02-000454CON Hca Health Services Of Florida, Inc., D/B/A Oak Hill Hospital vs. Agency For Health Care Administration And Hernando Hma, Inc., D/B/A Brooksville Regional Hospital Status: Closed Recommended Order on Tuesday, December 24, 2002.

Summary: Hernando demonstrated need to replace and relocate hospital to site three miles from existing location. Error in project cost in letter of intent is not significant. Applicants (audited) financial statements are required by and submitted to AHCA.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HCA HEALTH SERVICES OF )

FLORIDA, INC., d/b/a OAK HILL )

HOSPITAL, )

)

Petitioner, )

)

vs. ) Case No. 02 - 0454CON

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION and HERNANDO HMA, )

INC., d/b/a BROOKSVILLE REGIONAL )

HOSPITAL, )

)

Respondents. )

__________________________________)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings,

by its designated Administrative Law Judge, Eleanor M. Hunter,

held a final hearing in the above - styled case on June 3 - 7 and

10 - 14, 2002, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Stephen A. Ecenia, Esquire

R. David Prescott, Esquire

Rutledge, Ecenia, Purnell & Hoffman, P.A.

215 South Monroe Street, Suite 420

Post Office Box 551

Tallahassee, Florida 32302 - 0551

For Respondent Hernando HMA, Inc., d/b/a Brooksville

Regional Hospital:

James C. Hauser, Esquire

Susan C. Hauser, Esquire

Metz, Hauser & Husband, P.A.

215 South Monroe Street, Suite 505

Post Office Box 10909

Tallahassee, Florida 32302 - 2902

For Respondent Agency for Health Care Administration:

Gerald L. Pickett, Esquire

Agency for Health Care Administration

525 Mirror Lake Drive, No rth

Sebring Building, Suite 310H

St. Petersburg, Florida 33701

STATEMENT OF THE ISSUE

Whether Certificate of Need (CON) Application Number 9478

filed by Hernando HMA, Inc. (HMA or Hernando HMA), d/b/a

Brooksvi lle Regional Hospital (Brooksville Regional) for approval

to replace and relocate its existing 91 - bed hospital in Hernando

County, Agency for Health Care Administration (AHCA) District 3,

Subdistrict 6, meets the applicable criteria for approval.

PRELIMINA RY STATEMENT

In September 2001, Hernando HMA filed CON Application Number

9478 to relocate and rebuild Brooksville Regional on a different

site, approximately three miles from its current location, in

Hernando County. AHCA published its intent to approve the

application in the Florida Administrative Weekly, Volume 27,

Number 52, on December 28, 2001.

On January 18, 2002, HCA Health Services of Florida, Inc.,

d/b/a Oak Hill Hospital (Oak Hill) timely filed a Petition for

Administrative Hearing to contest the action of AHCA. The

Petition with a request to assign an administrative law judge

(ALJ) was forwarded to the Division of Administrative Hearings

(DOAH) on February 5, 2002. Initially set for hearing on May 21 -

24 and 27 - 31, 2002, by the previously ass igned ALJ, the case was

re - scheduled for the following week by the current ALJ due to

scheduling conflicts and difficulties in securing court reporters

for a holiday.

At the final hearing, Brooksville Regional presented the

testimony of Wittie E. McNeil; C hristopher A. Kingsley;

Gary Bell; Robert Foreman; Ted Lincks, expert in transportation

engineering; Joe Nelson, M.D., expert in emergency medicine and

emergency medical services; Susan Frimmel; Jacqueline Lindsey,

M.D., expert in emergency medicine and qu ality assurance;

Thomas Barb, expert in hospital administration and operations;

Russell Heiken, expert in mechanical engineering; Kerry Blind,

expert in landscape architecture, land planning, and

environmental design; Kenneth Rigby, expert in electrical

en gineering; Chuck Braun, expert in hospital architecture and

hospital building costs; Donald Lacey, Jr., expert in land use

planning; Clifford Manuel, expert in civil engineering; Daniel J.

Sullivan, expert in health care planning and health care finance;

a nd Jaime Wesolowski. Brooksville Regional and AHCA jointly

presented the testimony of Jeffrey N. Gregg of AHCA, an expert in

health planning, CON review, and health care regulation.

Brooksville Regional's Exhibits 1 - 20, 22 - 27, 29 - 36, 38 - 42, 44 - 59,

63, an d 69 were received in evidence.

Oak Hill presented the testimony of Jaime Wesolowski, expert

in hospital administration; Patricia Greenberg, expert in health

care planning and health care finance; and Rick D. Knapp, expert

in health care finance and accoun ting. Oak Hill's Exhibits 1 - 26

were received in evidence.

The transcript of the final hearing was filed on August 23,

2002. After an unopposed request for an extension of time was

granted, the parties filed proposed recommended orders on

September 23, 20 02. HMA's Memorandum of Law was also filed on

that date. It included a request for judicial notice that Oak

Hill has terminated its OB program.

On October 1, 2002, Oak Hill Hospital's Motion to Strike

Portion of HMA's Proposed Recommended Order and Respo nse to HMA's

Request for Judicial Notice was filed, opposing the Request which

relied for factual support of the matter to be noticed on a

newspaper article published after the conclusion of the final

hearing. HMA's Response in Opposition to Oak Hill's Mo tion to

Strike Portion of Brooksville's Proposed Recommended Order was

filed on October 4, 2002. The Motion to Strike is granted and

the Request for Judicial Notice is denied. Page 9 of the

Memorandum of Law, Attachment C to the Memorandum, footnote 2 of

Brooksville's Proposed Recommended Order, and Attachment 2 to

Brooksville's Proposed Recommended Order are stricken.

FINDINGS OF FACT

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

state agency authorized to administer the certificate of nee d

(CON) law in Florida. AHCA is the designated state health

planning agency. See Subsections 408.034(1) and 408.035(1),

Florida Statutes.

2. AHCA Health Services Planning District 3 is composed of

Hamilton, Suwannee, Lafayette, Dixie, Columbia, Gilchris t, Levy,

Union, Bradford, Putnam, Alachua, Marion, Citrus, Hernando,

Sumter, and Lake Counties. See Subsection 408.032(5), Florida

Statutes.

3. Within District 3, Hernando County is designated acute

care subdistrict 6. The three acute care hospitals in the County

are Hernando HMA, Inc., d/b/a Brooksville Regional Hospital

(Brooksville Regional) which was previously operated under the

name of Lykes Memorial Hospital, Spring Hill Regional Hospital

(Spring Hill), and HCA Health Services of Florida, Inc., d/ b/a

Oak Hill Hospital (Oak Hill).

HMA

4. Hernando HMA is the applicant for CON Number 9478 to

replace and relocate Brooksville Regional, an existing 91 - bed

hospital in Brooksville, Florida. Constructed over a 40 - year

time period to a maximum size of 16 6 beds, Brooksville Regional

is currently licensed to operate 91 beds. In the early 1990s, 75

beds were transferred from Brooksville Regional to establish

Spring Hill. Spring Hill is located in southwest Hernando County

near the Hernando/Pasco County lin e.

5. Health Management Associates, Inc., the parent of

Hernando HMA, is a publicly traded for profit corporation, with

headquarters in Naples, Florida. Hernando HMA leases and

operates, under a single state license, both Brooksville Regional

and Spring Hill. Both are owned by Hernando County. In 1998,

the County entered into a 30 - year lease agreement for HMA to

assume the management of the hospitals which were then bankrupt.

HMA acquires primarily non - urban area hospitals in need of

capital and/or new management strategies to reverse patient out -

migration. The corporation owns or operates 43 hospitals in 14

states, including 13 in Florida. HMA has rebuilt and replaced 8

of the 43 hospitals it has acquired since its establishment in

1977.

6. In addit ion to Brooksville Regional and Spring Hill, in

Hernando County, HMA also operates Pasco Regional Medical Center

(Pasco Regional), in adjacent northeast Pasco County, in AHCA

D istrict 5. See Subsection 408.032(5), Florida Statutes. Pasco

Regional, a 120 - bed hospital located on U.S. Highway 301, in Dade

City, Florida, serves residents of eastern Hernando and Pasco

Counties who reside along the four - lane corridor, in the

communities of San Antonio, St. Leo, Trilby, Lacoochee, Ridge

Manor, Dade City, Zephyrh ills, and Wesley Chapel. Because of the

emergency medical transport policy of taking patients to the

nearest hospital, over 85% of those transported from eastern

Hernando County are taken to Pasco County hospital emergency

rooms.

7. Hernando HMA's 1998 l ease agreement with Hernando County

required HMA to pay the debts necessary for the hospitals to

emerge from bankruptcy, to provide Medicaid and charity care for

Hernando County residents, and to provide $25 million in capital

improvements to the two hospi tals. To date, $15 million has been

spent, $7 million for improvements to Brooksville Regional and $8

million for Spring Hill. Under the terms of the lease, the

proposal to relocate the hospital required County approval. At a

meeting held on September 2 5, 2001, Hernando County Commissioners

vote unanimously to allow the filing of CON Number 9478.

8. Hernando HMA proposes to replace and relocate

Brooksville Regional to a 95 - acre site on which it has a purchase

option for $25,000 an acre. The total est imated project cost is

$52 million, $33 million of that for construction. The parcel is

located at the intersection of Lykes Dublin Road and a four - lane

stretch of State Road 50. The proposed new site is 2.7 miles

west of the existing site and 1.8 miles west of Cobb Road where

the southern Brooksville City bypass of State Road 50 ends. HMA

has agreed to donate the hospital, and approximately 25 acres of

underlying and surrounding land to Hernando County. HMA will

continue, under the terms of the lease, to manage the hospital,

and also plans to build medical offices on the remainder of the

parcel of land.

9. Brooksville Regional is currently located, on

approximately 11 acres on Ponce De Leon Boulevard in downtown

Brooksville, a mile east of the State Ro ad 50 bypass and one -

tenth of a mile from U.S. Highway 41 which is being increased

from four to six lanes. The City of Brooksville opposes the

relocation of the hospital to the new site which is 1.5 miles

beyond the city limits.

Oak Hill

10. Oak Hill is a 204 - bed hospital, located just off State

Road 50, in western Hernando County. Oak Hill was constructed 18

years ago on a 40 - acre campus which includes two medical office

buildings, related structures for staff offices and plant

operations, and a cancer institute. Oak Hill is approximately

five miles west of Brooksville's proposed new site, and eight

miles west of its existing location.

11. Oak Hill, like many Florida hospitals, experiences

seasonal variations in occupancy. Typically, utilization re aches

up to 90% in the first quarter of the year and goes down to 60%

in the fall. Occupancy rates have been growing approximately 4%

a year from 1997 to 2000, but from 2000 to 2001, patient days at

Oak Hill increased 8%.

12. Oak Hill has also recently received CON approval to

establish an open heart surgery program, which is expected to

reverse the out - migration of open heart surgery and other cardiac

patients, primarily to another HCA facility, Bayonet Point in

Pasco County. Bayonet Point is 17 miles or a 30 - minute drive

from Oak Hill. With the anticipated reversal of some out -

migration, and a 2% annual increase in patient days, Oak Hill

will have over 100% occupancy in the first quarter of 2005, going

down to 74% occupancy in the fall of that year.

13. Oak Hill opposes the proposal to relocate Brooksville

Regional. Oak Hill asserts (1) that the proposed new location is

less desirable than alternative sites suggested by the City of

Brooksville; (2) that Brooksville Regional failed to demonstrate

tha t replacement rather than renovation of the existing building

is necessary; (3) that the proposed site will decrease access for

residents in eastern Hernando County; and (4) that the

replacement and relocation will adversely impact Oak Hill.

14. The pu blished fixed need pool for the subdistrict

indicated no need for additional acute care beds. Brooksville

Regional's proposal to relocate, but not add beds, is not

inconsistent with the fixed need pool.

15. CON review is required and is not expedited in this

case because Brooksville Regional is proposing to relocate to a

different site which is more than one mile from its current site.

Review criteria

16. The parties, in a prehearing stipulation, agreed that

Brooksville Regional and Oak Hill have good records of providing

quality care and can be expected to continue, as required by

Subsections 408.035(2) and (3), Florida Statutes (2001).

17. The parties agreed that Brooksville Regional's staffing

projections are reasonable and sufficient based on its p rojected

utilization, but Oak Hill disputed the accuracy of the

utilization projections.

18. The parties agreed that the design and schematic

drawings for the new hospital are reasonable.

19. The parties acknowledged that there will be an adverse

impact on Oak Hill as a result of a loss of some employees,

physicians, and patients, the magnitude of which has to be

considered under Subsection 408.035(9), Florida Statutes (2001).

20. The parties stipulated that Brooksville Regional has

sufficient resources, including personnel and funds, to

accomplish the project and operate the facility, as required by

Subsection 408.035(6), Florida Statutes (2001).

21. The parties agreed that Subsection 408.035(5), related

to the needs of research and educational faciliti es; and

Subsection 408.035(12), Florida Statutes (2001), related to

nursing home beds, are not at issue in this proceeding.

22. The parties stipulated that, at issue, are the criteria

in Subsections 408.035(1), (2), (4), (7), (8), (9), (10), (11);

and Sub sections 408.037(1)(b)3. and (c), Florida Statutes (2001);

and Florida Administrative Code Rules 59C - 1.008(3) and (5), 59C -

1.030(2)(a) through (f), and 59C - 1.038(6)(a).

District health plan

23. District 3 health plan criteria related to the

establishment or expansion of services, the establishment of

services in a community with no current service, the addition of

beds, and the establishment of new facilities are not applicable

to this project. Oak Hill's health planning consultant noted,

however, that c riteria related to bed transfers could also relate

to a proposal to relocate an entire hospital. Those

considerations include whether Medicare and private pay markets

of disproportionate share charity and Medicaid hospitals will be

adversely affected, whe ther access generally, and access

particularly for Medicaid and indigent patients, or other

traditionally underserved groups, will be improved. The criteria

also overlap those in other applicable statutes and rules. See

also Subsections 408.035(2), (7), and (11), Florida Statutes

(2001); Rule 59C - 1.038(6)(a) and Rule 59C - 1.030(2)(a) through

(f), Florida Administrative Code. Other relevant considerations

include whether the transfer is needed and is more cost - efficient

than renovation or expansion of the existing facility, and

whether the proposal is financially feasible. See also

Subsections 408.035(1), (4), (8), (9), and (10), Florida Statutes

(2001).

Medicaid and indigent care

24. Hernando HMA, at Brooksville Regional and Spring Hill

combined, provid ed approximately 71% of total charity care in the

County in 2000, and 79% in 2001. Brooksville Regional is a

disproportionate share provider of Medicaid, having provided

approximately 8% of its total care to Medicaid patients.

25. Brooksville Regional se parately provided more Medicare,

but half as much Medicaid as Spring Hill which, unlike

Brooksville Regional, has obstetrics and neonatal intensive care

programs which typically provide services to a large number of

economically disadvantaged mothers and n ewborns.

26. Oak Hill provided the remaining 20 to 30 percent of the

charity care in Hernando County. Approximately 6% of Oak Hill's

patients are in the Medicaid payor category, but Oak Hill is not

a disproportionate share provider. Oak Hill provided al most 2%

of its total revenues for charity care in 2000, and its Medicaid

care increased from approximately $7.4 million in 2000, to $12.3

million in 2001.

27. Although Hernando HMA did not offer a CON condition

related to a specific level of Medicaid and charity care, its

historic levels and Hernando County's continued

ownership of the hospital provide the assurances required by the

criteria.

Geographical access

28. Hernando County had a population of 130,810 people in

2,000, which increased to 136,552 in February of 2002, and is

projected to be 159,400 people in 2010. There are 7,227

residents of the City of Brooksville, and 129,313 in

unincorporated areas of the County. The population is more

dense, more growth is projected, and more development is allowed

under the comprehensive plan, in the central and western portions

of the County.

29. The population in the zip codes east of Interstate 75

was, in 2001, 4,301 of the total of 132,590. By 2010, the

eastern area is projected to have 1,295 more peop le as compared

to a projected increase of 19,401 people in areas west of Highway

41. The projected areas of most intense population growth are in

western Hernando County, clustered around U.S. Highway 19, to the

north of State Road 50, and Highway 41, to the south of State

Road 50. These are also areas with a high concentration of the

population over 65 in a "retirement belt."

30. East of Interstate 75, the population of Hernando

County is more sparsely settled, younger, and has a lower

mortality rate. More eastern area residents who need inpatient

acute care, on an elective or emergency basis use the closest

hospitals, Pasco Regional in Dade City and East Pasco Community

Hospital (East Pasco) in Zephyrhills. In recent years, the trend

towards utilizat ion of Pasco county hospitals by eastern Hernando

County residents has increased. Residents in the area also use

hospitals in Lake County.

31. The Hernando County Board of County Commissioners hired

Tribrook Healthcare Consultants to report on the reloca tion

proposal, including consideration of access for residents of

eastern Hernando County. Residents of the three eastern zip

codes accounted for 83 discharges from Hernando County hospitals

from the second quarter of 1999 through the first quarter of

200 0. Of those, 43% or 36 discharges were from Brooksville

Regional, 18% or 15 from Spring Hill, and 39% or 32 from Oak

Hill. For the year ending June 30, 2001, fifty - three discharges

from Brooksville Regional and 28 from Oak Hill originated in the

three ea stern zip codes.

32. From January through August 2001, the Hernando County

Fire and Rescue service responded to 259 emergency health care

calls from the eastern area, which represents approximately 5% of

its total volume of 4,863 transports. Of the 259 t ransports, 109

people were taken to the emergency room (ER) at Brooksville

Regional, and an equal number to the Pasco Regional ER, 14 to the

East Pasco ER, and eight to the Oak Hill ER. Level one trauma

patients, such as those with severe injuries from In terstate car

accidents, are air lifted to trauma centers at Orlando hospitals,

Tampa General Hospital or Bayfront Medical Center in

St. Petersburg.

33. If Brooksville Regional is relocated to the proposed

new site, the increase in average peak travel ti mes from various

locations in the County will range from four to six minutes, for

total average travel times ranging between 10 and 21 minutes.

For the majority of the County residents, the average peak travel

times will decrease, saving from one to six m inutes, since the

new location is closer to more densely populated residential

areas. The acute care travel time goal is to have most residents

able to reach the service within 30 minutes. The standard is

already met and will, with Brooksville Regional's proposed

relocation, continue to be met in District 3, Subdistrict 6.

34. The residents of the County in the eastern areas will

not be adversely affected by the relocation because relatively

few use Brooksville Regional, and because, for many residents

a long the U.S. 301 corridor, Pasco Regional is more accessible.

35. In addition, in return for approval of the Brooksville

Regional relocation proposal, Hernando County required HMA to

purchase an ambulance with advanced life support equipment to

station i n the eastern area near Interstate 75. There is

credible evidence that, in some cases, the time it takes for

paramedics to reach an emergency patient and begin treatment can

be more important in saving lives than the actual travel time to

a hospital emerg ency room.

36. The conditions imposed by the County also required a

$20,000 contribution from HMA for an indigent patient clinic and

recruitment of a physician to staff a clinic in the eastern area.

Relocation and replacement vs. renovation;

alternative s ites

37. The proposed relocation site was criticized as

inappropriate geologically. The property includes wetlands.

Agricultural land across the street drains through a ditch under

the road into a pond on one corner of the property. The

elevation of t he land at State Road 50 is 90 feet above sea

level, increases to 95 feet but then slopes down to 65 feet at

Wiscon Road. There are sinkhole - like depressions towards the

back of the property. To meet state disaster preparedness

standards, the elevation of a hospital must be equal to or above

the major thoroughfare leading to the entrance.

38. Brooksville Regional can be constructed on the proposed

site with its main entrance facing and above the elevation of

State Road 50. Other entrances can also be elevated using fill

dirt.

39. In general, the site meets the County land use criteria

and has sufficient uplands. It also meets the criteria developed

by HMA and its land planning consultant for (1) a minimum of 40

acres, (2) the potential for traffic si gnalization, (3) proximity

to population growth centers, and (4) good visibility from

passing traffic.

40. Currently, Brooksville Regional is located on 11 acres

in two separate three - story towers connected through a central

building on the ground floor. The building is constructed from

10 to 15 feet below the street it faces, Ponce De Leon Boulevard.

The entrance floods in heavy rains and lacks good visibility from

street traffic.

41. During the last four years, improvements at Brooksville

Regional hav e included a new roof, lobby renovations, electrical

upgrades in the operating room, the installation of new air

handlers, and substantial investments in new equipment.

42. Despite the improvements, the physical plant cannot be

renovated to meet current c odes and the layout of the building

inevitably results in inefficiencies. Oak Hill noted, however,

that the building is not technically violating any code but is

"grandfathered." In addition, none of deficiencies affect

Brooksville Regional's ability to provide excellent care, as

measured by it score of 97 out of 100 on the most recent survey

by the Joint Commission on Accreditation of Health Care

Organizations.

43. Patient corridors, in one tower, are less than eight

feet wide as required by the Nationa l Life Safety Code. The

building is not in compliance with the Americans With

Disabilities Act (ADA). The parking area exceeds the level for a

ramp to the building. Electrical, heating, ventilation and air

conditioning (HVAC) systems require major upgra des to meet codes.

Improvements are limited by the inadequately sized ceiling spaces

for ductwork and pipes. The HVAC inefficiencies are estimated to

cost Brooksville Regional from $400,000 to $500,000 a year.

44. The major functional inefficiencies at Brooksville

Regional result from the configuration in two separate towers.

Staff must cross the central core and use one of two elevators in

each tower to provide care, deliver food, remove trash and soiled

linens, and transport patients. The elevators and corridors are

shared with visitors. The separate towers divide patients into

smaller, inefficient groupings which require more staff.

45. One witness cited a cost estimate of $250,000 for a

pedestrian walkway to connect the second and third floors o f the

two towers. Oak Hill criticized the absence of any other cost

estimates for renovation of the existing building. If any major

renovations are undertaken, all "grandfathered" code exemptions

will be lost. The hospital would have to be closed and re built.

46. Inadequate space compromises patient privacy in various

areas, including the emergency room and surgical suite. Spaces

are inadequate for modern equipment in appropriate locations, so,

for example, a CT scan, is located outside the radiology

d epartment, and 140 feet from the emergency room

47. Brooksville Regional proposes to increase the size of

the radiology department from approximately 6,400 square feet in

the existing building to 16,000 square feet in the new building.

Operating rooms cu rrently range from 245 to 345 square feet as

compared to code requirements of 450 to 600 square feet, with the

larger rooms necessary to accommodate surgeries, such as

orthopedics, which require larger equipment. The total size of

surgical department is a pproximately 6,200 square feet while the

guidelines suggest it should be 10,800 square feet. The new plan

includes 6,300 square feet for the pharmacy and laboratory

combined, which now occupy approximately 3,000 square feet.

Overall, the new building wil l be almost 182,000 square feet,

65,000 square feet larger than the existing facility. The new

plan also offers all private patient rooms, except one semi -

private room, consistent with the current industry trend which is

intended to allow family members t o spend the night with

patients. The design is taken from a prototype used by HMA to

construct five other replacement hospitals in the last five

years. Therefore, HMA is certain that the estimated construction

cost is reasonably accurate and that the des ign works well for

patients, visitors, and staff.

48. Considering the deficiencies in the current structure

which could only be corrected by closing the hospital completely

and rebuilding it on site, taking five to six times as long as

construction of a n ew facility, renovation of the existing

structure is not a viable alternative.

49. The City of Brooksville suggested other sites it

favored over that selected by Brooksville Regional. The first

parcel examined was 32 acres, not HMA's required minimum of 40

acres for the prototype. It would require assembling separate

parcels and closing streets. The second, with 49 acres, is

located on a two - lane city street and has a large pond in the

center of the tract. A third, with 55 acres, would have to be

share d with a post office carrier facility and lacks good

visibility because of its location on a curve. The fourth site

has 38 acres, but is too narrow for the prototype and is well

below the elevation of State Road 50. The fifth tract is south

of the fourth . It has 46 acres which, if acquired with the 38

acres to the north would be more than adequately sized, but is

even lower than the parcel to the north and has a lake in the

center. A sixth site with 66 acres is too long and narrow for

the prototype.

50 . Finally, the City suggested assembling more parcels

surrounding the existing building, which would require the

acquisition of 38 to 40 lots, but that tract would be long and

narrow. As previously noted, the hospital would have to close

for reconstructi on for a substantially longer period of time than

required for new construction. The possibility that the City

would donate a portion of an adjacent park was discussed but it

was never formally offered. It is also currently the location of

fire and polic e stations. That acquisition also would have

required the condemnation of roads.

Costs, financial feasibility, adverse impact

and cost - effectiveness competition

51. The cost for the new facility is estimated at $52

million. The parties stipulated that HMA can fund and operate

the project. And, though previously bankrupt, Brooksville

Regional had pre - tax profit of $5 million in 2001.

52. The financial feasibility of the project was

questioned. Oak Hill's expert criticized an underlying

assumption tha t Medicare reimbursement would increase 6.4% from

the first to second year. Taken in isolation, the increase looks

unrealistic, but viewed over the entire time period from the base

year to the second year of operation, the average annual rate of

inflation is 2.5%, and is reasonable, as is the resulting

projected Medicare revenues.

53. Brooksville Regional's financial schedules included a

management fee of 3% of gross revenues, although HMA has recently

charged up to 4% to individual hospitals. HMA can a ssess a

management fee of 3% rather than 4%, which one of its officers

described as conservative considering that its actual corporate

overhead is less than one percent of revenues. The assessment is

based on tax considerations more than on actual costs.

54. In addition to the management fee, Brooksville

Regional's start - up costs, equipment costs, and depreciation

costs were questioned as too low. Even when deducted from

projected revenues, however, the additional expenses do not

render the project finan cially infeasible.

55. The proposed project is financially feasible

considering either the CON - projected incremental increases in

profit, $437 thousand in the first year and $868 thousand in the

second year, or the revised estimates in HMA/Brooksville

R egional's Exhibit 56. In Exhibit 56, the projected increase in

profits, after relocation, are $860 thousand in the first year

and $1.3 million in the second year. See Conclusion of Law 79.

56. Brooksville Regional currently operates at a

competitive di sadvantage. In 1999, Brooksville Regional had

3,758 discharges, which increased to 3,794 in 2000. By contrast,

Oak Hill increased its discharges from 10,575 in 1999, to 11,376

in 2000, and up to 12,743 in 2001. Excluding approximately 400

newborns, the increase in discharges is not entirely attributable

to population growth. It also reflects Oak Hill's increase in

market share. Overall occupancy rates were 80% at Spring Hill,

70% at Oak Hill, and 62% at Brooksville Regional in 2001.

57. If the new hos pital is built, Brooksville Regional

projected it would have 405 more discharges in the first year of

the project and 413 more in the second year, for an increase in

revenue of $1.3 million in the second year. Oak Hill suggested

the incremental increase i n the number of patients was

insufficient to justify a $52 million expenditure, yielding only

$1.3 million or 2.5% return on investment, while HMA returns

average approximately 15%.

58. Oak Hill also maintained that Brooksville Regional

underestimated the projected increase in discharges which would

result from the proposed relocation and replacement. Oak Hill's

expert estimated that Brooksville Regional would have 770

discharges in the first year and 1,146 in the second year of

operations. If Brooksvill e Regional has more discharges, its

revenues and profits will also be higher. Of those 1,146 year

two discharges, Oak Hill estimated that it would have captured

823 admissions in the absence of a new Brooksville Regional

hospital. Oak Hill's expert plann er also asserted that the loss

of patients would make Oak Hill less efficient and less cost -

effective, and result in higher charges at Brooksville Regional.

59. In addition to opening a new open heart surgery

program, Oak Hill is undergoing $10 million in emergency room

renovations. With these, Oak Hill is projected to reach between

82 and 83% average occupancy, in 2004 and 2005, before

Brooksville Regional could become fully operational. The optimum

is around 75%.

60. Oak Hill argued that it could abso rb the projected

growth through the CON - exempt addition of 20 beds which would

return occupancy to reasonable levels between 75 and 76%. The

costs incurred for the addition, however, will be unnecessary if

Brooksville Regional is more competitive and util ized more

efficiently.

61. As estimated by Oak Hill's expert, the proposed

relocation of Brooksville Regional will leave Oak Hill with

12,243 discharges in 2005, and 12,265 discharges in 2006.

Assuming the estimate is correct, Oak Hill will be at

approxi mately the same volume as it currently experiences. There

is no suggestion that its operations are not cost - effective or

efficient at between 11,000 and 13,000 discharges. The pre - tax

income decrement could be as high as $1.93 million. In the

context of the Oak Hill budget of $17.1 million for 2002, and

considering its competitive advantages, the adverse impact to Oak

Hill is outweighed by the need for improvements at Brooksville

Regional.

62. Oak Hill's expert estimated that Brooksville Regional's

proj ected volume was understated and that additional admissions

should be expected based on more recent trends in utilization.

If Brooksville Regional reached that volume, then revenues at the

new facility would increase an additional $1.8 million, to a

preta x total exceeding $6 million. The project is financially

feasible, therefore, and the costs are justified to enhance the

efficiency and competitiveness of Brooksville Regional.

63. Oak Hill noted that the impact of the development of

the entire 95 - acre site is likely to be greater than that of the

25 - acre hospital tract. Whether the same owner held the entire

tract or not, there is no reason to expect that land surrounding

a hospital would not become medical office buildings and related

health care ser vices.

64. Oak Hill will face competition from a 60 - bed

Healthsouth comprehensive medical rehabilitation hospital

currently under development approximately two miles away on State

Road 50 in the direction of the Brooksville Regional site. The

impact of the rehabilitation hospital, a reduction in acute care

lengths of stay, will apparently be felt by all acute care

hospitals throughout the region not just Oak Hill. There is no

evidence to indicate that the combined impact of Healthsouth and

Brooksville Regional on Oak Hill justifies the denial of the

proposed relocation of Brooksville Regional.

HMA's letter of intent and financial statements

65. HMA's letter of intent indicated that the project costs

would not exceed $40 million, but the CON project co st is $52

million.

66. Since letters of intent are not required to include

project costs, AHCA has taken the position that the error in the

letter of intent is insignificant as long as the project was

identified with sufficient specificity.

67. AHCA rece ived the audited financial statements for

Hernando H.M.A., the applicant, but not separate audited

financial statements for Brooksville Regional. Oak Hill's expert

suggested that AHCA received inadequate information to determine

the financial feasibility of the project.

68. Hernando HMA's audited financial statement and Schedule

2, with its other financial commitments, demonstrated its ability

to provide the funds. The separate financial schedules related

to Brooksville Regional's operations, especially S chedules 7 and

8 provided the information necessary for AHCA to determine if the

project is financially feasible.

69. Hernando HMA has demonstrated that it met the letter of

intent and application content requirements, and that, on

balance, it meets the criteria to relocate and replace

Brooksville Regional as proposed in CON Application No. 9478.

CONCLUSIONS OF LAW

70. The Division of Administrative Hearings has

jurisdiction over the parties to and the subject matter of these

proceedings. Subsections 4 08.039(5), and 120.57(1), Florida

Statutes.

71. An applicant for a certificate of need has the burden

of demonstrating that its application should be granted. Boca

Raton Artificial Kidney Center v. Department of Health and

Rehabilitative Services , 475 So . 2d 260 (Fla. 1st DCA 1985). The

award of a C ertificate of N eed must be based on a balanced

consideration of all statutory and rule criteria. Department of

Health and Rehabilitative Services v. Johnson and Johnson Home

Healthcare, Inc. , 447 So. 2d 261 ( Fla. 1st DCA 1984); Balsam v.

Department of Health and Rehabilitative Services , 486 So. 2d 1341

(Fla. 1st DCA 1988). The weight to be given each criterion is

not fixed but depends on the facts and circumstances of each

case. Collier Medical Center, Inc. v. Department of Health and

Rehabilitative Services , 462 So. 2d 83 (Fla. 1st DCA 1985).

72. Oak Hill has standing because the program at Oak Hill

will be substantially affected, consistent with the prehearing

stipulation of the parties and the evidence of an adverse impact

of $1.9 million in last revenues.

73. Despite the error in the project cost, Hernando HMA's

letter of intent met the requirements of the following:

(c) Letters of intent must describe the

proposal; specify the number of beds sought,

i f any; identify the services to be provided

and the specific subdistrict location; and

identify the applicant.

Subsection 408.039(2)(c), Florida Statutes.

74. Hernando HMA, as the applicant, was required to submit

its audited financial statements whic h demonstrated its ability

to fund the project. Both Subsection 408.037(1)(c), Florida

Statutes, and Rule 59C - 1.008(5)(c)3., Florida Administrative

Code, require the audited financial statement of the applicant.

In fact, the rule provides that:

Only audi ted financial statements of the

applicant will be accepted. Audited

financial statements of any part of the

applicant, including but not limited to

subsidiaries, divisions, specific facilities

or cost centers, will not qualify as an audit

of the applicant . Nor shall the financial

statements of the applicant's parent

corporation qualify as an audit of the

applicant.

75. The criteria from the District 3 health plan related to

the need to transfer beds, arguably applicable to this case,

overlap the other s tatutory and rule criteria. Subsection

408.035(1), Florida Statutes.

76. Brooksville Regional will, based on its history of

commitments and obligation to Hernando County, continue to meet

the needs of Medicaid and charity patients, consistent with

Subsec tions 408.035(1) and (11), Florida Statutes, and Rules 59C -

1.030(2)(a), (b), (c), (d), and (e); and 59C - 1.038(6)(a), Florida

Administrative Code.

77. Geographical access will be enhanced by the relocation

of Brooksville Regional closer to areas of more de nse population

and higher expected growth, in compliance with Subsections

408.035(2) and (7), Florida Statutes; and Rule 59C - 1.030(2)(f),

Florida Administrative Code.

78. For residents of eastern Hernando County, acute care

services are reasonably and eco nomically accessible in adjoining

Pasco County, and not adversely affected by the proposed

relocation of Brooksville Regional. See Subsection 408.035(4),

Florida Statutes.

79. In the proposed recommended order, Oak Hill renewed its

objection to HMA/Brook sville Regional's Exhibit 56, asserting

that it is an impermissible amendment to the financial

information in the CON. The rule is that:

The agency shall deem the application

complete or withdrawn within 7 calendar days

of the receipt of the requested inf ormation.

Subsequent to an application being deemed

complete by the agency, no further

application information or amendment will be

accepted by the agency.

Rule 59C - 1.010(3)(b), Florida Administrative Code. Exhibit 56

consists of revised S chedule 7A, projected revenues, and S chedule

8A, projected income and expenses. The revisions are

mathematical corrections, the addition of approximately $5.6

million in other managed care revenues (shown in the CON on

Schedule 7A, column 7, but not included in the t otal of

approximately $125.7 million in the CON in Schedule 7A, column

10), which increases the corrected total inpatient hospital

service revenue to approximately $131.3 million. The

mathematical correction is not an impermissible amendment to the

CON. No information beyond that included in the initial CON was

required to correct the mistake. Similarly, the corrections to

Schedule 8A, regardless of how substantial, were also generated

solely as a result of the mathematical correction of revenues on

Sche dule 7A using the same methodology which was the basis for

the initial projections. The revisions to Schedule 8A are not

impermissible amendments.

80. The Brooksville Regional relocation project will

increase utilization and revenues at the hospital. Based on

either the data in the CON or that in HMA Exhibit 56, the project

is financially feasible incrementally and will allow the hospital

to increase overall profitability. See Subsection 408.035(9),

Florida Statutes.

81. Some deficiencies at Brooksv ille Regional's existing

site, lack of compliance with various codes and the ADA, flooding

due to inadequate elevation, inadequate size, and location on a

two - lane street, cannot reasonably be corrected onsite. Others

including electrical upgrades, improv ements in the HVAC system

and enlarged spaces would necessitate closing the hospital to

make substantial renovations. The only cost - efficient

alternative is relocation and construction of a new hospital,

consistent with Subsection 408.035(10), Florida Sta tutes.

82. Brooksville Regional will be more competitive, and more

cost - efficient if it relocates and replaces the existing facility

as proposed in the CON application. See Subsection 408.035(9),

Florida Statutes.

83. On balance, Hernando HMA demonstrat ed that it meets the

criteria for the approval of CON Application No. 9478.

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 approving CON A pplication No. 9478 for

Hernando HMA to relocate and replace Brooksville Regional as

proposed in the application.

DONE AND ENTERED this 24th day of December, 2002, 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

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state .fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 24th day of December, 2002.

COPIES FURNISHED:

James C. Hauser, Esquire

Metz, Hauser & Husband, P.A.

215 South Monroe Street, Suite 505

Post Office Box 10909

Tallahassee, Florida 32302 - 2902

Stephen A. Ecenia, Esquire

R. David Prescott, Esquire

Thomas W. Conrad, Esquire

Rutledge, Ecenia, Purnell & Hoffman, P. A.

215 South Monroe Street, Suite 420

Post Office Box 551

Tallahassee, Florida 32302 - 0551

Gerald L. Pickett, Esquire

Agency for Health Care Administration

525 Mirror Lake Drive, North

Sebring Building, Suite 310H

St. Petersburg, Florida 33701

Lealand McCharen, Agency Clerk

Agency for Health Care Administration

2727 Mahan Drive, Mail Stop 3

Tallahassee, Florida 32308 - 5403

Valda Clark Christian, General Counsel

Agency for Health Care Administration

2727 Mahan Drive, Mail Stop 3

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 should be filed with the agency that will

issue the Final Order in this case.