97-005020CON Martin Memorial Medical Center, Inc. vs. Agency For Health Care Administration Status: Closed Recommended Order on Wednesday, July 1, 1998.

Summary: No standing for CMR provider with no injury-in-fact demo. from est. of hospital-based SNU located 60 mi. away, with no history of adverse impact from other SNUs, and differences in intensity of service, although within Agrico zone of protected int.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MARTIN MEMORIAL MEDICAL )

CENTER, INC., )

)

Petitioner, )

)

vs. ) Case No. 97-5020

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent, )

)

and )

)

HEALTHSOUTH OF TREASURE COAST, )

INC., d/b/a HEALTHSOUTH TREASURE )

COAST REHABILITATION HOSPITAL, )

)

Intervenor. )

__________________________________)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in this case

on January 12-14, 1998, at the Division of Administrative

Hearings, the DeSoto Building, 1230 Apalachee Parkway,

Tallahassee, Florida, before Administrative Law Judge Eleanor M.

Hunter, of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Paul H. Amundsen, Attorney

Rudolfo Nunez, Attorney

502 East Park Avenue

Tallahassee, Florida 32302

For Respondent: John F. Gilroy, Attorney

Agency for Health Care Administration

Fort Knox Building 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308

For Intervenor: Mark A. Emanuele, Attorney

Craig H. Smith, Attorney

Panza, Maurer, Maynard & Neel, P.A.

NationsBank Building, Third floor

3600 North Federal Highway

Fort Lauderdale, Florida 33308

STATEMENT OF THE ISSUES

Whether the application of Martin Memorial Medical Center,

Inc., to establish a 15-bed hospital-based skilled nursing unit

meets the criteria for the issuance of a certificate of need.

PRELIMINARY STATEMENT

In April 1997, the Agency for Health Care Administration

(AHCA) published a need for 15 hospital-based skilled nursing

beds in District 9, Subdistrict 2, for Martin County. In

response, Martin Memorial Medical Center (Martin Memorial), the

only acute care hospital in the C ounty, filed certificate of need

(CON) application number 8847. If issued the CON, Martin

Memorial will establish the 15-bed SNU at its northern and larger

campus in the City of Stuart.

AHCA preliminarily denied the issuance of CON 8847 because

Martin Memorial failed to include in its proposal the conversion

of at least the same number of acute care beds to accommodate the

SNU beds. After reviewing Martin Memorial's occupancy data by

department, AHCA filed a notice that it had changed its position

and, at the final hearing, supported the approval of Martin

Memorial's CON application.

In two separate proceedings, Integrated Health Services of

Central Florida, Inc., d/b/a Integrated Health Services of Vero

Beach (IHS) and Healthsouth of Treasure Coast, Inc., d/b/a

Healthsouth Treasure Coast Rehabilitation Hospital (Healthsouth),

filed petitions supporting the preliminary action of AHCA, the

denial of CON 8847. Martin Memorial filed a Motion in Opposition

to the petitions and a Motion to Consolidate the separate cases

into one proceeding. After a hearing on the motions, the cases

were consolidated, and the Petitions for Formal Administrative

Hearings were treated as petitions to intervene and were both

granted on December 16, 1997. Prior to the final hearing, IHS

voluntarily dismissed its petition.

In the Prehearing Stipulation, Martin Memorial withdrew its

Motion to Dismiss IHS, and its Request for Official Recognition

and Notice of Intention to Seek Sanctions against IHS, but not

against Healthsouth. Martin Memorial requested official

recognition of various petitions filed by Healthsouth in other

DOAH Cases. Martin Memorial also argued that Healthsouth has no

standing because it is licensed as a comprehensive medical

rehabilitation (CMR) hospital, not a SNU. Martin Memorial noted

that the need methodology applicable to CMR beds is different

from that for SNU beds. Martin Memorial also denied

Healthsouth's claim that it will suffer a substantial injury-in-

fact if Martin Memorial establishes a 15-bed SNU. In a response

filed on January 12, 1998, Healthsouth argued that differences in

licensure and need methodology are not determinative of standing,

and that it will suffer an injury-in-fact if CON 8847 is issued.

AHCA agreed with Healthsouth that it should have an opportunity,

despite licensure and need methodology differences, to

demonstrate at hearing that it has standing. Therefore, ruling

was reserved on Martin Memorial's Motion to Dismiss Healthsouth

for lack of standing until factual issues related to an injury-

in-fact were resolved, and on Martin Memorial's Request for

Official Recognition and Notice of Intention to Seek Sanctions.

Healthsouth also filed, on January 12, 1998, a Motion for

Summary Recommended Order dismissing Martin Memorial, alleging

that AHCA's publication of a 15-bed fixed need pool was invalid

and should have been zero. According to Healthsouth, AHCA used a

proposed rule which included a provision that it would not apply

to a batching cycle until after the effective date of the rule.

The proposed rule was also apparently being challenged by

National Healthcare, L.D., according to Healthsouth, and it was

expected that Healthsouth would file a Motion to Consolidate that

case with this one, but it did not.

Healthsouth filed a Motion for Official Recognition of the

following cases and Florida Administrative Weekly publications:

Health Care & Retirement Corp. v. Tarpon

Springs Hospital Foundation , 671 So. 2d 217

(Fla. 1st DCA 1996);

Agency for Health Care Administration v. Mt.

Sinai Medical Center , 690 So. 2d 689 (Fla.

1st DCA 1997);

Tarpon Springs v. Agency for Health Care

Administration, et al. , (F.O. DOAH Case

No. 94-0958, 94-1165RU;

The proposed rule relating to certificate of

need review criteria for nursing home beds

published in the Florida Administrative

Weekly , Vol. 22, No. 39, September 27, 1996;

The proposed rule relating to certificate of

need review criteria for nursing home beds

published in the Florida Administrative

Weekly , Vol. 23, No. 6, February 7, 1997; and

The proposed Notice of Change relating to

certificate of need review criteria for

nursing home beds published in the Florida

Administrative Weekly , Vol. 23, No. 47,

November 21, 1997.

Healthsouth's Motion for Official Recognition presented

disputed legal but not factual issues, and based on the case law,

the motion is granted. See e.g. Department of Legal Affairs v.

District Court of Appeal, 5th District , 434 So. 2d 310

(Fla.Sup.Ct. 1983), and Daoud v. Matz , 73 So. 2d 51 (Fla.Sup.Ct.

1954).

In the Prehearing Stipulation, the parties agreed that the

disputed issues of fact in this proceeding are those in the

following statutory and rule criteria: Subsections

408.035(1)(a), (b), (d), and (l), and (2)(a)-(c), all generally

related to need, alternatives and adverse impact; Subsections

408.035(1)(h) and (n) -- related to accessibility for all

residents and past and proposed Medicaid services; Subsections

408.035(1)(m) and Chapter 59A-3 -- on construction methods and

code requirements; and Subsection 408.035(1)(o) -- on a

multilevel continuum of care.

At the final hearing, Martin Memorial presented the

testimony of Gary Uber, who is responsible for social services

and discharge planning at Martin Memorial; Joseph Edward Witek,

expert in health care finance; Edward L. Hengtgen, Jr., expert in

health care architecture; Christopher Coffey, expert in health

care planning; and Judith L. Horowitz, expert in health care

planning and health care finance. Martin Memorial's Exhibits 1

through 30 were received into evidence.

AHCA presented the testimony of Elfie Stamm, expert in

health care planning. AHCA Exhibits 1 through 3 were received in

evidence. By deposition, submitted after the formal hearing,

AHCA also presented the testimony of Charles L. Alby, an

architect. With the agreement of the parties, the Alby

deposition was accepted as AHCA Exhibit 4.

Healthsouth presented the testimony of Denise McGrath,

expert in nursing and rehabilitation hospital administration;

Armand Balsano, expert in health care planning and health care

finance; and Rick Knapp, expert in health care finance and health

care accounting. Healthsouth proffered, in view of the objection

by Martin Memorial, the testimony and resume (as its Exhibit 10)

of Luis Vivar, an expert in health care architecture, who was not

listed on Healthsouth's witness list. Ruling was reserved on the

admissibility of the proffered testimony. Healthsouth's Exhibits

1 through 18, 20, and 21 were received into evidence.

The transcript of the final hearing was filed on February 2,

1998. Proposed recommended orders were filed on February 12,

1998.

FINDINGS OF FACT

1. The Agency for Healthcare Administration (AHCA) is the

state agency which administers the certificate of need (CON)

program for health care services and facilities in Florida. On

April 18, 1997, AHCA published a need for a 15-bed hospital-based

skilled nursing unit (SNU) in District 9, Subdistrict 2, for

Martin County. Because the beds will be in a hospital, they will

be licensed under Chapter 395, Florida Statutes. By contrast,

freestanding, nursing facilities are licensed, pursuant to the

provisions in Chapter 400, Florida Statutes.

2. Since it is the only acute care hospital in the C ounty,

Martin Memorial Medical Center, Inc., d/b/a Martin Memorial

Medical Center (Martin Memorial) applied for the CON to establish

the 15-bed hospital-based SNU. Martin Memorial has 336 beds

located on two separate campuses in Martin County. A satellite

facility which has 100 beds, Martin Memorial South, is located in

Port Salerno. Port Salerno is approximately 10 to 12 miles south

of the City of Stuart. Martin Memorial also owns a 120-bed

nursing home on the Port Salerno campus, Martin Nursing and

Restorative Care Center (Martin Nursing Center). The facility

includes a 40-bed subacute unit. Martin Nursing Center is

operated by a long-term care company, Eden Park Management, Inc.

Martin Memorial North, the larger, 236-bed hospital in Stuart, is

the proposed location of the SNU. The SNU renovation project

will cost approximately $242,000, and will occupy space which is

currently used for outpatient services.

3. AHCA preliminarily denied the CON application due to

Martin Memorial's failure to propose to delicense and convert

acute care beds to establish the SNU. AHCA withdrew its

objection to the issuance of CON 8847 after reviewing occupancy

levels by department at Martin Memorial.

4. AHCA published the applicable fixed need pool in

April 1997 1 , which was calculated using proposed Rule 59C-1.036,

published on February 7, 1997. 2 Notice was given of the only

challenge to the proposed rule which was filed by National

Healthcare, L.P. 3 and subsequently dismissed. No motion to

consolidate that case with this one was ever filed.

5. Healthsouth of Treasure Coast, Inc., d/b/a Healthsouth

Treasure Coast Rehabilitation Hospital (Healthsouth) is a 90-bed

rehabilitation hospital in Vero Beach, Indian River County,

approximately 60 miles north of Martin Memorial North.

Healthsouth is also in AHCA, District 9, but not in

Subdistrict 2. In District 9, St. Lucie County is on the east

coast, adjacent to Indian River County to the north, Martin

County to the south, and Okeechobee County to the west. The four

counties in District 9 are north of Palm Beach County, the only

other county in the D istrict.

6. The hospital-based SNUs in the four northern counties in

District 9 are:

Port St. Lucie Hospital, in St. Lucie County,

which has 150 beds and a 15-bed SNU, with CON

approval for 9 more SNU beds;

Lawnwood Regional Medical Center, also in St.

Lucie County, which has 260 beds and a 33-bed

SNU;

Indian River Memorial Hospital, located

within a mile of Healthsouth in Indian River

County which has approximately 320 beds and a

20-bed SNU and approval for 8 more SNU beds;

Sebastian Hospital, in Indian River County,

which has between 100 and 150 beds and has

recently been approved for 9 SNU beds; and

Raulerson Hospital, in Okeechobee County,

which has 101 beds including SNU.

7. Healthsouth identifies its primary service areas as

Indian River, St. Lucie, and Martin Counties. Healthsouth

generally attracts 60 percent of its patients from Indian River

County, 20 percent from St. Lucie, and 15 percent from Martin

County. Patients are referred from both Martin Memorial North

and South. Healthsouth asserted that a 15-bed SNU at Martin

Memorial will compete with Healthsouth, resulting in a loss of

patients in sufficient numbers to cause a substantial adverse

impact on Healthsouth.

8. Healthsouth's expert in health care planning and finance

examined national acute care discharges as compared to the

percentage of those cases which typically have follow-up subacute

care. Using discharge data by Diagnostic Related Group (DRG),

the expert quantified the percentages of subacute cases which can

receive services in either a CMR hospital or a skilled nursing

facility. Based on an estimate that 75 to 90 percent of the

overlapping DRGs would be redirected to Martin Memorial,

Healthsouth projected a loss ranging from 55 to 66 cases when

applied to 1997 annualized data.

9. The three largest categories of referrals from Martin

Memorial are stroke, orthopedics, and rehabilitation, which

account for 85 percent of total admissions to Healthsouth. The

payer group from the three categories was used to determine the

financial impact, using the midpoint of the projected loss of 60

cases or 900 patient days. The financial loss per case is the

difference between net revenue per patient day of $458 and the

variable expenses per patient day of $295, or $163. Given an

incremental net income per adjusted patient day of approximately

$163, the projected loss of 900 patient days a year, and an

assumed 15-day average length of stay, Healthsouth projects a

loss of approximately $150,000 a year in revenues if a 15-bed SNU

is established at Martin Memorial.

10. In 1995, the only hospital-based SNU in Healthsouth's

service area was at Lawnwood. The SNU at Raulerson opened in

April 1996, followed by Port St. Lucie in November 1996, and

Indian River Memorial in May 1997. In addition, the new CMR

program was developed at Lawnwood, while the unit at St. Mary's

Hospital in West Palm Beach was expanded during 1997. By January

1998, Healthsouth reached full capacity, or an average daily

census in the range of 84 to 89 patients in 90 beds.

Healthsouth's medical director believes that it would have

reached full capacity much sooner after its 20-bed expansion in

mid-August 1997, but for the competition from the hospital-based

SNUs. The expansion of Healthsouth has accomplished the

objective of eliminating a 15-to-20 person waiting list which

existed when it was a 70-bed facility.

11. The average daily census (ADC) at Lawnwood, in 1995,

was 31.1 patients in 33 beds. By the end of 1995, the average

daily census at Healthsouth was 69.9 patients in 70 beds. From

January 1996 to July 1997, the ADC in Raulerson's 12-bed SNU

increased from 5.6 patients to 8.1. After Raulerson's SNU beds

became available, the ADC of Healthsouth continued in the 68 to

69 range in 70 beds, indicating that Healthsouth was full. When

Port St. Lucie's 15 SNU beds opened during the last two months of

1996, its ADC of 3.9 patients in 1996 increased to 13.5 for the

first seven months of 1997. From the time Port St. Lucie's SNU

became operational through the end of 1997, the ADC at

Healthsouth ranged from a low of 67.2 in 70 beds in June 1997, to

a high of 81.9 in 90 beds in November 1997, approximately three

months after its expansion. Indian River Memorial, the largest

referral source and the closest SNU to Healthsouth, opened a

20-bed SNU, in May 1997. Healthsouth failed to show any adverse

impact as a result of the opening of any of existing SNUs in the

District. All of the SNUs in the four-county area have filled

relatively quickly when opened. At the same time, utilization of

CMR services has also steadily increased.

12. In 1996, Martin Memorial North referred 181 patients to

Healthsouth; 134 were actually admitted. For the first eleven

months of 1997, Martin Memorial North referred 147 patients (160

annualized) resulting in 109 admissions (119 annualized). The

percentage of referrals which became admissions was the same,

74 percent, for both years. Martin Memorial South referred

27 patients with 22 of those admitted in 1996, and referred 33 of

which 25 were admitted, based on actual data for the first eleven

months of 1997 annualized for the entire year. Healthsouth notes

that Martin Memorial North's referrals declined 12 percent, and

the admissions declined by 11 percent comparing 1996 to 1997.

Martin Memorial reported total discharges to Healthsouth of 155

patients in 1995, 155 in 1996 and 149 in 1997. Healthsouth's

total admissions for 1996 and 1997, respectively, were 1463 and

1455.

13. Assuming, that Healthsouth reasonably expects to lose

$150,000 a year in pre-tax revenues as a result of the

establishment of Martin Memorial's 15-bed SNU, that level of

impact is not substantial, as compared to Healthsouth's revenues

in excess of expenses, or profits of approximately $3.8 million

in 1996.

14. Considering the distance between Healthsouth and Martin

Memorial, the differences in the intensity of the services they

offer, and the historical absence of any substantial adverse

impact on Healthsouth when closer referral hospitals established

SNUs, Healthsouth has failed to establish that it will suffer an

injury-in-fact if Martin Memorial initiates skilled nursing

services in a 15-bed unit.

15. Healthsouth failed to establish the reasonableness of

the loss it projects, given the evidence that the average length

of stay and number of cases likely to be redirected are

overestimated. Assuming, nevertheless, the accuracy of

Healthsouth's projections, the projected loss does not constitute

a substantial adverse impact. Therefore, Healthsouth has failed

to establish the facts necessary to support its claim of standing

in this proceeding.

CONCLUSIONS OF LAW

16. Pursuant to Subsections 408.039(5) and 120.57(1),

Florida Statutes, the Division of Administrative Hearings has

jurisdiction over the parties and subject matter of this

proceeding.

17. Healthsouth, the Intervenor, must demonstrate standing

by meeting the requirements of Subsection 408.039(5), Florida

Statutes, and the two prong test of Agrico Chemical Company v.

Department of Environmental Regulation , 406 So. 2d 478 (Fla. 2nd

DCA 1981), rev. denied , 415 So. 2d 1361 (Fla. 1982).

18. As required by Subsection 408.039(5), Healthsouth

alleges that it has standing to intervene because its

. . . established program will be

substantially affected by the issuance of any

certificate of need to a competing proposed

facility or program within the same district.

Healthsouth contends that a hospital-based SNU will compete with

CMR services. Healthsouth has a specific CON licensed program as

required by the decision in St. Joseph Hospital of Charlotte,

Florida, Inc. v. DHRS , 559 So. 2d 595 (Fla. 1st DCA 1990).

Healthsouth also demonstrated a potential adverse impact on the

provision of the CON regulated health service due to an overlap

in the services provided by CMR hospitals and hospital-based

SNUs, despite the differences in rule methodologies and licenses.

See e.g. Charter Medical-Jacksonville, Inc. v. State, DHRS ,

503 So. 2d 381 (Fla. 1st DCA 1987), relying on Psychiatric

Institute of America, Inc. v. DHRS , 491 So. 2d 1199 (Fla. 1st DCA

1986). The claims asserted by Healthsouth are, therefore,

cognizable within the zone of interest protected by Subsection

408.039(5), Florida Statutes, and meet the first prong of the

Agrico test.

19. Healthsouth failed to demonstrate that it will suffer

an injury-in-fact and therefore, failed to meet the second prong

of the Agrico test. The injury alleged by Healthsouth is not

supported by the facts adduced at hearing. Assuming, arguendo ,

that Healthsouth will suffer the injury it alleged, Healthsouth

failed to show that the impact on Healthsouth is reasonably

expected to be substantial.

20. Healthsouth failed to establish its standing to

initiate or intervene in opposition to Martin Memorial's proposal

to establish a 15-bed SNU.

21. Because it is unnecessary to the disposition of this

proceeding, no ruling is made on Martin Memorial's Motion for

Official Recognition of various petitions filed by Healthsouth in

various cases, and Notice of Intention to Seek Sanctions. No

ruling is made on Healthsouth's Motion for Summary Recommended

Order Dismissing Martin Memorial because Healthsouth lacks

standing to participate as a party to this proceeding.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that the Agency for Health Care

Administration enter a final order granting Martin Memorial's

Motion to Dismiss the Petition to Intervene, filed by Healthsouth

of Treasure Coast, Inc., d/b/a Healthsouth Treasure Coast

Rehabilitation, and granting Certificate of Need No. 8847 to

establish a 15-bed skilled nursing unit at Martin Memorial

Medical Center, Stuart, Florida.

DONE AND ENTERED this 1st day of July, 1998, in Tallahassee,

Leon County, Florida.

___________________________________

ELEANOR M. HUNTER

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 1st day of July, 1998.

ENDNOTES

1 / Volume 23, Florida Administrative Weekly , November 16

(April 18, 1997)

2 / Volume 23, Florida Administrative Weekly , November 6

(February 7, 1997)

3 / Volume 23, Florida Administrative Weekly , November 28

(July 11, 1998)

COPIES FURNISHED:

Sam Power, Agency Clerk

Agency for Health Care Administration

Fort Knox Building 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308-5403

Paul J. Martin, General Counsel

Agency for Health Care Administration

Fort Knox Building 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308-5403

John F. Gilroy, Attorney

Agency for Health Care Administration

Fort Knox Building 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308-5403

Craig H. Smith, Attorney

Thomas F. Panza, Attorney

Panza, Maurer, Maynard & Neel

NationsBank Building, Third Floor

3600 North Federal Highway

Fort Lauderdale, Florida 33308

Paul H. Amundsen, Attorney

Rodolfo Nunez, Attorney

Amundsen & Moore

Post Office Box 1759

Tallahassee, Florida 32302

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 should be filed with the agency that will

issue the Final Order in this case.