04-003156CON Baycare Long Term Acute Care, Inc. vs. Agency For Health Care Administration Status: Closed Recommended Order on Tuesday, November 29, 2005.

Summary: Two hospital systems sought to establish long-term acute care hospitals in Respondent`s District 5. Need was established for both under Section 408.035, Florida Statutes.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

UNIVERSITY COMMUNITY HOSPITAL, )

)

Petitioner, )

)

vs. ) Case No. 04 - 3133CON

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent, )

)

and )

)

HEALTHSOUTH OF LARGO LIMITED )

PARTNERSHIP, d/b/a HEALTHSOUTH )

REHABILITATION HOSPITAL OF )

LARGO, )

)

Intervenor. )

)

BAYCARE LONG TERM ACUTE CARE, )

INC., )

)

Petitioner, )

)

vs. ) Case No. 04 - 3156CON

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent, )

)

and )

)

HEALTHSOUTH OF LARGO LIMITED )

PARTNERSHIP, d/b/a HEALTHSOUTH )

REHABILITATION HOS PITAL OF )

LARGO, AND KINDRED HOSPITALS )

EAST, LLC, )

)

Intervenors. )

)

UNIVERSITY COMMUNITY HOSPITAL, )

)

Petitioner, )

)

vs. ) Case No. 04 - 3157CON

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION AND BAYCARE LONG )

TERM ACUTE CARE, INC., )

)

Respondents, )

)

and )

)

HEALTHSOUTH OF LARGO LIMITED )

PARTNERSHIP, d/b/a HEALTHSOUTH )

REHABILITATION HOSPITAL OF )

LARGO, )

)

Intervenor. )

)

RECOMMENDED ORDER

This cause came on for formal hearing before William R.

Pfeiffer , Administrative Law Judge with the Division of

Administrative Hearing s , on November 29 and 30 , 2004 , and on

December 1 - 3, 6 and 7, 2004, in Tallahassee, Florida .

Subsequent to the submissions of Proposed Recommended Orders,

the case was assigned to Administrative Law Judge Harry L.

Hooper.

APPEARANCES

For University Community Hospital, Inc. :

James C. Hauser, Esquire

Metz, Hauser, Husband and Daughton, P.A.

215 South Monroe Street, Suite 505

Tallahassee, Florida 32301

Geoffrey D. Smith, Esquire

Blank, Meenan & Smith, P.A.

204 South Monroe Street

Tallahassee, Florida 32301

For Bay C are Long Term Acute Care, Inc.:

Robert A. Weiss, Esquire

Karen A. Putnel, Esquire

Parker, Hudson, Rainer & Dobbs, LLP

The Perkins House, Sutie 200

118 North Gads den Street

Tallahassee, Florida 32301

For HealthSouth of Largo Limited Partnership,

d/b/a HealthSouth Rehabilitation Hospital of Largo:

J. Robert Griffin, Esquire

J. Robert Griffin, P.A.

1342 Timberlane Road, Suite 102 - A

Tallahassee, Florida 32312 - 1762

For Kindred Hospitals East, LLC":

Patricia A. Renovitch, Esquire

Oertel, Hoffman, Fernandez,

Cole & Bryant, P.A.

Post Office Box 1110

Tallahassee, Florida 32302 - 1110

For Agency for Healt h Care Administration:

Kenneth W. Giesking, Esquire

Agency for Health Care Administration

2727 Mahan Drive

Building Three, Suite 3421

Tallahassee, Florida 32308

STATEMENT OF THE ISSUE

The issue is whether BayCare Long Te rm Acute Care Hospital,

Inc.'s Certificate of Need Application N o. 9753 and University

Community Hospital's Certificate of Need Application N o. 9754,

both submitted to the Agency for Health Care Administration,

should be approved.

PRELIMINARY STATEMENT

I n an application dated March 10, 2004, BayCare Long Term

Acute Care, Inc. (BayCare), submitted a Certificate of Need

(CON) application to the Agency for Health Care Administration

( the Agency ) seeking a pproval to establish a new long - term acute

care hospit al (LTCH). In an application dated April 14 , 2004,

University Community Hospital, Inc. (UCH) , also a submitted a

Certificate of Need (CON) application to the Agency for Health

Care Administration seeking approval to establish a new long -

term acute care ho spital. The applications sought permission to

establish these LTCHs in the Agency 's Health Planning District 5

(District 5). On June 10, 2004, the Agency issued a State

Agency Action Report (SAAR) preliminarily denying both

applications.

Both applicatio ns were filed in the First Hospital Beds and

Facilities Batching Cycle of 2004.

On July 16, 2004, a Petition for Formal Administrative

Hearing, which became DOAH Case N o. 04 - 3157 CON , was filed by UCH

naming both the Agency and BayCare, as Respondents. On

August 17, 2004, UCH filed a Petition for Formal Administrative

Hearing naming only the Agency a s Respondent, and this became

DOAH Case N o. 04 - 3133 CON . Both p etition s w ere filed with the

Division of Administrative Hearings (DOAH) on September 2, 2004 .

On the same date, Kindred Hospitals East, LLC (Kindred) , an

existing LTCH in District 5, file d a Petition for Leave to

Intervene .

On July 15, 2004, BayCare filed a Petition for Formal

Administrative H earing , naming the Agency as Respondent , and it

was file d with DOAH as Case N o. 04 - 3156 CON on September 2, 2004.

On that same date, Kindred filed a Petition for Leave to

Intervene .

On September 23, 2004, Case N o s . 04 - 3156 CON and 04 - 3157 CON

were consolidated and on October 13, 2004, Case N o. 04 - 3133 CON

was jo ined . On September 17, 2004, HealthSouth of Largo Limited

Partnership , a Comprehensive Medical Rehabilitation hospital

(CMR), filed an Amended Petition to Intervene and was granted

intervention on Oct 13, 2004. The Order Granting Petition to

Intervene re served ruling on Kindred's Petitions for Leave to

Intervene. Ultimately, Kindred was permitted to intervene.

On November 3, 2004, Kindred , and on November 29, 2004,

HealthSouth, withdrew their Petitions to Intervene in the UCH

cases. Thus, the final ali gnment of the parties resulted in

only the Agency contesting UCH's application while Kindred,

HealthSouth, the Agency , and UCH opposed BayCare's application.

UCH's opposition to BayCare 's application was not vigorous.

At the hearing, UCH presented the tes timony of nine

witnesses and offered Exhibit Nos. 1 through 34 , which were

received into evidence. The depositions of seven witnesses were

offered and received into evidence.

BayCare presented the testimony of nine witnesses and

offered Exhibit Nos. 1 t hrough 24 , which were received into

evidence. The depositions of seven witnesses were offered and

received into evidence.

HealthSouth presented the testimony of t wo witnesses and

offered E xhibit Nos. 1 through 3 , which were received into

evidence. The deposition testimony of one witness was received

into evidence.

Kindred presented the testimony of one witness and offered

Exhibit Nos. 1 through 4 , which were received into evidence.

The Agency presented the testimony of one witness and

offered Exhibit No s. 1 and 2 , which were received into evidence.

All parties entered into a Joint Stipulation that was

received into evidence as Joint Exhibit No. 1.

A Transcript was filed on February 1, 2005 . After orders

granting enlargements of time for filing P roposed R ecommended

O rders, all parties timely filed their Proposed Recommended

Orders on May 23, 2005 , and they were considered in the

preparation of this Recommended Order .

The parties agreed that the case should be decided pursuant

to the law contained in Flo rida Statutes (200 4 ) and any statutes

cited are to that law unless otherwise noted .

FINDINGS OF FACT

LTCH s defined

1. An LTCH is a medical facility which provides extended

medical and rehabilitation care to patients with multiple,

chronic, or clinically complex acute medical conditions. These

conditions include , but are not limited to, ventilator

dependency, tracheotomy care , total parenteral nutrition, long -

term intravenous anti - biotic treatment, complex wound care,

dialysis at bedside, and multiple sys tems failure .

2. LTCH s provide an interdisciplinary team approach to the

complex medical needs of the patient. LTCH s provide a continuum

of care between short - term acute care hospitals and nursing

homes, skilled nursing facilities (SNFs), or comprehensi ve

medical rehabilitation facilities. Patients who have been

treated in an intensive acute care unit at a short - term acute

care hospital and who continue to require intensive care once

stabilized, are excellent candidates for care at an LTCH .

3. Include d in the interdisciplinary approach is the

desired involvement of the patient's family. A substantial

number of the patients suitable for treatment in an LTCH a re in

excess of 65 years of age , and are eligible for Medicare.

4. Licensure and Medicare re quirements dictate that an

LTCH have an average length of stay (ALOS) of 25 days. The

Center for Medicare and Medicaid Services (CMS) reimburse s for

care received through the prospective payment system (PPS).

Through this system, CMS reimburses the servi ces of LTCH s

separately from short - term acute care providers and other post

acute care providers. The reimbursement rate for an LTCH under

PPS exceeds that of other providers. The reimbursement rate for

an LTCH is about twice that of a rehabilitation fac ility. The

increase d reimbursement rate indicates the increased cost due to

the more intensive care required in an LTCH .

The Agency

5. The Agency is a state agency created pursuant to

Section 20.42. It is the chief health policy and planning

entity f or the State of Florida. The Agency administers the

Health Facility and Services Development Act found at Sections

408.031 - 408.045. Pursuant to Section 408.034, t he Agency is

designated as the single state Agency to issue, revoke, or deny

certificates of need.

6. The Agency has established 11 health service planning

districts. The applications in this case are for facilities in

District 5 , which comprise s Pinellas and Pasco counties.

UCH

7 . UCH is a not - for - profit organization that owns and

operat es a 431 - bed tertiary level general acute care hospital

and a 120 - bed acute care general hospital. Both are located in

Hillsborough County. UCH also has management responsibilities

and affiliations to operate Helen Ellis Hospital, a 300 - bed

hospital loca ted in Tarpon Springs , and manages the 300 - bed

Suncoast Hospital. Both of these facilities are in Pinellas

County. UCH also has an affiliation to manage the open heart

surgery program at East Pasco Medical Center, a general acute

care hospital located in Pasco County.

8. As a not - for - profit organization, the mission of UCH is

to provide quality health care services to meet the needs of the

communities where it operates regardless of their patients'

ability to pay.

Baycare

9. BayCare is a wholly - owne d subsidiary of BayCare

Healthsystems, Inc. (BayCare Systems). BayCare Systems is a

not - for - profit entity comprising three members that operate

Catholic Health East, Morton Plant Mease Healthcare, and South

Florida Baptist. The facilities owned by these organizations

are operated pursuant to a Joint Operating Agreement (JOA)

entered into by each of the participants.

10. BayCare Systems hospitals include Morton Plant

Hospital, a 687 - bed tertiary level facility located in

Clearwater , Pinellas County; St. Joseph's Hospital, an 887 - bed

tertiary level general acute care hospital located in Tampa,

Hillsborough County; St. Anthony's Hospital, a 407 - bed general

acute care hospital located in St. Petersburg, Pinellas County;

and Morton Plant North Bay, a 120 - bed hospital located in New

Port Ri chey, Pasco County.

11. Morton Plant Mease Health Care is a partnership

between Morton Plant Hospital and Mease Hospital. Although

Morton Plant Mease Healthcare is a part of the BayCare System,

the hospitals that are owned by the Trustees of Mease Hospital,

Mease Hospital Dunedin , and Mease Hospital Countryside, are not

directly members of the BayCare System and are not signatories

to the JOA.

HealthSouth

12. HealthSouth is a national company with the largest

market shar e in inpatient rehabilitation. It is also a large

provider of ambulatory services. HealthSouth has about 1,380

facilities across the nation. HealthSouth operates nine LTCH s.

The facility that is the Intervenor in this case is a CMR

located in Largo, Pi nellas County.

Kindred

13. Kindred, through its parent company, operates LTCH

facilities throughout Florida and is the predominant provider of

LTCH services in the state. In the Tampa Bay area, Kindred

operates three LTCH s. Two are located in Tampa and one is

located in St. Petersburg, Pinellas County.

14. The currently operating LTCH in District 5 that may be

affected by the CON applications at issue is Kin dred - St.

Petersburg. Kindred - St. Petersburg is a licensed 82 - bed LTCH

with 52 private be ds, 22 semi - private beds, and an 8 - bed

intensive care unit. It operates the array of services normally

offered by an LTCH . It is important to note that Kindred - St.

Petersburg is located in the far south of heavily populated

District 5.

The Applications

15. UCH proposes a new freestanding LTCH which will

consist of 50 private rooms and which will be located in

Connerton, a new town being developed in Pasco County. UCH's

proposal will cost approximately $16,982,715. By agreement of

the parties, t his c ost is deemed reasonable.

16. BayCare proposes a "hospital within a hospital" LTCH

that will be located within Mease Hospital - Dunedin. The LTCH

will be located in an area of the hospital currently used for

obstetrics and women's services. The services currently

provided in this area will be relocated to Mease Hospital -

Countryside. BayCare proposes the establishment of 48 beds in

private and semi - private rooms.

Review criteria which was stipulated as satisfied by all parties

17. Section 408.035(1) - (9) set s forth the standards for

granting certificates of need. The parties stipulated to

satisfying the requirements of subsections (3) through (9) as

follows .

a . With regard to subsection (3), ' The

ability of the applicant to provide quality

of care and th e applicant's record of

providing quality of care , ' all parties

stipulated that this statutory criterion is

not in dispute and that both applicants may

be deemed to have satisfied such criteria.

b . With regard to subsection (4), ' The

availability of re sources, including health

personnel, management personnel, and funds

for capital and operating expenditures, for

project accomplishment and operation , ' it

was stipulated that both applicants have all

resources necessary in terms of both capital

and staff t o accomplish the proposed

projects , and therefore, b oth applicants

satisfy this requirement.

c . With regard to subsection (5), ' The

extent to which the proposed services will

enhance access to health care for residents

of the service district , ' i t was st ipulated

that both proposals will increase access.

Currently there are geographic, financial

and programmatic barriers to access in

District 5. The only extant LTCH is located

in the southernmost part of District 5.

d . With regard to subsection (6), ' The

immediate and long - term financial

feasibility of the proposal, ' the parties

stipulated that UCH satisfied the criterion.

With regard to BayCare, it was stipulated

that its proposal satisfied the criterion so

long as BayCare can achieve its utilization

projections and obtain Medicare

certification as an LTCH and thus

demonstrate short - term and long - term

feasibility. This issue will be addressed

below.

e. With regard to subsection (7), ' The

extent to which the proposal will foster

competition that p romotes quality and cost -

effectiveness , ' the parties stipulated that

approval of both applications will foster

competition that will promote quality and

cost effectiveness. The only currently

available LTCH in District 5, unlike BayCare

and UCH, is a for - profit establishment.

f. With regard to subsection (8), ' The

costs and methods of the proposed

construction, including the costs and

methods of energy provision and the

availability of alternative, less costly, or

more effective methods of construction , ' the

parties stipulated that the costs and

methods of construction for both proposals

ar e reasonable.

g . With regard to subsection (9), ' t he

applicant's past and proposed provision of

health care services to Medicaid patients

and the medically indigent , ' it was

stipulated that both UCH and BayCare have a

demonstrated history and a commitment to

providing services to Medicaid, Medicaid

HMO, self - pay, and underinsured payments.

Technically, of course, BayCare has no

history at all. However, its sponsors do,

and it is they that will shape the mission

for BayCare.

BayCare's Medicare certification as an LTCH

18. The evidence of record demonstrates that BayCare can

comply with Medicare reimbursement regulations and therefore can

achieve its utilization pr ojections and obtain Medicare

certification as an LTCH . Thus short - term and long - term

feasibility is proven.

19. Because BayCare will be situated as a hospital within

a hospital, in Mease Hospital Dunedin, and because there is a

relationship between th at hospital and BayCare Systems, Medicare

reimbursement regulations limit to 25 percent the number of

patients that may be acquired from Mease Hospital Dunedin or

from an organization that controls directly or indirectly the

Mease Hospital Dunedin .

20. Because of this limitation, i t is, therefore,

theoretically possible that the regulator of Medicare p ayments,

CMS , would not allow payment where more than 25 percent of

admissions were from the entire BayCare System. Should that

occur it would present a s erious but not insurmountable problem

to BayCare. BayCare projects that 21 percent of its admissions

will come from Mease Hospital Dunedin and the rest will come

from other sources.

21. BayCare is structured as an independent entity with an

independent board of directors and has its own chief executive

officer. The medical director and the medical staff will be

employed by the independent board of directors. Upon the

greater weight of the evidence, under this structure, BayCare is

a separate corporate entity that neither controls , nor is

controlled by, BayCare Systems or any of its entities or

affiliates.

22. One must bear in mind that because of the shifting

paradigms of federal medical regulation, predictability in this

regard is less than perfect . However , the evidence indicates

that CMS will apply the 25 percent rule only in the case of

patients transferring to BayCare from Mease Hospital Dunedin.

M ost of the Medicare - certified LTCHs in the U nited S tates

operate as hospitals within hospitals . I t is apparent ,

therefore, that adjusting to the CMS limitations is something

that is typically accomplished.

23. BayCare will lease space in Mease Hospital Dunedin

which will be vacated by it current program. BayCare will

contract with Mease Hospital Dun edin for services such as

laboratory analysis and radiology. This arrangement will result

in lower costs , both in the short term and in the long term ,

than would be experienced in a free - standing facility , and

contributes to the likelihood that BayCare is feasible in the

short term and long term.

Criteria related to need

24. The contested subsections of S ection 408.035 not

heretofore addressed, are (1) and (2). These sub sections are

illuminated by Florida Administrative Code Rule 59C -

1.008(2)(e)2 . , whi ch provide s standards when, as in this case,

there is no fixed - need pool.

25 . Florida Administrative Code Rule 59C - 1.008(2)(e)2 . ,

provides as follows:

2. If no agency policy exists, the

applicant will be responsible for

demonstrating need through a needs

assessment methodology which must include,

at a minimum, consideration of the following

topics, except where they are inconsistent

with the applicable statutory or rule

criteria:

a. Population demographics and dynamics;

b. Availability, utilization an d quality of

like services in the district, sub district

or both;

c. Medical treatment trends; and

d. Market conditions.

Population Demographics and Dynamics

2 6 . The applicants presented an analysis of the population

demographics and dynamics in sup port of their applicat i ons in

District 5 . The evidence demonstrated that the population of

District 5 was 1,335,021 in 2004. It is anticipated that it

will grow to 1,406,990 by 2009. The projected growth rate is

5.4 percent. The elderly population in t he district, which is

defined as persons over the age of 65, is expected to grow from

314,623 in 2004, to 340,676, in 2009, which represents an 8.3

percent increase.

BayCare

2 7 . BayCare's service area is defined generally by the

geographic locations of Mo rton Plant Hospital, Morton Plant

North Bay Hospital , St. Anthony's Hospital, Mease Hospital

Dunedin , and Mease Hospital Countryside . These hospitals are

geographically distributed throughout Pinellas County and

southwest Pasco County and are expect ed to provide a base for

referrals to BayCare.

2 8 . There is only one extant LTCH in Pinellas County,

Kindred, and it is located in the very southernmost part of this

densely populated county. Persons who become patients in an

LTCH are almost always moved to th e LTCH by ambulance , so their

movement over a long distance through heavy traffic generates

little or no problem for the patient. Accordingly, if patient

transportation were the only consideration, movement from the

north end of the county to Kindred in t he far south, would

present no problem.

29. However, family involvement is a substantial factor in

an interdisciplinary approach to addressing the needs of LTCH

patients. The requirement of frequent movement of family

members from northern Pinellas to Kindred through congested

traffic will often result in the denial of LTCH services to

patients residing in northern Pinellas County or, in the

alternative, deny family involvement in the interdisciplinary

treatment of LTCH patients .

30 . Approximately 70 l etters requesting the establishment

of an LTCH in northern Pinellas County were provided in

BayCare's application . These letters were written by medical

personnel , case managers and social workers, business persons,

and government officials. The thread c ommon to these letters

was , with regard to LTCH services, that the population in

northern Pinellas County is underserved .

UCH

31 . Pasco County has experienced a rapid population

growth. It is anticipated that the population will swell to

426,273, in 200 9, which represents a 10.1 percent increase over

the population in 2004.

32 . The elderly population accounts for 28 percent of the

population. This is about 50 percent higher than Florida as a

whole.

33 . Rapid population growth in Pasco County, and expected

future growth, has resulted in numerous new housing developments

including Developments of Regional Impact (DRI). Among the

approved DRI's is the planned community of Connerton , which has

been designated a "new town" in Pasco County's Comprehensi ve

Plan. Connerton is a planned community of 8,600 residential

units. The plan includes space for a hospital and UCH has

negotiated for the purchase of a parcel for that purpose within

Connerton.

34 . The rate of growth, and the elderly population

perce ntages, will support the proposed UCH LTCH and this is so

even if BayCare establishes an LTCH in northern Pinellas County.

Availability, utilization, and quality of like services in the

district, sub - district, or both

35 . The Agency has not established s ub - districts for

LTCHs.

36 . As previously noted, Kindred is the only LTCH extant

in District 5. It is a for - profit facility. Kindred was well

utilized when it had its pediatric unit and added 22 additional

beds. Subsequently, in October 2002, some ch anges in Medicare

reimbursement rules resulted in a reduction of the reimbursement

rate. This affected Kindred's income because over 70 percent of

its patients are Medicare recipients . Kindred now uses

admission criteria that have resulted in a decline i n patient

admissions .

3 7 . From 1998, the year after Kindred was established,

until 2002, annual utilization was in excess of 90 percent.

Thereafter, utilization has declined, the 22 - bed addition has

been shut down, and Kindred projects an occupancy of 55 percent

in 2005.

3 8 . Kindred must make a profit. Therefore, it denies

access to a significant number of patients in District 5. It

denies the admission of patients who have too few "Medicare -

reimbursable days" or "Medicaid - reimbursable days" remai ning.

The record indicates that Kindred only incurs charity care or

Medicaid patient days when a patient admitted to Kindred with

seemingly adequate funding unexpectedly exhausts his or her

funding prior to discharge.

39 . Because of the constraints of P PS, Kindred has

established admission criteria that excludes certain patients

with conditions whose prognosis is so uncertain that it cannot

adequately predict how long they will require treatment .

Kindred's availability to potential patients is thus

cons trained.

40 . HealthSouth, a licensed CMR, is not a substitute for

an LTCH. Although it is clear that there is some overlap

between a CMR and an LTC H, HealthSouth, for instance, does not

provide inpatient dialysis , will not accept ventilator patients,

an d does not treat complex wound patients .

41 . The nurse staffing level at HealthSouth is inadequate

to provide for the type of patient that is eligible for

treatment in an LTCH. The fact that LTCHs are reimbursed by

Medicare at approximately twice the r ate that a CMR is

reimbursed , demonstrates the higher acuity level of LTCH

services when compared to a CMR.

42 . HealthSouth is a facility which consistently operates

at high occupancy levels and even if it were capable of

providing the services typical o f an LTCH, it would not have

sufficient capacity to provide for the need.

43 . A CMR is a facility to which persons who make progress

in an LTCH might repair so that they can return to the

activities of daily living.

44 . SNFs are not substitutes for LTC Hs although the re

could be some limited overlap. SNFs are generally not

appropriate for patients otherwise eligible for the type of care

provided by an LTCH. They do not provide the range of se rvices

typically provided by an LTCH and do not maintain the registered

nurse staffing levels required for delivering the types of

services needed for patients appropriate for an LTCH.

45 . LTCHs are a stage in the continuum of care. Short -

term acute care hospitals take in very sick or injured patients

and treat t hem. Thereafter, the survivors are discharged to

home, or to a CMR, or to a SNF, or, if the patients are still

acutely ill but stable, and if an LTCH is available, to an LTCH.

A s noted above , currently in northern Pinellas County and in

Pasco County, the re is no reasonable access to an LTCH.

46 . An intensive care unit (ICU) is, ideally, a treatment

phase that is short. If treatment has been provided in an ICU

and the patient remains acutely ill but stable, and is required

to remain in the ICU because t here is no alternative, greater

than necessary costs are incurred .

47 . Staff in an ICU are not trained or disposed to provide

the extensive therapy and nursing required by patients suitable

for an LTCH and are not trained to provide support and training

to members of the patient's family in preparation for the

patient's return home.

48 . The majority of patients suitable for an LTCH have

some potential for recovery. This potential is not realized in

an ICU , which is often counterproductive for patients who are

stabilized but who require specialized long - term acute care.

Patients who remain in an ICU beyond five to seven days have an

increased morbidity/mortality rate.

49 . Maintaining patients suitable for an LTCH in an ICU

also results in over - utili zation of ICU services and can cause

congestion when ICU beds are fully occupied.

50 . UCH in Pasco County, and to a lesser extent BayCare in

northern Pinellas County, will bring to the northern part of

District 5 services which heretofore have not been a vailable in

the district, or, at least, have not been readily available.

Persons in Pasco County and northern Pinellas County, who would

benefit from a stay in an LTCH , have often had to settle for

some less appropriate care situation.

Medical Treatment T rends

51 . LTCHs are relatively new cogs in the continuum of care

and the evidence indicates that they will play an important role

in that continuum in the future .

52 . The evidence of record demonstrates that the current

trend in medical treatment is to find appropriate post acute

placements in an LTCH setting for those patients in need of

long - term acute care beyond the stay normally experienced in a

short - term acute care hospital.

Market conditions

53 . The federal government's development of the

dist inctive PPS for LTCHs has created a market condition which

is favorable for the development of LTCH facilities.

54 . Although the Agency has not formally adopted by rule a

need methodology specifically for LTCHs, by final order it has

recently relied upon the "geometric mean length of stay 7"

(GMLOS ) need methodology. The GMLOS is a statistical

calculation used by CMS in administering the PPS reimbursement

system in determining an appropriate reimbursement for a

particular "diagnostic related grou p" (DRG).

55 . Other need methodologies have been found to be

unsatisfactory because they do not accurately reflect the need

for LTCH services in areas where LTCH services are not

available, or where the market for LTCH services is not

competitive. GMLOS is the best analysis the Agency has at

this point. Because the population for whom an LTCH might be

appropriate is unique, and because it overlaps with other

populations, finding an algebraic need expression is difficult.

An acuity measure would be t he best marker of patient

appropriateness , but insufficient dat a are available to

calculate that.

56 . BayCare's proposal will provide beneficial competition

for LTCH services in District 5 for the first time and will

promote geographic, financial, and pro grammatic access to LTCH

services.

57 . BayCare, in conducting its need calcula tions used a

data pool from Morton Plant Hospital, Mease Dunedin Hospital,

Mease Countryside Hospital , Morton Plant North Bay Hospital, and

St. Anthony's Hospital for the 12 m onths ending September 2003.

The hospitals included in the establishment of the pool are

hospitals that would be important referral sources for BayCare.

58 . BayCare then identified 160 specific DRGs historically

s erved by existing Florida LTCHs, or whi ch could have been

served by Florida LTCHs, and lengths of stay greater than the

GMLOS for acute care patients , and compared them to the data

pool. This resulted in a pool of 871 potential patients. The

calculation did not factor in the certain growth in the

population of the geographic area, and therefore the growth of

potential LTCH patients.

59 . BayCare then applied assumptions based on the

proximity of the referring hospitals to the propose d LTCH to

project how many of the patients eligible for LT CH services

would actually be referred and admitted to the proposed LTC H .

That exercise resulted in a projected potential volume of 20,265

LTCH patient days originating just from the three District 5

BayCare hospitals and the two Mease hospitals.

60 . Ba yCare assumes, and the assumption is found to be

reasonable, that 25 percent of their LTCH volume will originate

from facilities other than BayCare or Mease hospitals. Adding

this factor resulted in a total of 27,020 patient days for a

total net need of 8 2 beds at 90 percent occupancy.

61 . BayCare's GM LOS bed n eed methodology reasonably

projects a bed need of 82 beds based on BayCare's analysis of

the demand arising from the three District 5 BayCare hospitals

and the two Mease hospitals.

62 . UCH prov ided both a GMLOS and a use rate analysis .

T he use rate analysis is suspect in a noncompetitive environment

and, obviously, in an environment where LTCHs do not exist .

UCH's GMLOS analyses resulted in the identification of a need

for 159 additional LTCH beds in District 5. This was broken

down into a need of 60 beds in Pasco County and 99 additional

beds in Pinellas County.

63 . There is no not - for - profit LTCH provider in District

5. The addition of BayCare and UCH LTCHs to the district will

meet a need in the case of Medicaid, indigent, and underinsured

patients. Both BayCare and UCH have agreed in their

applications to address the needs of patients who depend on

Medicaid, or who are indigent, or who have private insurance

that is inadequate to c over the cost of their treatment.

64 . The statistical analyses provide d by both applicants

support the proposed projects of both applicants.

65 . Testimony from doctors who treat patients of the type

who might benefit from an LTCH testified that those ty pes of

facilities would be utilized. Numerous letters from physicians,

nurses, and case managers support the need for these facilities.

Adverse impacts

66 . HealthSouth and Kindred failed to persuade that

BayCare's proposal will adversely impact them . H ealthSouth

provides little of the type of care normally provided at an

LTCH. Moreover, HealthSouth is currently operating near

capacity.

67 . Kindred is geographically remote from BayCare's

proposed facility, and , more importantly, remote in terms of

tra vel time, which is a major consideration for the families of

patients. Kindred did not demonstrate that it was currently

receiving a large number of patients from the geographic

vicinity of the proposed BayCare facility, although it did

receive some patie nts from BayCare Systems facilities and would

likely lose some admissions if BayCare's application is

approved . The evidence did not establish that Kindred would

suffer a material adverse impact should BayCare establish an

LTCH in Mease Dunedin Hospital. HealthSouth and Kindred

conceded that UCH's program would not adversely impact them.

The Agency 's Position

68 . The Agency denied the applications of BayCare and UCH

in the SAAR s . At the time of the hearing the Agency continued

to maintain that granting the proposals was inappropriate.

69 . The Agency's basic concern with these proposals, and

in fact, the establishments of LTCHs throughout the state,

according to the Agency's representative Jeffrey N. Gregg , is

the oversupply of beds . The Agency believes it will be a long

time before it can see any measure of clinical efficiency and

whether the LTCH route is the appropriate way to go. The Agency

has approved a number of LTCHs in recent years and is studying

them in order to get a better understanding of what the future

might hold.

70 . The Agency noted that the establishment of an LTCH by

ongoing providers, BayCare Systems and UCH, where there are

extant built - in referring facilities, were more likely to be

successful than an out - of - state provider having no prior

relationships with short - term acute care hospitals in the

geographic vicinity of the LTCH .

71 . The Agency noted that both a referring hospital and an

LTCH could benefit financially by decompressing its intensive

care unit, and thus maximizing th eir efficiency.

72 . The Agency did not explain how, if these LTCHs are

established, a subsequent failure would negatively affect the

delivery of health services in District 5.

73 . The Agency, when it issued its SAAR, did not have the

additional informa tion which became available during the hearing

process.

CONCLUSIONS OF LAW

74 . The Division of Administrative Hearings has

jurisdiction over the subject matter of and the parties to this

proceeding. § § 120.57(1) and 408.039(5), Fla. Stat.

75 . The ap plicant s ha ve the burden of proving entitlement

to a CON. Boca Raton Artificial Kidney C tr. , Inc. v s . Dept. o f

Health and Rehabilitative Services , 47 5 So. 2d 260 (Fla. 1st DCA

1985). The award of a CON must be based on a balanced

consideration of all app licable statutory and rule criteria.

Humana, Inc. v s . Departme n t of Health and Rehabilitative

Services , 469 So. 2d 889 (Fla. 1st DCA 1985). The weight to be

given each criterion is not fixed, but depends on the facts and

circumstances of each case. Coll ier Medical Center, Inc. v s .

Dept. of Health and Rehabilitative Services , 462 So. 2d 83 (Fla.

1st DCA 1985).

76 . The CON criteria set forth in Section 408.035, with

the exception of Section (10) are applicable to the proposed

LTCHs. The parties stipul ated to all of the subsections except

(1), (2), and the p ortion of (6) that addresses the long - term

feasibility issue of whether BayCare's proposal is consistent

with federal reimbursement requirements. Therefore the only

real issue presented for final de termination is whether the

applicants demonstrated need for their proposals in the absence

of a published numeric need, and whether approval of their

proposals will enhance access and foster competition that

promotes quality and cost effectiveness.

77 . T he requirements set forth in Florida Administrative

Code Rules 59C - 1.002(28), 59C - 1.030, and 59C - 1.008 are

applicable , as previously discussed, and no fixed need pool is

provided by the Agency for LTCH beds.

78 . As previously discussed, the criteri a for deciding

this issue are provided in Section 408.035 as illuminated by

Florida Administrative Code Rule 59C - 1.008(2)(e)2. The criteri a

w ere satisfied by both applicants.

79 . The applicants utilized bed need methodologies that

have been accepted as reas onable in Select Specialty Hospital -

Marion , Inc. v s . AHCA , et al . , Case N o. 03 - 248 3 CON (DOAH July

1 4 , 2005) , ( AHCA Final Order, September 17 , 200 4 ) and Select

Specialty Hospital - Escambia, Inc. v s . AHCA , Case N o. 05 - 0319 CON

(DOAH June 17, 2005), (AHCA Final Order, July 11, 2005).

RECOMMENDATION

Based upon the Findings of Fact and Conclusions of Law, it

is

RECOMMENDED that UCH Certificate of Need Application N o.

9754 and BayCare Certificate of Need Application N o. 9753

sati sfy the applicable criteria and bo th a pplications should be

approved.

DONE AND ENTERED this 29th day of November , 200 5 , in

Tallahassee, Leon County, Florida.

S

HARRY L. HOOPER

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 29th day of November , 2005 .

COPIES FURNISHED :

Robert A. Weiss, Esquir e

Parker, Hudson, Rainer

& Dobbs, LLP

The Perkins House, Suite 200

118 North Gadsden Street

Tallahassee, Florida 32301

J. Robert Griffin, Esquire

J. Robert Griffin, P.A.

1342 Timberlane Road, Suite 102 - A

Tallahassee, Florida 32312 - 1762

Patricia A. R enovitch, Esquire

Oertel, Hoffman, Fernandez ,

Cole , & Bryant P.A.

Post Office Box 1110

Tallahassee, Florida 32302 - 1110

Geoffrey D. Smith, Esquire

Blank, Meenan & Smith, P.A.

204 S outh Monroe Street

Tallahassee, Florida 3230 1

Timothy Elliott, Esquir e

Agency for Health Care Administration

2727 Mahan Drive

Building Three, Mail Station 3

Tallahassee, Florida 32308

Alan Levine, Secretary

Agency for Health Care Administration

Fort Knox Building, Suite 3116

2727 Mahan Drive

Tallahassee, Florida 32308

C hrista Calamas, General Counsel

Agency for Health Care Administration

Fort Knox Building, Suite 3431

2727 Mahan Drive

Tallahassee, Florida 32308

Richard Shoop, Agency Clerk

Agency for Health Care Administration

Fort Knox Building, Mail Station 3

2727 Mah an Drive

Tallahassee, Florida 32308

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.