

Building 3

2727 Mahan Drive

Tallahassee, Florida 32308-5403

Sam Power, Agency Clerk

Agency for Health Care Administration

Fort Knox Building 3, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308-5403

Jerome W. Hoffman, Esquire

General Counsel

2727 Mahan Drive

Tallahassee, Florida 32308-5403

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15

days from the date of this recommended order. Any exceptions to

this recommended order must be filed with the agency that will

issue the final order in this case.