83-000156 Leesburg Regional Medical Center, Inc. vs. Department Of Health And Rehabilitative Services Status: Closed Recommended Order on Thursday, December 15, 1983.

Summary: Application for Certificate of Need (CON) to add acute care beds denied.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

LEESBURG REGIONAL MEDICAL CENTER, )

)

Petitioner, )

)

vs. ) CASE NO. 83-156

)

DEPARTMENT OF HEALTH AND )

REHABILITATIVE SERVICES, )

)

Respondent, )

and )

)

LAKE COMMUNITY HOSPITAL, )

)

Intervenor-Respondent. )

__________________________________)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was held in the above case before the

Division of Administrative Hearings, by its duly designated Hearing Officer,

DONALD R. ALEXANDER, on July 19 and 20, 1983 in Leesburg, Florida and on July

22, 1983 in Tallahassee, Florida.

APPEARANCES

For Petitioner: Dean Bunch, Esquire

Post Office Box 1170

Tallahassee, Florida 32302

and

Bruce A. Saylor, Esquire

Post Office Drawer 2160

Leesburg, Florida 32748

For Respondent: Jay Adams, Esquire

Building One, Room 406

1323 Winewood Boulevard

Tallahassee, Florida 32301

For Intervenor/ Eric J. Haughdahl, Esquire

Respondent: 1020 East Lafayette Street, Suite 208

Tallahassee, Florida 32301

and

Thomas K. Riden, Esquire

5656 Central Avenue

St. Petersburg, Florida 33707

BACKGROUND

By petition dated December 23, 1982 petitioner, Leesburg Regional Medical

Center, requested a formal hearing to contest proposed agency action of

respondent, Department of Health and Rehabilitative Services, to deny in part

its application for a certificate of need to renovate its existing space to

accommodate 36 medical/surgical beds and seven intensive care unit beds at a

cost of approximately $785,000. The denial was issued on November 29, 1982 and

was based generally upon the ground there was no need for additional

medical/surgical beds in the Lake/Sumter subdistrict. The petition was

forwarded by respondent to the Division of Administrative on January 14, 1983

with a request that a Hearing Officer be assigned to conduct a hearing.

Thereafter, Petitioner sought to consolidate its application with one filed

by intervenor-respondent, Lake Community Hospital. Lake's application to expend

4.1 million dollars on a renovation project had been previously granted by

respondent on November 29, 1982. The request to consolidate and to hold a

comparative hearing was docketed as DOAH Case No. 83-261. After considering

oral argument and briefs of counsel, the undersigned concluded by recommended

order dated April 28, 1983 that petitioner had no standing to contest the

application of intervenor-respondent and accordingly granted a motion to dismiss

the request of petitioner. This order was adopted by respondent as a final

order on June 15, 1983. The matter has subsequently been appealed by petitioner

to the Fifth District Court of Appeal where it remains pending.

By notice of hearing dated April 5, 1983 a final hearing was scheduled for

July 19 and 20, 1983 in Leesburg, Florida. A continued hearing was also held on

July 22, 1983 in Tallahassee, Florida. At the final hearing, petitioner

presented the testimony of Frederick D. Woodrell, petitioner's administrator,

Mr. Ronald Everett, an expert in health care planning, Jerry Ingram, a

registered professional engineer, and Carol Gormley, executive director of the

North Florida Health Planning Council. It also offered petitioner's exhibits 1-

4, 8, 10.-14, 16, and 18-20; all were received except exhibits 13, 14 and 14a

which were conditionally received. A ruling on their admissibility is made in

the conclusions of law portion of this order. Respondent presented the

testimony of Gail Buck, an expert in health planning, and offered respondent's

exhibits 1-5; all were received in evidence. 1/ Intervenor-respondent

presented the testimony of Dr. Deborah S. Kolb, an expert in health planning and

financial feasibility, Patricia D. Stover and Nancy Taylor, assistant

administrator and executive director, respectively, of Lake Community Hospital,

and Thomas J. Konrad, administrator of the Department's office of community

affairs. It also offered intervenor-respondent's exhibits 1 and 2; both were

received in evidence. By agreement of the parties, the deposition of Carol

Gormley was taken on September 16, 1983 and made a part of this record.

The transcripts of hearing (four volumes) were filed on September 12, 1983.

Proposed findings of fact and conclusions of law were filed by the parties on

October 21, 1983 and have been considered by the undersigned in the preparation

of this order. Findings of fact not included in this order were considered

irrelevant to the issues, immaterial to the results reached, or were not

supported by competent and substantial evidence.

By order dated July 15, 1983 the undersigned denied a motion to intervene

in opposition to the application filed by Sumter County Health Facilities

Authority on the ground it had no standing to participate. Counsel for Sumter

appeared at the outset of the final hearing, and after considering further

argument, the prior ruling was reaffirmed.

At issue herein is whether petitioner's application for a certificate of

need to add 36 medical/surgical beds and seven intensive care unit beds to its

facility at a cost of approximately $785,000 should be granted.

Based upon all of the evidence, the following findings of fact are

determined:

FINDINGS OF FACT

A. Introduction

1. Petitioner, Leesburg Regional Medical Center ("Leesburg"), is a 132-bed

acute care private, not-for-profit hospital located at 600 East Dixie Highway,

Leesburg, Florida. It offers a full range of general medical services. The

hospital sits on land owned by the City of Leesburg. It is operated by the

Leesburg hospital Association, an organization made up of individuals who reside

within the Northwest Taxing District.

2. By application dated August 13, 1982 petitioner sought a certificate of

need (CON) from respondent, Department of Health and Rehabilitative Services

(HRS), to construct the following described project:

This project includes the addition of 36

medical/surgical beds and 7 SICU beds in

existing space and the leasing of a CT scanner

(replacement).

The addition of the medical/surgical beds is a

cost effective way to add needed capacity to

the hospital. Twenty-four (24) beds on the

third floor will be established in space

vacated by surgery and ancillary departments

moving into newly constructed space in the

current renovation project. A significant

portion of this area used to be an obstetric

unit in the past; and therefore, is already

set up for patient care. The 7 bed SICU unit

will be set up on the second floor, also in

space vacated as a result of the renovation

project. Twelve additional beds will be

available on the third and fourth floors as a

result of changing single rooms into double

rooms. No renovation will be necessary to

convert these rooms into double rooms.

It is also proposed to replace the current

TechniCare head scanner with GE8800 body

scanner. Based on the high demand for head

and body scans and the excessive amount of

maintenance problems and downtime associated

with the current scanner, Leesburg Regional

needs a reliable, state-of-the-art CT scanner.

The cost of the project was broken down as follows:

The total project cost is $1,535,000.

The construction/renovation portion of the

project (24 medical/surgical and 7 SICU beds)

is $533,000. Equipment costs will be

approximately $200,000. Architectural fees

and project development costs total $52,000.

The CT scanner will be leased at a monthly

cost of $16,222 per month for 5 years. The

purchase price of the scanner is $750,000 and

that amount is included in the total project cost.

The receipt of the application was acknowledged by HRS by letter dated August

27, 1982. That letter requested Leesburg to submit additional information no

later than October 10, 1982 in order to cure certain omissions. Such additional

information was submitted by Leesburg on October 5, 1982.

3. On November 29, 1982, the administrator for HRS's office of health

planning and development issued proposed agency action in the form of a letter

advising Leesburg its request to replace a head CT scanner (whole body) at a

cost of $750,000 had been approved, but that the remainder of the application

had been denied. The basis for the denial was as follows:

There are currently 493 medical/surgical beds

in the Lake/Sumter sub-district of HSA II.

Based upon the HSP for HSA II, there was an

actual utilization ratio of existing beds

equivalent to 2.98/1,000 population. When

this utilization ratio is applied to the 1987

projected population of 156,140 for

Lake/Sumter counties, there is a need for 465

medical/surgical beds by 1987. Thus, there is

an excess of 28 medical/surgical beds in the

Lake/Sumter sub-district currently.

This action prompted the instant proceeding.

4. At the same time Leesburg's application was being partially denied, an

application for a CON by intervenor-respondent, Lake Community Hospital (Lake),

was being approved. That proposal involved an outlay of 4.1 million dollars and

was generally described in the application as follows:

The proposed project includes the renovations

and upgrading of patient care areas. This

will include improving the hospital's

occupancy and staffing efficiencies by

reducing Med-Surg Unit-A to 34 beds and

eliminating all 3-bed wards. Also reducing

Med-Surg Units B and C to 34 beds each and

eliminating all 3-bed wards. This will

necessitate the construction of a third floor

on the A wing to house the present beds in

private and semi-private rooms for a total of

34 beds. There is also an immediate need to

develop back-to-back six bed ICU and a six-bed

CCU for shared support services. This is

being done to fulfill JCAH requirements and

upgrade patient care by disease entity,

patient and M.D. requests. Another need that

is presented for consideration is the

upgrading of Administrative areas to include a

conference room and more Administrative and

Business office space.

However, the merits of HRS's decision on Lake's application are not at issue in

this proceeding.

5. In addition to Lake, there are two other hospitals located in Lake

County which provide acute and general hospital service. They are South Lake

Memorial Hospital, a 68-bed tax district facility in Clermont, Florida, and

Waterman Memorial Hospital, which operates a 154-bed private, not-for-profit

facility in Eustis, Florida. There are no hospitals in Sumter County, which

lies adjacent to Lake County, and which also shares a subdistrict with that

county. The facilities of Lake and Leesburg are less than two miles apart while

the Waterman facility is approximately 12 to 14 miles away. South Lake Memorial

is around 25 miles from petitioner's facility. Therefore, all three are no more

than a 30 minute drive from Leesburg's facility.

6. At the present time, there are 515 acute care beds licensed for Lake

County. Of these, 493 are medical/surgical beds and 22 are obstetrical beds.

None are designated as pediatric beds.

B. The Proposed Rules

7. Rules 10-16.001 through 10-16.012, Florida Administrative Code, were

first noticed by HRS in the Florida Administrative Weekly on August 12, 1983.

Notices of changes in these rules were published on September 23, 1983.

Thereafter, they were filed with the Department of State on September 26, 1983

and became effective on October 16, 1983.

8. Under new Rule 10-16.004 (1)(a), Florida Administrative Code,

subdistrict 7 of district 3 consists of Lake and Sumter Counties. The rule also

identifies a total acute care bed need for subdistrict 7 of 523 beds.

9. When the final hearing was held, and evidence heard in this matter, the

rules were merely recommendations of the various local health councils forwarded

to HRS on June 27, 1983 for its consideration. They had not been adopted or

even proposed for adoption at that point in time.

C. Petitioner's Case

10. In health care planning it is appropriate to use five year planning

horizons with an overall occupancy rate of 80 percent. In this regard, Leesburg

has sought to ascertain the projected acute care bed need in Lake County for the

year 1988. Through various witnesses, it has projected this need using three

different methodologies.

11. The first methodology used by Leesburg may be characterized as the

subdistrict need theory methodology. It employs the "guidelines for hospital

care" adopted by the District III Local Health Council on June 27, 1983 and

forwarded to HRS for promulgation as formal rules. Such suggestions were

ultimately adopted by HRS as a part of Chapter 10-16 effective October 16, 1983.

Under this approach, the overall acute care bed need for the entire sixteen

county District III was found to be 44 additional beds in the year 1988 while

the need within Subdistrict VII (Lake and Sumter Counties) was eight additional

beds. 2/

12. The second approach utilized by Leesburg is the peak occupancy theory

methodology. It is based upon the seasonal fluctuation in a hospital's

occupancy rates, and used Leesburg's peak season bed need during the months of

February and March to project future need. Instead of using the state suggested

occupancy rate standard of 80 percent, the sponsoring witness used an 85 percent

occupancy rate which produced distorted results. Under this approach, Leesburg

calculated a need of 43 additional beds in 1988 in Subdistrict VII. However,

this approach is inconsistent with the state-adopted methodology in Rule 10-

5.11(23), Florida Administrative Code, and used assumptions not contained in the

rule. It also ignores the fact that HRS's rule already gives appropriate

consideration to peak demand in determining bed need.

13. The final methodology employed by Leesburg was characterized by

Leesburg as the "alternative need methodology based on state need methodology"

and was predicated upon the HRS adopted bed need approach in Rule 10-5.11(23)

with certain variations. First, Leesburg made non-rule assumptions as to the

inflow and outflow of patients. Secondly, it substituted the population by age

group for Lake and Sumter Counties for the District population. With these

variations, the methodology produced an acute care bed need of 103 additional

beds within Lake and Sumter Counties. However, this calculation is inconsistent

with the applicable HRS rule, makes assumptions not authorized under the rule,

and is accordingly not recognized by HRS as a proper methodology.

14. Leesburg experienced occupancy rates of 91 percent, 80 percent and 73

percent for the months of January, February and March, 1981, respectively.

These rates changed to 86 percent, 95 percent and 98 percent during the same

period in 1982, and in 1983 they increased to 101.6 percent, 100.1 percent and

95.1 percent.

15. Leesburg's health service area is primarily Lake and Sumter Counties.

This is established by the fact that 94.4 percent and 93.9 percent of its

admissions in 1980 and 1981, respectively, were from Lake and Sumter Counties.

16. Although South Lake Memorial and Waterman Memorial are acute care

facilities, they do not compete with Leesburg for patients. The staff doctors

of the three are not the same, and there is very little crossover, if any, of

patients between Leesburg and the other two facilities. However, Lake and

Leesburg serve the same patient base, and in 1982 more than 70 percent of their

patients came from Lake County. The two compete with one another, and have

comparable facilities.

17. Leesburg has an established, well-publicized program for providing

medical care to indigents. In this regard, it is a recipient of federal funds

for such care, and, unlike Lake, accounts for such care by separate entry on its

books.

18. The evidence establishes that Leesburg has the ability to finance the

proposed renovation.

D. HRS's Case

19. HRS's testimony was predicated on the assumption that Rule 10-16.004

was not in effect and had no application to this proceeding. Using the bed need

methodology enunciated in Rule 10-5.11(23), its expert concluded the overall bed

need for the entire District III to be 26 additional beds by the year 1988.

This calculation was based upon and is consistent with the formula in the rule.

Because there was no existing rule at the time of the final hearing concerning

subdistrict need, the witness had no way to determine the bed need, if any,

within Subdistrict VII alone.

E. Lake's Case

20. Lake is a 162-bed private for profit acute care facility owned by U.S.

Health Corporation. It is located at 700 North Palmetto, Leesburg, Florida.

Lake was recently granted a CON which authorized a 4.1 million dollar renovation

project. After the renovation is completed all existing three-bed wards will be

eliminated. These will be replaced with private and semi-private rooms with no

change in overall bed capacity. This will improve the facility's patient

utilization rate. The expansion program is currently underway.

21. Like Leesburg, the expert from Lake utilized a methodology different

from that adopted for use by HRS. Under this approach, the expert determined

total admissions projected for the population, applied an average length of stay

to that figure, and arrived at a projected patient day total for each hospital.

That figure was then divided by bed complement and 365 days to arrive at a 1988

occupancy percentage. For Subdistrict VII, the 1988 occupancy percentage was

78.2, which, according to the expert, indicated a zero acute care bed need for

that year.

22. Lake also presented the testimony of the HRS administrator of the

office of community affairs, an expert in health care planning. He corroborated

the testimony of HRS's expert witness and concluded that only 26 additional

acute care beds would be needed district-wide by the year 1988. This result was

arrived at after using the state-adopted formula for determining bed need.

23. During 1981, Lake's actual total dollar write-off for bad debt was

around $700,000. This amount includes an undisclosed amount for charity or

uncompensated care for indigent patients. Unlike Leesburg, Lake receives no

federal funds for charity cases. Therefore, it has no specific accounting entry

on its books for charity or indigent care. Although Leesburg rendered $276,484

in charity/uncompensated care during 1981, it is impossible to determine which

facility rendered the most services for indigents due to the manner in which

Lake maintains its books and records. In any event, there is no evidence that

indigents in the Subdistrict have been denied access to hospital care at Lake or

any other facility within the county.

24. Lake opines that it will loose 2.6 million dollars in net revenues in

the event the application is granted. If true, this in turn would cause an

increase in patient charges and a falling behind in technological advances.

25. For the year 1981, the average percent occupancy based on licensed

beds for Leesburg, Lake, South Lake Memorial and Waterman Memorial was as

follows: 71.5 percent, 58.7 percent, 63.8 percent and 65.7 percent. The

highest utilization occurred in January (81 percent) while the low was in August

(58 percent). In 1982, the utilization rate during the peak months for all four

facilities was 78 percent. This figure dropped to 66.5 percent for the entire

year. Therefore, there is ample excess capacity within the County even during

the peak demand months.

CONCLUSIONS OF LAW

26. The Division of Administrative Hearings has jurisdiction of the

subject matter and the parties thereto pursuant to Subsection 120.57(1), Florida

Statutes.

27. Requiring resolution at the outset is whether Chapter 10-16, Florida

Administrative Code, which became effective on October 16, 1983, is applicable

to the case at bar. If it does indeed apply, it reflects a need for eight

additional acute care beds in Subdistrict VII by the year 1988. No such

allocation for subdistrict needs is made in Rule 10-5.11(23). Although HRS and

Lake vigorously objected to any evidence concerning the proposed rules at the

time of the final hearing, they now concede that the rules apply. This is

because the rules became operative prior to the issuance of a recommended order.

In view of the status of the rules, and the fact that evidence was presented

concerning their effect and application, the undersigned agrees they are

applicable to this proceeding. 3/

28. A second issue concerns the proper methodology to be used in

determining bed need. In all, some five methodologies were presented, producing

varying needs for beds. The state-adopted formula for determining acute care

bed need is set forth in Rule 10-5.11(23), Florida Administrative Code. It is

well settled that HRS is bound to follow "department rules" in administering its

certificate of need program. Page v. Capital Medical Center, Inc., 371 So.2d

1087, 1089 (Fla. 1st DCA 1979). Because of this, the methodology prescribed

within Rule 10-5.11(23) and Chapter 10-16 should be used, to the exclusion of

all others.

29. Using the state-adopted methodology, a district-wide need of 26

additional acute care beds has been shown. The subdistrict allocation for Lake

and Sumter Counties under Rule 10-16.003 is eight additional acute care beds.

30. The fact that an applicant lies within a district or subdistrict which

has a bed need does not in itself require the issuance of a CON to that

applicant. This is particularly true where the number of beds sought by an

applicant exceeds the actual bed need of the district. Indeed, Rule 10-

5.11(23)(b) provides that HRS. . ."will not normally approve applications for

new and additional acute care hospital beds. . .if approval would cause the

number of beds in that district to exceed the number of beds calculated to be

needed. . .A favorable (CON) determination may be made when the criteria other

than bed need, as provided for in (section) 381.393(6)(c). . .demonstrates

need." Therefore, because Leesburg's application seeks an additional 43 beds,

and the projected district and subdistrict needs are only 26 and 8, it is

incumbent upon Leesburg to demonstrate need under other relevant criteria if it

is to be successful.

31. Leesburg contends that its application should be granted because all

statutory criteria have been met. In particular, it points out that it has the

only application pending in District III, that only Lake competes with Leesburg

within the health service area, that Lakes does not make its facilities

accessible to indigents as Leesburg does, and that it has experienced high

occupancy rates during the peak season which justify an expansion program.

32. The parties have not precisely identified which of the 13 criteria

enumerated in Subsection 381.494(6)(c) are pertinent, although the evidence and

post-hearing memoranda suggest that not all apply to the case at bar. However,

a review of subparagraph 381.494(6)(c)2. is of special interest for applicant

has failed to satisfy that important criterion. It requires HRS to evaluate an

applicant against the following factors:

The availability, quality of care, efficiency,

appropriateness, accessibility, extent of

utilization, and adequacy of like and existing

health care services and hospices in the

applicant's health service district area.

The evidence reflects that applicant's facility is within thirty minutes driving

time of Lake, Waterman Memorial Hospital and South Lake Memorial Hospital. This

fits within the accessibility requirement of Rule 10-5.11(23)(i), Florida

Administrative Code. All three have ample excess capacity to assure the

residents of Lake County access to acute care beds. Indeed, the utilization

rate for all four hospitals was only 78 percent during the peak months in 1982

and dipped to 66.5 percent for the entire year. Moreover, it was not shown that

any resident of the County has ever been denied medical care due to a lack of

acute care beds within the County. Therefore, it must be concluded that this

criterion has not been met, and the other considerations advanced by Leesburg

must be considered.

33. Leesburg raises several other circumstances which it contends justify

the granting of its application. First, it argues that indigents in the

subdistrict do not have access to hospital care because of Lake's failure to

serve that segment of the population. But the evidence does not support this

allegation, for there was no evidence to demonstrate that indigents in the

subdistrict have been denied access to Lake or any other facility within the

area.

34. Leesburg also points to its high occupancy rates during the peak

months. However, the formula adopted by HRS gives specific consideration to bed

need based on peak demand, and no additional beds were warranted. Further, the

evidence reflects ample existing beds within the County to meet any peak demand

that may occur. Therefore, Leesburg has demonstrated no special circumstances

in this respect.

35. Finally, Leesburg suggests in its post-hearing memorandum that it has

the only pending application for a CON within the District, and that accordingly

it is entitled to any available beds. However, Case Nos. 82-2248, 83-013, 83-

811 involve applications for additional beds in District III, and Leesburg is

but one of four facilities seeking a part of the few remaining available beds.

36. It is concluded as a matter of law that petitioner has failed to

demonstrate the need for additional acute care beds under 381.494(6)(c), Florida

Statutes, or Rule 10-5.11, Florida Administrative Code, and that its application

should be denied.

37. HRS's request for official notice of certain pending applications for

CONs is hereby granted.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is

RECOMMENDED that the application of Leesburg Regional Medical Center for a

certificate of need to add 43 acute care beds, and renovate certain areas of its

facility to accommodate this addition, be DENIED.

DONE and ENTERED this 15th day of December, 1983, in Tallahassee, Florida.

___________________________________

DONALD R. ALEXANDER

Hearing Officer

Division of Administrative Hearings

The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 15th day of December, 1983.

ENDNOTES

1/ Exhibit 5 was offered when witness Gormley's deposition was taken on

September 16, 1983. After reviewing the same, it is hereby received in

evidence.

2/ The difference between 44 beds arrived at by this approach and the 26 beds

using the HRS approach in Rule 10-5.11(23) was not explained. A part of the

difference may lie in the way certain beds are classified at Shands Hospital in

Gainesville. In view of the result reached in this order, this point becomes

moot.

3/ Of course this result is not without potential difficulties. For example,

had objections by HRS and Lake to any testimony concerning the rules been

sustained, the record would now be silent as to this point. On the other hand,

if the rules were not eventually adopted, and testimony on this issue allowed,

much time and effort would have been spent in a wasteful and inefficient manner.

The better approach clearly seems to be that only those rules in effect at the

time evidence is taken should apply when HRS has in place an existing rule

governing the dispute.

COPIES FURNISHED:

Dean Bunch, Esquire

ERVIN VARN JACOBS ODOM

& KITCHEN

Post Office Drawer 1170

Tallahassee, Florida 32302

Bruce A. Saylor, Esquire

Post Office Drawer 2160

Leesburg, Florida 32748

Jay Adams, Esquire

Department of Health and

Rehabilitative Services

Building One, Room 406

1323 Winewood Boulevard

Tallahassee, Florida 32301

Eric J. Haughdahl, Esquire

Suite 208

1020 East Lafayette Street

Tallahassee, Florida 32301

Thomas K. Riden, Esquire

RIDEN WATSON & GOLDSTEIN, P.A.

5656 Central Avenue

St. Petersburg, Florida 33707

Alicia Jacobs, Esquire

General Counsel

Department of Health and

Rehabilitative Services

1323 Winewood Boulevard

Tallahassee, Florida 32301

David H. Pingree, Secretary

Department of Health and

Rehabilitative Services

1323 Winewood Boulevard

Tallahassee, Florida 32301