99-000724CON Methodist Medical Center, Inc., D/B/A Methodist Medical Center vs. St. Luke`s Hospital Association And Agency For Health Care Administration Status: Closed Recommended Order on Thursday, February 17, 2000.

Summary: On strength of other successful transplant programs, projected number of patients, and absence of competition in service planning area (SPA), new kidney transplant program approved at St. Lukes, Jacksonville, District 4, SPA one.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

METHODIST MEDICAL CENTER, INC., )

d/b/a METHODIST MEDICAL CENTER, )

)

Petitioner, )

)

vs. ) Case No. 99-0724

)

ST. LUKE'S HOSPITAL ASSOCIATION )

and AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondents. )

__________________________________)

RECOMMENDED ORDER

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

on July 19 through 23, July 27, 1999, and August 3, 1999, in

Tallahassee, Florida, before Eleanor M. Hunter, a duly-designated

Administrative Law Judge of the Division of Administrative

Hearings.

APPEARANCES

For Petitioner: Geoffrey D. Smith, Esquire

Blank, Rigsby & Meenan, P.A.

204 South Monroe Street

Tallahassee, Florida 32301

For Respondent: St. Luke's Hospital Association:

Michael J. Cherniga, Esquire

Greenberg & Traurig, P.A.

Post Office Drawer 1838

Tallahassee, Florida 32301

For Respondent: Agency for Health Care Administration:

Richard A. Patterson, Esquire

Agency for Health Care Administration

Fort Knox Building 3, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308

STATEMENT OF THE ISSUES

Whether Certificate of Need application (Number 9078) for an

adult kidney transplantation program, filed by St. Luke's

Hospital Association, meets the statutory and rule criteria for

approval.

PRELIMINARY STATEMENT

St. Luke's Hospital Association, d/b/a St. Luke's Hospital

(St. Luke's) is the applicant for a Certificate of Need (CON) to

establish an adult kidney transplantation program in

Jacksonville, Florida, in Agency for Health Care Administration

(AHCA) District 4, organ transplantation service planning area

one. Methodist Medical Center, Inc., d/b/a Methodist Medical

Center (Methodist) is an existing provider of adult kidney

transplants in the same district and the same organ

transplantation service planning area. Methodist filed a

petition in opposition to AHCA's preliminary approval of the

proposed program at St. Luke's.

Previously consolidated Case No. 99-0723 was closed when the

Petition filed by Shands Teaching Hospital and Clinics, Inc.,

d/b/a Shands Hospital (Shands) was dismissed for lack of

standing, as required by Subsection 408.039(5), Florida Statutes.

Shands, in Gainesville, Florida, is located in AHCA District 3,

not District 4, like St. Luke's, although it is in the same organ

transplantation service planning area.

AHCA published its notice of intent to issue the CON in the

Florida Administrative Weekly, dated January 8, 1999. Methodist

challenged AHCA's preliminary action in an Amended Petition for

Formal Administrative Hearing, filed at AHCA on January 29, 1999,

and transferred to the Division of Administrative Hearings

(DOAH), on February 17, 1999. The twelve-volume Transcript of

the final hearing was filed at DOAH on August 20, 1999.

Following Joint Motions and an Amended Motion to Extend Time for

Filing Proposed Recommended Orders, the proposed recommended

orders were filed on September 22, 1999.

At the final hearing, St. Luke's presented the testimony of

Robert Walters, expert in hospital administration; Marilyn Pompi,

expert in nursing and nursing education; Mary Anderson;

Peter Michael Fitzpatrick, M.D., expert in nephrology and

internal medicine; John H. Herrell; Rick Knapp, expert in

financial feasibility; Mark Richardson, expert in health

planning; and Jeffrey Steers, M.D., expert in organ procurement

and liver, kidney, and pancreas transplantation. St. Luke's

Exhibits 1-8, 10-15, and 17-22 were received into evidence.

Methodist presented the testimony of Kevin Cuda;

Thomas Peters, M.D., expert in general surgery, transplant

surgery, particularly kidney transplants and organ procurement;

Richard J. Howard, M.D., expert in transplant surgery, including

kidney transplantation, organ donation, procurement and

allocation, and teaching programs for organ transplantation;

Alan Reed, M.D., expert in transplant surgery, including kidney

and pancreas transplants; Ian Jamieson, expert in administration

and management of organ transplant programs, including kidney

program marketing, financial analysis, data base management and

analysis; Daniel Sullivan, expert in health care planning and

health care finance. Methodist's Exhibits 1-47 were received in

evidence.

On November 5, 1999, St. Luke's filed a Motion to Dismiss

Methodist's Petition for Lack of Standing and Mootness. The

Motion is based on an apparent change in ownership of Methodist

which has become Shands Jacksonville Medical Center, Inc. (Shands

Jacksonville). On November 12, 1999, counsel who also

represented Methodist, filed a Notice of Appearance and Shands

Jacksonville Medical Center, Inc.'s Motion to Substitute Party,

if necessary. The Motion concedes that Shands Jacksonville has

become the license holder for the facility formerly known as

Methodist at which it continues to operate a kidney transplant

program. As an alternative to substitution of the P etitioner,

Methodist filed a Response to Motion to Dismiss for Lack of

Standing and/or Mootness. Methodist cites Subsection

408.039(5)(c), Florida Statutes, as the authority for its

petition to initiate the proceeding to challenge St. Luke's CON

application and argues that its standing continues as established

at the time of the final hearing. Further, a Reply from

St. Luke's, on November 19, 1999, and an Additional Response from

Methodist on November 29, 1999, have been received and

considered.

FINDINGS OF FACT

1. The Agency for Health Care Administration (AHCA) is the

state agency authorized to administer the Certificate of Need

(CON) program for health care facilities and services in Florida.

2. Pursuant to Rule 59C-1.044, Florida Administrative Code,

AHCA requires applicants to obtain separate CONs for the

establishment of each adult or pediatric organ transplantation

program, including heart, kidney, liver, bone marrow, lung, lung

and heart, pancreas and islet cells, and intestines

transplantations. For purposes of determining the need for organ

transplantation services, the State of Florida is divided, by

rule, into four service planning areas, corresponding generally

with the northern, western central, eastern central and southern

regions of the state.

St. Luke's and Existing Providers

3. St. Luke's Hospital Association operates St. Luke's

Hospital (St. Luke's), a 289-bed, non-for-profit hospital with 17

beds for skilled nursing care and 272 acute care beds. St.

Luke's is located on Belfort Road in Jacksonville, Duval County,

Florida, AHCA, District 4, organ transplantation service planning

area one. Available services at St. Luke's include obstetrics,

open heart surgery, neurosurgery, adult bone marrow, and adult

liver transplantation. The transplant services have been added

during the last six or seven years. The severity of the

illnesses and diseases treated at St. Luke's is represented by

its relatively high Medicare case weight of 1.7 in 1997, after

the addition of relatively low intensity obstetrics services.

4. In 1998, St. Luke's applied for CONs to establish adult

pancreas and islet cell, and adult kidney transplant programs.

St. Luke's received the CON to establish the pancreas and islet

cell transplant program. The application for a CON to establish

an adult kidney transplant program is at issue in this

proceeding. The parties stipulated that the letter of intent and

application, for CON Number 9078, to establish the adult kidney

transplant program, were timely filed.

5. Methodist Medical Center, Inc., d/b/a Methodist Medical

Center (Methodist) is a 244-bed acute care hospital, serving

primarily adults, with special units for diabetes, hospice, and

occupational medicine programs. The services do not include

either obstetrics or pediatrics. In 1989, Methodist received a

CON allowing its establishment of kidney transplant services.

6. Methodist is located approximately one and a half miles

north of downtown Jacksonville. Methodist's representatives

contend that an additional kidney transplant program in

Jacksonville, at St. Luke's, is not needed and will be

detrimental to Methodist. St. Luke's, it was argued, will draw

from a limited supply of organs and increase Methodist's

financial losses. Those losses at Methodist were expected to

range between $5 million and $8 million in 1999. Methodist's

accountant described the hospital's financial health as poor to

critical. The kidney transplant program provides a positive

financial contribution at Methodist, largely due to Medicare

reimbursements.

7. At the time of the final hearing, Methodist was managed

by Shands-Jacksonville, an affiliate of Shands Teaching Hospital

and Clinics (Shands) at the University of Florida in Gainesville,

and of University Medical Center in Jacksonville (University

Hospital). Shands is also located in organ transplant service

area one, but Gainesville is in AHCA District 3, not in 4 like

Jacksonville. University Hospital is located across the street

from Methodist and serves essentially the same inner-city, lower

socio-economic population.

8. St. Luke's was first established in the late 1800's.

Previously located directly across the street from Methodist,

St. Luke's was relocated near the intersection of J. Turner

Butler Boulevard at Interstate 95, south of downtown Jacksonville

in 1984. In 1987, St. Luke's became affiliated with the Mayo

Clinic in Jacksonville (Mayo-Jacksonville). The two facilities

share an administrator. St. Luke's receives approximately three-

fourths of its admissions from Mayo-Jacksonville physicians.

9. The Mayo-Jacksonville clinic is located approximately 12

miles from St. Luke's at J. Turner Butler Boulevard and Highway

A-1-A. The multi-specialty and multi-subspecialty clinic, is

staffed by 230 full-time salaried physicians. The governing

board of Mayo-Jacksonville reports to the executive committee of

its sole corporate member, the Mayo Foundation for Medical

Education and Research (Foundation) in Rochester, Minnesota.

10. The Foundation is the parent organization for the

original Mayo Clinic in Rochester (Mayo-Rochester) and its

affiliated hospitals, St. Mary's Hospital (with 1100 beds) and

Methodist Hospital (with 700 to 800 beds), both in Rochester,

Minnesota. In addition to the one in Jacksonville, the

Foundation has also established a clinic in Scottsdale, Arizona

(Mayo-Scottsdale). The Mayo-Scottsdale clinic is affiliated with

a local inpatient hospital. Other related organizations include

the Mayo Medical School and the Mayo Graduate School of Medicine.

Issues Related to Need

11. St. Luke's contends that its transplant surgeons would

increase the total number of kidney transplants in Florida, by

using less than ideal donor organs and by expanding waiting lists

to enhance the possibility of donor/recipient matches.

St. Luke' s expects to overcome some of the usual limitations on

available cadaveric organs because living donors can also be used

to provide kidneys. Finally, St. Luke's maintains that a need

exists for dual transplant programs, particularity the

combination of kidney and pancreas programs.

12. St. Luke's proposes to provide adult kidney transplants

as an alternative to life-long dialysis or death for patients

suffering from end-stage renal disease. Nationally, the number

of dialysis patients increased from 123,822 in 1987 to 287,000 in

1996. The number of patients waiting for kidney transplants

increased from 13,000 in 1987 to 41,000 in 1999. The mortality

for patients on waiting lists also increased from over 1700 in

1996 to over 2000 in 1997. Due to the large and growing demand

for organs, the federal government contracts with the United

Network for Organ Sharing (UNOS) to coordinate the allocation of

cadaveric organs. UNOS has designated five organ procurement

organizations (OPOs) in Florida, one at the University of Florida

in Gainesville (the UF OPO), and the others at centers in

Orlando, Tampa, Fort Myers, and Miami.

13. When cadaveric organs become available and are

retrieved by surgeons from the nearest OPO, UNOS governs the

priority in offering the organs. Organs are offered first to the

United States military transplant centers, second to potential

recipients who are six antigen or "perfect matches," then as

paybacks to OPOs who have provided "perfect matches," and finally

to various categories of other high-grade matches. After the

organ is offered but not taken in the mandatory UNOS sharing

hierarchy, the organ becomes available to local programs within

the procuring OPO.

14. St. Luke's will participate in the UNOS program for

kidneys as it currently does for other organs, and expects to

follow the medical protocols established at Mayo-Rochester, where

kidney transplants have been performed for 30 years. St. Luke's

has included $100,000 in start-up costs for Mayo-Rochester staff

to train the St. Luke's staff. In establishing its successful

liver transplant program, St. Luke's allocated $75,000 for

comparable start-up costs.

15. Rule 59C-1.044(8)(d), Florida Administrative Code,

provides for the determination of the need for new programs, in

part, based on the number of transplants performed at existing

providers, which must exceed 30. An applicant must also provide

a reasonable projection of volume, in excess of 15 a year by the

second year of the proposed new program.

16. Currently, two adult kidney transplant programs are

approved or operational in each of the four service planning

areas of Florida: at Shands in Gainesville and Methodist in

Jacksonville in the north, which is service planning area one and

coincides with the UF OPO; at Southwest Florida Regional in

Fort Myers and Tampa General in western central Florida, which is

service planning area two; at Florida Hospital in Orlando and

Bert Fish Memorial in Volusia County in eastern central Florida,

in service planning area three; and at the Cleveland Clinic

Florida in Broward County and Jackson Memorial in Miami in the

south, in service planning area four.

17. At the time of this hearing, Bert Fish Memorial and the

Cleveland Clinic were approved but not operational. The six

operational Florida programs increased in volume from 442

transplants in 1994 to 641 in 1997, or an average increase of

13.2% a year. However, recent growth has been less dramatic.

Using one year longer to establish a trend, from 1994 to 1998

data, the average annual increase was 9% a year. Kidney

transplant volumes ranged, in 1997, from a low of 45 at Southwest

Florida to highs of 150 at Jackson Memorial and 162 at Tampa

General.

18. From 1994 to 1997, the volume of kidney transplants

within service planning area one increased from 35 to 52 at

Methodist, and from 106 to 127 at Shands. As the parties

stipulated, that volume exceeds the required minimum of 30

transplants at each provider in the service planning area. As

also required by rule and stipulated by the parties, there are no

new approved but not yet operational providers within service

planning area one. Methodist notes that St. Luke's would be the

first Florida program approved in a city which already has an

existing kidney transplant service.

19. The United States Renal Disease System (USRDS) is a

national organization which collects and reports statistics on

patients with end-stage renal disease (ESRD). USRDS is divided

into regional networks, including Network Seven which is the ESRD

Network of Florida, Inc. The Board of Directors of Network Seven

adopted the following motion:

The Network Seven Board of Directors reviewed

the report of the Network's task force

regarding the need for additional renal

transplant resources for Service Area 1.

After a lengthy discussion, the Board

unanimously agreed that the Standardized

Transplantation Ratio for Florida's Service

Area 1 would not justify the establishment of

a new stand-alone renal transplant program in

this area. However, it agreed that the

availability of a multi-organ transplant

service (ie: pancreas and kidney) would be

beneficial to those ESRD patients in residing

[sic] Service Area 1.

20. Two dual organ kidney and pancreas transplant programs

are currently located in Florida, at Shands in Gainesville and at

Jackson Memorial in Miami. Methodist notes that both are

associated with medical schools at teaching hospitals, and are

geographically well-suited to serve north and south Florida.

Methodist's transplant surgeon who is the medical director of its

program, and served on the Network 7 task force, agreed that a

kidney/pancreas program is desirable. Apparently, most pancreas

transplants are also done with kidneys but not vice versa.

Relatively, few kidney/pancreas transplants are performed,

although the number has doubled nationally since 1991. In 1997,

there were 3 kidney/pancreas transplants at Shands, 3 at Mayo-

Rochester and 33 at Jackson Memorial. The low volume of the dual

transplant procedures reflected both medical skepticism and the

absence of insurance reimbursement for the procedure when it was

considered experimental. Having performed six dual transplants

for no charge in 1998, Shands has been able to convince a

majority of its third-party payors in Florida to pay for the

procedure. The federal government, through the Medicare program,

also changed its policy and now reimburses for kidney/pancreas

transplants. As a result, the number of dual transplants is

reasonably expected to increase. No CON is issued, under the

Florida system, to authorize the dual kidney/pancreas program

only. As Methodist noted, St. Luke's did not offer to condition

its CON by limiting itself to a dual transplant program.

21. The standardized transplantation ratio (STR), on which

the Network Seven Board relied, is the ratio of first kidney

transplants to the expected number based on the estimated

national rate adjusted for age. For the four Florida organ

transplant service planning areas, the STRs reported by Network

Seven are as follows:

Region 1 (North) 1.00

Region 2 (West Central) 1.35

Region 3 (East Central) 1.19

Region 4 (South) .66

A STR of 1.0 indicates generally, that a region is performing

transplants as expected based on the national average.

Therefore, the suggestion that the performance is mediocre is

rejected.

22. Methodist supports its argument that no need exists for

an additional kidney transplant program at St. Luke's, based on

Network Seven's finding that the STR for the region is roughly

what should be expected. St. Luke's, however, asserted that the

STR could be raised to the level of region two with the approval

of a new program. In fact, the approval of a program at the

Cleveland Clinic in Broward County, in region four, was supported

by Methodist's expert health planner, among others, in part, by

the desire to raise the STR. That situation can be distinguished

based on geography and the failure in region four to meet

expectations, while a better performance than the national

average is not to be expected necessarily from the approval of

another program in the same city in region one.

23. While the STR is helpful in an analysis of need, Rule

59C-1.044(8)(d), Florida Administrative Code, requires

consideration of the projected transplant volume based on the

number of end-stage renal disease patients. Basically, these are

patients whose kidneys have ceased to function. From June to

December 1998, Network Seven estimated that the number of

patients with kidney failure in service planning area one

increased from approximately 2800 to 3000. Using expected

population growth only, not the historical growth rate, St.

Luke's conservatively estimated in its CON that number of

patients would reach approximately 2900 by the end of the year

2000. Because some patients are not medically appropriate

transplant candidates or will, for other reasons, never receive

the service, St. Luke's used a ratio of patients to project

transplant cases. Using only 20% of patients between ages 14 and

65, St. Luke's reasonably projects a need for over 300 kidney

transplant surgeries in service planning area one in the year

2000. Using population increase and the lower historical growth

rate of 9.5%, St. Luke's established a need for up to 450 kidney

transplants in 2000 in service planning area one. Either number

is sufficient to document St. Luke's ability to perform at least

15 kidney transplants by the end of the second year of operation,

as required by rule. Methodist's expert further reduced by 40%

the number of potential transplant patients to get what the

projected to be the actual number of surgeries. This number is

intended to take into consideration the limited number of

cadaveric organs. The result is, however, unrealistically lower

numbers, in the range of the actual number of surgeries currently

performed in area one and is, therefore, rejected. In fact,

despite the limitations on cadaveric organs, the number of kidney

transplants has continued to increase.

24. St. Luke's experience with liver transplants is also

evidence of its ability to exceed the minimum number of 15 kidney

transplants in the second year of operation. Specifically, St.

Luke's expects to perform 15 kidney transplants in the first

year, and 30 in the second year. More than double the projected

number of Florida residents received liver transplants, 25 or 26

as compared to 12 or 13 cases in the first seven months of that

program at St. Luke's. Compared to projections of 15 liver

transplants in year one, 30 in year two, St. Luke's transplant

surgeons actually performed 113 after 18 months. Significantly,

the volume at Shands has also increased based on the annualized

volume for the first quarter of 1999. St. Luke's also

demonstrated that it is successfully transplanting livers which

were rejected by other Florida programs. Currently, the same

team of transplant surgeons harvests all abdominal organs,

livers, kidneys, and pancreases, but can use only the livers at

St. Luke's. The surgeons who perform the liver transplants a t

St. Luke's will also perform kidney transplants. As a result of

the team's aggressive use of organs and recent changes in federal

government requirements for notice of potential donors and

reimbursement policies, St. Luke's is reasonably expected to

assist in expanding the available supply of cadaveric organs and

in increasing the number of transplant surgeries.

Subsection 408.035(1)(a) - need in relation to district plan

25. The District 4 health plan, developed by the Health

Planning Council of Northeast Florida, Inc., includes preferences

applicable to the evaluation of St. Luke's application.

26. Preference one applies to applicants who will meet

identified needs with acceptable quality in an economical manner.

St. Luke's expert conceded that its proposal will be more costly

and require longer average lengths of stay when compared to that

at Methodist but not as compared to other Florida programs.

St. Luke's projected an average length of stay of 7.6 days at

$50,123 per case, but the Florida average is 10.5 days at

$81,048. No construction is required for implementation of the

project which has a total cost of $238,450. Therefore,

St. Luke's proposal generally meets the requirements of

preference one.

27. Preference two, for applicants who will alleviate a

geographic access problem, is not met by St. Luke's. One

argument advanced by St. Luke's and rejected is that the existing

providers are not using organs at the appropriate rate.

Considering 1997 data, Shands and Methodist appear not to accept

and use kidneys at the expected rate, as calculated and assigned

by UNOS. The reported expected acceptance rate for Methodist is

30.7% in contrast to an actual rate of 11.5%. Shand's assigned

expected rate is reported to be 53.8% but its actual rate of

acceptance is shown as 37.4%. Corrected UNOS data shows the

opposite result, that acceptance rates are higher than expected.

UNOS data is inconsistent and inconclusive. In general, the data

is so unreliable as to have no significant probative value.

28. St. Luke's meets preference three by caring for HIV

positive patients.

29. St. Luke's also demonstrated its access to adequate

staff for a kidney transplant program, meeting the requirement of

preference four. Methodist questioned St. Luke's failure to list

a certified transplant nephrologist on its staff, but physician

services are provided by salaried employees of Mayo-Jacksonville.

30. Preference five favors applicants who demonstrate that

a new service will not have a significant negative impact on

similar facilities. Even though there may be sufficient numbers

of kidney disease patients who qualify for and have access to

transplants in service area one, the geographic overlap of the

programs is an issue of concern related to impact. Methodist

primarily serves transplant service area one patients.

St. Luke's draws 50% of its patients from Duval and the five

surrounding counties, 35% from other areas of Florida, and 15%

from elsewhere, primarily Georgia and the southeastern United

States, but that also includes 3% of international origin. It is

reasonable to expect St. Luke's to maintain approximately the

same patient origin mix in a kidney program. This mix will

require St. Luke's to perform only 8 kidney transplants on

patients from service area one in order to reach the minimum

volume requirement of 15 in the second year, which is actually

projected for the first year. Currently, 16 Mayo-Jacksonville

patients who are on the waiting list for kidney transplants at

Methodist would likely receive transplants at St. Luke's if it

had a program. Taking into consideration growth and applying a

traditional impact analysis, Methodist will lose two to four

cases, and Shands will lose nine cases in the first year of a

competing program at St. Luke's. With that level of impact, both

programs remain substantially above the minimum required by AHCA

rule. One expert equated the loss of ten cases from Methodist,

to a financial loss of $100,000, after reimbursement deductions

and reduced expenses. The overall magnitude of Methodist's

financial losses is so great that the loss of the contribution

from the kidney transplant program is insufficient to affect the

hospital's profitability. Similarly, the loss of nine cases from

Shands leaves volume significantly above the minimum required.

31. Methodist and St. Luke's differ in their reliance on

cadaveric and living donors, which also should help alleviate any

impact of competition for cadaveric organs on the existing

program at Methodist. While Methodist uses 50% living donors,

St. Luke's projects a more traditional mix of 30% living. It is

reasonable to expect that the growth in transplants, and the

differences in patient and organ origins will allow Methodist to

avoid any detrimental effect from the establishment of a program

at St. Luke's.

32. Methodist suggested that the approved program in

Volusia County, and to a lesser extent, that in Broward County

will also be unable to achieve minimum volumes if a program is

established at St. Luke's. Methodist's support for the Volusia

County program, however, lends credence to St. Luke's assertion

that the geographic overlap is minimal. St. Luke's demonstrated

that the number of projected transplants, taking into

consideration the approved programs, is considerably lower than

the expected numerical increase in surgeries. Projections of 30

at St. Luke's, six at the Cleveland Clinic, and 25 at Bert Fish

during the year 2000 are achievable from the projected growth in

kidney transplants. The data also indicates that the Florida

waiting lists for transplant candidates could and should be

expanded. Separate transplant provider lists are coordinated

into the organ sharing list maintained by UNOS. Nationally, 150

people for every one million are on waiting lists for kidney

transplants. That number, even adjusted to exclude older

patients, is double the ratio for the Florida waiting list. Some

expansion is reasonably expected as a result of the establishment

of a new Florida program. The numbers needed and projected at

each program, the differences in projected patient origins, the

ability to expand the waiting list and the absence of an adverse

impact from the establishment of the liver transplant program at

St. Luke's provide some assurance that a kidney transplant

program will not be detrimental to the existing providers.

33. Preference six, for applicants who will maximize

services to rural county residents, is met by St. Luke's service

to surrounding rural areas.

34. In addition to the general health plan preferences for

CON applicants, the District 4 health plan includes specific

preferences for transplant services.

35. The parties stipulated that preferences one and five

for applicants in major population areas (over 250,000) and for

pediatric services are not at issue.

36. Specific preference two applies to applicants with

relationships with a broad spectrum of other health care

providers, including agreements for patient transfers and organ

procurement. In response, St. Luke's refers to its active

participation in the UF OPO. As Methodist notes, however, a

continuation of the existing relationship, with Mayo physicians

performing kidney transplants at Methodist, is the most cost-

effective and non-duplicative alternative. St. Luke's transplant

surgeons will continue to provide coverage for the surgeons at

Methodist.

ansplant-specific preference three favors applicants

who have a significant role in regional and national research

efforts, including by government contracts or research grants.

Methodist insists that a distinction be made between the well-

known work of the Mayo Foundation and that of St. Luke's. The

Mayo Foundation divides its services into three major segments -

medical care, medical research, and medical education. Research

is supported by over $100 million from government agencies and

$80 million from the Foundation. Over a thousand residents and

fellows are enrolled in Mayo educational programs. Over 75

transplant-specific research projects within the Mayo system are

coordinated by a single institutional review board.

38. Admittedly, a non-university facility, St. Luke's does

participate in Mayo educational and research activities. Over 60

Mayo-Rochester physicians, residents, and fellows were rotating

through Mayo-Jacksonville and practicing at St. Luke's at the

time the CON application was filed. St. Luke's separate budget

for basic science research also exceeded $10 million for over 200

active research protocols. The medical research building at

Mayo-Jacksonville exceeds 80,000 square feet in size. For these

reasons, St. Luke's demonstrated that its participation in

educational and research activities satisfies the preference.

ansplant preference four favors applicants with a

specific commitment to provide charity care. In its application,

St. Luke's commits to providing 6% of total kidney transplants to

Medicaid or charity patients. One expert witness noted that

St. Luke's commitment exceeds the statewide volume of 4%

Medicaid/charity kidney transplant patients, which was the

condition for approval of the Bert Fish CON. Most patients with

end-stage renal disease are covered by Medicare.

40. In calendar years 1996-1998, Shands provided over 30%

Medicaid and from 4 to 8% charity care. Methodist provided from

9 to 11% Medicaid and approximately 2% charity care. By

contrast, St. Luke's provided from .7% to 1.2% Medicaid and just

over 2% charity case. St. Luke's meets the preferences by

specifying a reasonable commitment for the kidney transplant

program, although it has historically provided comparatively

insignificant Medicaid and charity care.

41. Since organ transplant service area one includes

Districts 1, 2, and 3, as well as 4, St. Luke's and AHCA also

considered the local health plans for those districts. Both

noted that District 3 has a preference for organ transplant

applicants which are teaching hospitals, as defined by Florida

Statutes. St. Luke's does not meet that preference. It is not a

statutory teaching hospital.

42. On balance, St. Luke's does meet the intent of local

health plans preferences and, therefore, the requirements of

Subsection 408.035(1)(a), Florida Statutes.

Subsection 408.035(1)(b) - increase/improve availability,

access, quality of care, efficiency, utilization,

and adequacy of like and existing facilities in the district

43. In its application, St. Luke's illustrated the concern

for renal patients as follows:

End-stage renal disease is a large and

growing problem in Florida and north Florida.

with 14,168 ESRD patients in Florida and

2,822 ESRD patients in service planning area

one during 1998, with 787 Florida residents

added to the kidney waiting list during 1997,

and with Florida resident deaths due to

diabetes growing to 3,828 deaths by 1997, the

magnitude of the ESRD problem is evident.

St. Luke's Exhibit 1 at p. 96.

St. Luke's plans to serve an increasing pool of patients within

the District and the service planning area.

44. With its aggressive use of organs, St. Luke's can also

increase available cadaveric organs, thus increasing numerically,

the accessibility, availability and utilization of kidney

transplant services in the district. The efficiency of all

providers is also reasonably expected to be enhanced due to the

introduction of competition into the market. Currently, the

relationship between Methodist and Shands is not competitive.

Subsection 408.035(1)(c) - quality of care

45. Modeled after that of the Mayo Clinic Rochester,

St. Luke's kidney transplant program will be emulating a program

with the nation's best survival rates despite its use of organs

which have been rejected by others.

46. St. Luke's is licensed by the AHCA, certified to

participate in the Medicare and Medicaid programs, accredited by

the Joint Commission on the Accreditation of Health Care

Organizations (JCAHO), and certified by UNOS to perform

transplants. The parties stipulated that St. Luke's has a

history of providing a high quality of care. The evidence also

supported a finding that St. Luke's will also provide the same

high quality of care in kidney transplantation services, using

the same physical spaces, by essentially the same staff.

St. Luke's staff will require only specialized kidney transplant

training and equipment.

Subsection 408.035(1)(d) - available and adequate alternatives

47. An alternative to a new kidney transplant provider is

the expansion of the volume of cases performed at existing

providers. There are no physical constraints to the alternative,

only the need for additional staff and supplies. Methodist and

Shands can absorb the projected increase in kidney transplant

surgeries in the service planning area.

48. Given that lack of constraint, the minimum volume

established for existing providers by rule, gives the guidance to

determine whether it is appropriate to expand volumes at existing

providers or to introduce a new provider. Because there is no

competition in the service area in which the existing providers

are well above the minimum volume, and the projected volumes for

the new programs are exceeded by the projected additional

transplants, the establishment of an additional program is

appropriate.

Subsection 408.035(1)(e) - economies and improvements

from joint operative or shared resources

49. The advantages of developing a kidney transplant

program at St. Luke's include:

the ability to utilize the existing

infrastructure which supports the liver and

bone marrow transplant programs; and

the ability to adopt Mayo Rochester's

treatment protocols, standards, and training

resources, and to participate in its research

projects.

50. The only clearly identified disadvantage is the risk of

undermining the cooperation of Mayo-Jacksonville transplant

surgeons with Methodist and the loss of some transplant surgeries

from Methodist and Shands.

51. On balance, the introduction of a kidney program in

Florida, emulating the Mayo-Rochester program, offers a valuable

sharing of Mayo resources.

Subsection 408.035(1)(f) - need for equipment or

services not accessible in adjoining areas

52. St. Luke's proposal will not result in the introduction

of any special equipment or services which are not reasonably or

economically accessible in adjoining areas.

Subsection 408.035(1)(g) - need for research

and educational facilities; (1)(h) - needs of training

programs and schools for health professionals

53. Mayo-Jacksonville has active research, medical

residency, and fellowship training programs in Jacksonville.

Most of the inpatient care associated with the research and

educational programs is provided at St. Luke's. A new program at

St. Luke's offers new educational opportunities for Mayo-

Jacksonville physicians.

Subsection 408.035(1)(h) - availability of personnel

for project accomplishment (see also Rule 59C-1.044)

54. While the statutory criteria generally, considers

whether CON proposals include plans to employ the necessary

personnel, the organ transplant rule gives much greater detail.

As required by rule, St. Luke's has the staff needed to care for

the transplant patients. It offers 24-hour on-site dialysis, and

is staffed by renal care and dialysis nurses, nutritionists,

respiratory therapists, social workers, psychologists, dialysis

laboratory workers and administrators. Physicians include board

and UNOS certified transplant surgeons, anesthesiologists,

pathologists, psychiatrists, nephrologists, endocrinologists, and

immunologists and infectious disease specialists.

55. In addition to the health care professionals needed for

operation of a kidney transplant program, St. Luke's has

significant experience with the data collection process necessary

to evaluate adequately a transplant program. Among the

requirements of the Rule are a 24-hour shared call system for

organ procurement, and clinical review committees, which already

exist. St. Luke's operates a 17-bed intensive care transplant

unit capable of prolonged reverse isolation, if required.

Equipment is available and in operation for cooling, flushing,

and transporting organs, as are an on-site tissue typing

laboratory and an in-house blood bank, as the parties stipulated.

Subsection 408.035(1)(h) - availability of funds

for project accomplishment and

Subsection 408.035(1)(i) - immediate and

long-term financial feasibility

56. The total project cost is $238,450, which covers filing

fees, staff training, and equipment. No renovation or

construction costs are anticipated because St. Luke's has

adequate capacity to implement the kidney program in existing

spaces.

57. Methodist's expert testified that the financial

feasibility of the project cannot be determined due to errors on

Schedule 2 of the CON application and the lack of reliable

utilization projections. As previously determined, the

utilization projections are supported by the projected number of

area one patients with kidney failure who ultimately have

transplant surgeries.

58. Schedule 2 of the CON application lists the capital

project commitments of the applicant. St. Luke's listed projects

which total $35.9 million taken from a "1998 Capital Budget

Request Summary." The total, in excess of $35 million,

represents the budget request summary of just over 34 million,

minus approximately $4 million that had already been spent, plus

a little over $5 million for the two pending CONs and expansion

of an intensive care unit (ICU). The ICU expansion cost of

$500,000, was understated by $766,000. At the hearing, however,

St. Luke's expert testified that he mistakenly listed St. Luke's

"wish list," when he used $34 million, which exceeded "approved"

projects by $17 to $18 million. That total would have been

approximately $16,974,000. The available cash and investments

for St. Luke's, approximately $80 million, is sufficient to cover

the project costs and other capital projects at either $35

million or $16 million, or $21 million if, as asserted at

hearing, the $16 million is understated by $5 million. The

proposal is financially feasible in the short-term, even

considering the decline in available cash and investments to $65

million at the time of the final hearing.

59. In terms of long-term financial feasibility, the

experts considered profits or losses from operations. St. Luke's

experienced losses from operations of $4.5 million, $4 million,

and $12.9 million in the years 1996, 1997, and 1998,

respectively. When investment income is considered, however,

St. Luke's had a positive income figure of $5.2 million in 1997

and losses reduced to $.7 million in 1998. St. Luke's explained

the losses as temporary due to the initiation of costly new

services, the enhancement of information systems, and an increase

in charity care.

60. The charges for kidney transplants at St. Luke's are

expected to equal $57,200 a case, or $1.7 million in gross

revenue for 30 cases at the end of the second year of operations.

The expected charges are reasonable when compared to charges, in

1996, of $50,000 at Mayo-Rochester, $42,000 at Shands, $38,000 at

Methodist, and a Florida average of $81,000. Kidney transplants

continue to receive cost-based reimbursements from Medicare.

From the $1.7 million in gross revenue, St. Luke's expert

projected an incremental profit of approximately $100,000. In

addition, the audited financial statements of the Foundation were

submitted with St. Luke's CON, with a statement of the

Foundation's willingness to fund the project. With over $1

billion in cash and investments and, for 1997, net income over

$31 million, the Foundation is able to assure the short and long-

term financial feasibility of the kidney transplant program at

St. Luke's.

Subsection 408.035(1)(j) - needs of a health

maintenance organization (HMO)

61. Although the Mayo organization includes a licensed

Florida HMO, the proposal is not intended to serve its needs any

more than those of any other potential patients. Mayo-

Jacksonville and St. Luke's have contracts to provide services to

a number of other HMOs.

Subsection 408.035(1)(k) - substantial services

to non-resident of the district or adjacent districts

62. Currently, St. Luke's attracts 51% of its patients from

Duval County, another 21% from the other counties in District 4,

16% from the rest of Florida, and the remaining 12% from outside

of Florida. The patient origin for Mayo-Jacksonville is even

more geographically dispersed than that of St. Luke's, with 22%

of from outside of Florida. By comparison, nearly 99% of

Methodist's patients come from N orth Florida. St. Luke's patient

origin data indicates the reasonableness of its expectation that

15% of kidney transplant patients will come from outside Florida.

St. Luke's, therefore, meets the criterion for substantial

service to non-residents.

Subsection 408.035(1)(l) - impact on costs, effects

of competition on improvements or innovations in

financing and delivering services with quality

assurance and cost-effectiveness

63. St. Luke's expects expanded transplant services to

reduce its overall fixed cost per transplant. The introduction

of a Mayo-affiliated medical program is reasonably expected to

introduce beneficial competition to the market which currently

has no competition. The fact that competition will come from a

nationally-known, very successful program is expected to have a

positive impact on existing programs.

Subsection 408.035(1)(m) - costs and methods

of construction

64. Methodist contends that St. Luke's omission of

architectural drawings or floor plans in the CON makes it

impossible to consider the statutory criteria related to

construction. While St. Luke's failed to include any

architectural drawings, it did include descriptions of the

existing spaces and in-house services which will support the

program. Schedule 1 and 9 of the application show that no costs

are associated with construction, expansion, remodeling or

demolition. Architectural drawings were not submitted and not

required by AHCA for CONs filed by the Cleveland Clinic (kidney

transplant), Tampa General (lung transplant), and University

Medical Center (heart transplant). In each instance, the

facility proposed using existing spaces for the new programs.

Based on AHCA's past practices in comparable circumstances,

St. Luke's appli cation is not flawed due to the absence of

architectural plans.

Subsection 408.035(1)(n) - history of and proposed

services to Medicaid and medically indigent patients

65. St. Luke's has historically provided limited Medicaid

and charity care. See Findings of Fact 39 and 40. St. Luke's

proposal to perform 3% Medicaid and 3% charity kidney transplants

in the second year of operation is the equivalent of one Medicaid

and one charity case. That commitment, however, exceeds the

Florida average and the commitment AHCA required of Bert Fish

program. The commitment made by St. Luke's is adequate for

kidney transplant services.

Subsection 408.035(1)(o) - past and proposed

continuum of care in multi-level system

66. St. Luke's affiliation with Mayo physicians' practices

and the Mayo-Jacksonville clinic allow it to incorporate kidney

transplant services into a multi-level system which includes home

health and outpatient care.

Subsection 408.035(2)(a) - capital expenditures proposals

(a) less costly alternatives; (b) utilization

of similar services; (c) alternatives to new construction;

and (d) serious access problems

67. Subsection 408.032(2), Florida Statutes, defines

capital expenditures as follows:

"Capital expenditure" means an expenditure

including an expenditure for a construction

project undertaken by a health care facility

as its own contractor, which, under generally

accepted accounting principles, is not

properly chargeable as an expense of

operation and maintenance, which is made to

change the bed capacity of the facility, or

substantially change the services or service

area of the health care facility, health

service provider, or hospice, and which

includes the cost of the studies, surveys,

designs, plans, working drawings,

specifications, initial financing costs, and

other activities essential to acquisition,

improvement, expansion, or replacement of the

plant and equipment.

68. In this project, St. Luke's proposes to incur the cost

for kidney transplant equipment to establish the new service.

The least costly alternative is enhanced Mayo participation in

the program at Methodist. Methodist is, however, sufficiently

utilized, well in excess of the rule minimum. No new

construction is required at St. Luke's to implement the kidney

transplant service. Patients will not, however, experience

serious problems with access to kidney transplant services if St.

Luke's is not approved. There are no physical constraints on the

expansion of services at Shands or Methodist.

69. In the absence of physical constraints at existing

providers, but in consideration of their volumes which are well

in excess of that required, the introduction of competition of

the Mayo quality at such low cost is, on balance, desirable for

the health care system.

CONCLUSIONS OF LAW

70. The Division of Administrative Hearings has

jurisdiction over the parties and the subject matter of this

proceeding pursuant to Subsections 120.57(1) and 408.039(5),

Florida Statutes.

71. The applicant, St. Luke's, bears the burden of

establishing, by a preponderance of the evidence, its entitlement

to a certificate of need (CON) to establish a new kidney

transplant program in service planning area one, given a balanced

consideration of the applicable statutory and rule criteria must

be made. Boca Raton Artificial Kidney Center, Inc. v. Department

of Health and Rehabilitative Services , 475 So. 2d 260 (Fla. 1st

DCA 1985); and Florida Department of Transportation v. J.W.C.,

Inc. , 396 So. 2d 778 (Fla. 1st DCA 1981).

72. Methodist established its standing pursuant to

Subsection 408.039(5)(b), Florida Statutes, to initiate and

maintain its challenge to the preliminary decision to approve

St. Luke's CON. As an existing licensed provider of kidney

transplant services in the same district as St. Luke's, Methodist

would treat patients who will go to a program at St. Luke's.

Methodist is also in dire need of every patient for whose case it

received positive financial contribution, which includes kidney

transplant patients. Methodist did not and was not required to

show that the loss of the kidney program is, in and of itself

determinative of its solvency. Methodist established its

standing, nevertheless, as liberally construed by AHCA in

Paracelsus Peninsula Medical Center, Inc. v. Agency for Health

Care Administration , DOAH Case No. 92-5100 (F.O. 6/6/94). The

Motion to Dismiss Methodist for Lack of Standing is denied. The

Motion to Substitute Party is granted.

73. By a preponderance of the evidence, St. Luke's

established that its CON application on balance, meets the

requirements of the district health plan, as required by

Subsection 408.035(1)(a). St. Luke's program will introduce a

cost-efficient, high quality competitor to the market, although

it will not alleviate the geographic access problem. St. Luke's

program is not likely to have a detrimental impact on the

programs at Methodist, Bert Fish, or Shands. The effect is

minimal in light of existing volumes and projected increases in

the number of transplant patients. St. Luke's serves patients

with HIV, patients from rural areas, and included in its proposal

an adequate and appropriate commitment to serve Medicaid and

charity kidney transplant patients, in compliance with the health

plans and Subsection 408.035(1)(a), Florida Statutes.

74. St. Luke's, the parties stipulated, is in a large

metropolitan area and will not take pediatric kidney transplant

patients. Although not a teaching hospital as required by one

preference, St. Luke's has major educational and research

components.

75. St. Luke's, based on its experience with liver

transplants, is expected to increase the utilization of cadaveric

kidneys and to enhance efficiency by introducing competition to

the market. See Subsection 408.035(1)(b), Florida Statutes.

76. The quality of care at St. Luke's is and, in the kidney

transplant program, is expected to be excellent. See Subsection

408.035(1)(c), Florida Statutes.

77. There are no viable alternatives to impatient kidney

transplants for end-stage renal disease patients, although

existing inpatient facilities could absorb the expected increase

in patients if capacity were the sole consideration. See

Subsection 408.035(1)(d), Florida Statutes.

78. St. Luke's ability to share Mayo-coordinated protocols

and research is a benefit to the local service planning area,

which will not affect the coverage provided by Mayo physicians at

Methodist. See Subsection 408.035(1)(e).

79. St. Luke's will not introduce special equipment or

services which are not accessible in adjoining areas. See

Subsection 408.035(1)(f).

80. The kidney program at St. Luke's will be part of a

research, educational, and training facility. See Subsections

408.035(1)(g) and (h).

81. Whether provided by St. Luke's or the Mayo Foundation,

St. Luke's demonstrated that it has the staff and funds to

establish the kidney transplant program, despite its failure to

clearly support any one of two different scenarios related to

Schedule 2. St. Luke's also showed a positive financial

contribution for the establishment of the proposal. The project

is financially feasible in the short and long term. See

Subsections 408.035(1)(h) and (i), Florida Statutes.

82. St. Luke's project will not meet the needs of an HMO.

See Subsection 408.035(1)(j), Florida Statutes.

83. Over one-fourth of St. Luke's patients originate

outside the district, approximately half of them from outside the

state. See Subsection 408.035(1)(k), Florida Statutes.

84. The expected decline in overall cost per implant at

St. Luke's and positive effect on competition c omply with the

statutory criterion. See Subsection 408.035(1)(l), Florida

Statutes.

85. No construction costs are required and, therefore, no

construction plans needed, given the description of the existing

spaces in which transplant services are provided. See Subsection

408.035(1)(m), Florida Statutes.

86. St. Luke's history of providing Medicaid and charity

care is not impressive, but its commitment for the kidney

transplant program is adequate. See Subsection 408.035(1)(n),

Florida Statutes.

87. St. Luke's provides a continuum of services in a multi-

level health care system. See Subsection 408.035(l)(o), Florida

Statutes.

88. St. Luke's is the least costly alternative for the

establishment of a new program with no construction, although

capacity exists at current providers. There is no evidence that

patients will experience serious problems in gaining access to

kidney transplants without issuance of St. Luke's CON. In

general, St. Luke's could not be approved based on the criterion

in Subsection 408.035(2)(a)-(d), Florida Statutes.

89. Taking a balanced consideration of the criteria,

St. Luke's, in large part, based on the strength of its Mayo

relationships and the success of its liver transplant program,

meets the statutory and rule criteria for approval of a CON to

establish kidney transplant services

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED

That a final order be entered issuing CON 9078 to establish

a new adult kidney transplant program at St. Luke's Hospital in

Jacksonville.

DONE AND ENTERED this 17th day of February, 2000, 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]

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 17th day of February, 2000.

COPIES FURNISHED:

Sam Power, Agency Clerk

Agency for Health Care Administration

Fort Knox Building 3, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308

Julie Gallagher, General Counsel

Agency for Health Care Administration

Fort Knox Building 3, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308

Richard A. Patterson, Esquire

Agency for Health Care Administration

Fort Knox Building 3

2727 Mahan Drive, Suite 3431

Tallahassee, Florida 32308

F. Philip Blank, Esquire

R. Terry Rigsby, Esquire

Geoffrey D. Smith, Esquire

Blank, Rigsby & Meenan, P.A.

204 South Monroe Street

Tallahassee, Florida 32301

Michael J. Cherniga, Esquire

Seann M. Frazier, Esquire

Greenberg Traurig, P.A.

Post Office Drawer 1838

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.