92-001510CON Naples Community Hospital, Inc. vs. Agency For Health Care Administration Status: Closed Recommended Order on Friday, March 19, 1993.

Summary: Peak seasonal demand is insufficient to support approval of Certificate Of Need application unless potential for negative impact on patient outcome exists.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

NAPLES COMMUNITY HOSPITAL, )

)

Petitioner, )

)

vs. )

)

AGENCY FOR HEALTH CARE ADMINISTRATION, )

) CASE NO. 92-1510

Respondent, )

and )

)

SOUTHWEST FLORIDA REGIONAL )

MEDICAL CENTER, INC., )

)

Intervenor. )

_______________________________________)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly

designated Hearing Officer, William F. Quattlebaum, held a formal hearing in the

above-styled case on October 6-9, 1992, in Tallahassee, Florida.

APPEARANCES

For Petitioner: W. David Watkins, Esquire

Oertel, Hoffman, Fernandez, & Cole

Post Office Box 6507

Tallahassee, Florida 32314-6507

For Respondent: Thomas Cooper, Esquire

Agency for Health Care Administration

2727 Mahan Drive

Tallahassee, Florida 32308

For Intervenor: John D.C. Newton, II, Esquire

Aurell, Radey, Hinkle, Thomas & Beranek

Monroe Park Tower, Suite 1000

101 North Monroe Street

Post Office Drawer 11307

Tallahassee, Florida 32302

STATEMENT OF THE ISSUE

Whether the application of Petitioner Naples Community Hospital, Inc. for a

Certificate of Need to add a total of 35 beds to Naples Community Hospital and

North Collier Community Hospital should be approved based on peak seasonal

demand for acute care beds in the relevant subdistrict.

PRELIMINARY STATEMENT

By Petition for Formal Administrative Proceeding filed on February 6, 1992

with the Department of Health and Rehabilitative Services ("DHRS") (now the

Agency for Health Care Administration), Naples Community Hospital, Inc.

challenged the DHRS denial of CON application No. 6797. The DHRS forwarded the

petition to the Division of Administrative Hearings. Southwest Florida Regional

Medical Center petitioned for and was granted leave to intervene in the case.

The case was subsequently transferred to the undersigned Hearing Officer.

Petitioner Naples Community Hospital, Inc., presented the testimony of

eight witnesses and offered exhibits numbered 1-11 and 13 into evidence.

Respondent Agency for Health Care Administration presented the testimony of two

witnesses and offered into evidence six exhibits. Intervenor Southwest Florida

Regional Medical Center presented the testimony of four witnesses and offered

into evidence exhibits numbered 1-32, 35, 37-40, and 43-47. All exhibits were

admitted into evidence. One Hearing Officer's exhibit was also admitted.

A transcript of the hearing was filed on November 5, 1992. Upon joint

motions, the deadline for filing proposed recommended orders was twice extended.

The Petitioner filed a proposed recommended order and a memorandum of law

directed to certain issues raised during the hearing. The Respondent and

Intervenor filed a joint proposed order. All submissions were considered in the

preparation of this Recommended Order. The proposed findings of fact contained

therein are ruled upon either directly or indirectly as reflected in this

Recommended Order, and in the Appendix which is attached and hereby made a part

of this Recommended Order.

FINDINGS OF FACT

1. Naples Community Hospital, Inc., ("NCH") holds the license for and

operates Naples Community Hospital ("Naples"), a 331 bed not-for-profit acute

care hospital, and North Collier Community Hospital ("North Collier"), a 50 bed

acute care hospital. NCH also operates a 22 bed comprehensive rehabilitation

facility and a 23 bed psychiatric facility. NCH is owned by Community Health

Care, Inc., "(CHC").

2. Both Naples and North Collier are located within Agency for Health Care

Administration ("ACHA") district 8 and are the only hospitals within subdistrict

2 of the district. Naples is located in central Collier County. North Collier

is (as the name implies) located in northern Collier County approximately 2-3

miles from the county line.

3. NCH's primary service area is Collier County from which approximately

85-90 percent of its patients come, with a secondary service area extending

north into Lee County.

4. Neither Naples nor North Collier are teaching hospitals as defined by

Section 407.002(27), Florida Statutes (1991).

5. NCH is not proposing a joint venture in this CON application.

6. NCH has a record of providing health care services to Medicaid patients

and the medically indigent. NCH proposes to provide health care services to

Medicaid patients and the medically indigent. Neither Naples nor North Collier

are currently designated by the Office of Medicaid as disproportionate share

providers.

7. NCH has the funds for capital and initial operating expenditures for

the project. NCH has sufficient financial resources to construct and equip the

proposed project. The costs and methods of the proposed construction are

reasonable.

8. The Agency for Health Care Administration ("AHCA") is the state agency

charged with responsibility for administering the Certificate of Need program.

9. Southwest Florida Regional Medical Center ("Southwest") is a 400 bed

for-profit acute care hospital located in Fort Myers, Lee County. Lee County is

adjacent to and north of Collier County.

10. Southwest is owned by Columbia Hospital Corporation ("Columbia"),

which also owns Gulf Coast Hospital in Fort Myers, and two additional hospitals

in AHCA District 8.

11. Southwest's primary service area is Lee County. Although Southwest

asserts that it would be negatively impacted by the addition of acute care beds

at NCH, the greater weight of the credible evidence fails to support the

assertion.

12. The primary market services areas of NCH and Southwest are essentially

distinct. However, the facilities are located in such proximity as to indicate

that secondary service areas overlap and that, at least during peak winter

season periods, approval of the NCH application could potentially impact

Southwest's operations. Southwest has standing to participate in this

proceeding.

13. Southwest offered evidence to establish that it would be substantially

affected by approval of the NCH application. The NCH length-of-stay identified

in the Southwest documents is inaccurate and under-reports actual length-of-stay

statistics. The documentation also includes demographic information from a zip

code (33912) which contributes an insignificant portion of NCH patients, and

relies on only two years of data in support of the assertion that utilization in

the NCH service area is declining.

14. Southwest's chief operating officer testified that he considers Gulf

Coast Hospital, another Columbia-owned facility, to offer more competition to

Southwest that does NCH.

15. Further, a physician must have admitting privileges at a hospital

before she can admit patients to the facility. Of the physicians holding

admitting privileges at Southwest, only two, both cardiologists, also have

admitting privileges at NCH. Contrary to Southwest, NCH does not have an open

heart surgery program. Accordingly, at least as to physician-admitted patients,

approval of the NCH application would likely have little impact.

16. On August 26, 1991, NCH submitted to AHCA a letter of intent

indicating that NCH would file a Certificate of Need ("CON") application in the

September 26, 1991 batching cycle for the addition of 35 acute care beds to the

Naples and North Collier facilities. The letter of intent did not specify how

the additional beds would be divided between the two facilities.

17. The determination of the number of beds for which NCH would apply was

solely based on the fact that the applicant had 35 observation beds which could

be readily converted to acute care beds. The observation beds NCH proposes to

convert are equipped identically to the acute care beds at NCH and are currently

staffed. The costs involved in such conversion are minimal and relatively

insignificant.

18. Included with the letter of intent was a certified corporate

resolution which states that on July 24, 1991, the NCH Board of Trustees

authorized the filing of an application for the additional beds, authorized NCH

to incur related expenses, stated that NCH would accomplish the proposed project

within time and budget allowances set forth in the application, and that NCH

would license and operate the facility.

19. By certification executed August 7, 1991, the NCH secretary certified

that the resolution was enacted at the July 24, 1991 board meeting and that the

resolution did not contravene the NCH articles of incorporation or bylaws.

20. Article X, Sections 10.1 and 10.1.3 of the NCH bylaws provides that no

CON application shall be legally effective without the written approval of CHC.

21. On September 26, 1991, NCH filed an application for CON No. 6797

proposing to add 31 acute care beds to Naples and 4 acute care beds to North

Collier. The CON application included a copy of the NCH board resolution and

certification which had been previously submitted with the letter of intent as

well as the appropriate filing fee. NCH published appropriate public notice of

the application's filing.

22. As of the date of the CON application's filing, CHC had not issued

written approval of the CON application prior to the action of the NCH Board of

Directors and the filing of the letter of intent or the application.

23. On October 2, 1992, four days prior to the administrative hearing in

this case, the board of CHC ratified the actions of NCH as to the application

for CON at issue in this case.

24. The CHC board has previously ratified actions of the NCH in such

fashion. There is uncontroverted testimony that the CHC board was aware of the

NCH application and that no reservation was expressed by any CHC board member

regarding the CON application.

25. Although NCH's filing of the CON application without appropriate

authorization from its parent company appears to be in violation of the NCH

bylaws, such does not violate the rules of the AHCA. There is no evidence that

the AHCA requested written authorization from the CHC board.

26. After review of the application, the AHCA identified certain

deficiencies in the application and notified NCH, which apparently rectified the

deficiencies. The AHCA deemed the application complete on November 8, 1991.

27. As required by statute, NCH included a list of capital projects as

part of the CON application. The list of capital projects attached to the

application was incomplete.

28. The capital projects list failed to identify approximate expenditures

of $370,000 to construct a patio enclosure, $750,000 to install an interim

sprinkler system, $110,000 to construct emergency room triage space, and

$125,000 to complete electrical system renovations.

29. At hearing, witnesses for NCH attempted to clarify the omissions from

the capital projects list. The witnesses claimed that such omitted projects

were actually included within projects which were identified on the list.

30. When identifying the listed projects within which the omitted projects

were supposedly included, the witnesses testified inconsistently. For example,

one witness testified that the patio project was included in the emergency room

expansion project listed in the application. Another witness claimed that the

patio enclosure was included in an equipment purchase category.

31. Based on the testimony, it is more likely that the patio enclosure was

neither a part of an emergency room expansion nor equipment purchase, but was a

separate construction project which was omitted from the CON application.

32. Similarly inconsistent explanations were offered for the other

projects which were omitted from the capital projects list. The testimony was

not credible.

33. The capital projects omitted from the list do not affect the ability

of NCH to implement the CON sought in this proceeding. The parties stipulated

to the fact the NCH has sufficient financial resources to construct and equip

the proposed project.

34. As part of the CON application, NCH was required to submit a pro forma

income statement for the time period during which the bed additions would take

place. The application failed to include a pro forma statement for the

appropriate time period.

35. Based on the stipulation of the parties that the costs and methods of

the proposed construction are reasonable, and that NCH has adequate resources to

fund the project, the failure to include the relevant pro forma is immaterial.

36. Pursuant to applicable methodology, the AHCA calculates numeric acute

care bed need projections for each subdistrict's specific planning period.

Accordingly, the AHCA calculated the need for additional acute care beds in

district 8, subdistrict 2 for the July, 1996 planning horizon. The results of

the calculation are published by the agency.

37. The unchallenged, published fixed need pool for the planning horizon

at issue in this proceeding indicated that there was no numeric need for

additional acute care beds in district 8, subdistrict 2, Collier County,

Florida, pursuant to the numeric need methodology under Rule 59C-1.038 Florida

Administrative Code.

38. The CON application filed by NCH is based on the peak seasonal demand

experienced by hospitals in the area during the winter months, due to part-time

residents. NCH asserts that the utilization of acute care beds during the

winter months (January through April) results in occupancy levels in excess of

75 percent and justifies the addition of acute care beds, notwithstanding the

numerical need determination. Approval of the CON application is not justified

by the facts in this case.

39. The AHCA's acute care bed need methodology accounts for high seasonal

demand in certain subdistricts in a manner which provides that facilities have

bed space adequate to accommodate peak demand. The calculation which requires

that the average annual occupancy level exceed 75 percent reflects AHCA

consideration of occupancy levels which rise and fall with seasonal population

shifts. The applicant has not challenged the methodology employed by the AHCA

in projecting need.

40. Peak seasonal acute care bed demand may justify approval of a CON

application seeking additional beds if the lack of available beds poses a

credible threat of potentially negative impact on patient outcomes. The peak

seasonal demand experienced by NCH has not adversely affected patient care and

there is insufficient evidence to establish that, at this time, such peak demand

poses a credible threat of potential negative impact on patient outcomes in the

foreseeable future.

41. There is no dispute regarding the existing quality of care at Naples,

North Collier, Southwest or any other acute care hospital in district 8. The

parties stipulated that NCH has the ability to provide quality of care and a

record of providing quality of care.

42. In this case, the applicant is seeking to convert existing beds from a

classification of "observation" to "acute care". The observation beds NCH

proposes to convert are equipped identically to the acute care beds at NCH.

Approval of the CON application would result in no net increase in the number of

licensed beds.

43. NCH offered anecdotal evidence suggesting that delays in transferring

patients from the Naples emergency room to acute care beds (a "logjam") was

caused by peak seasonal occupancy rates. There was no evidence offered as to

the situation at the North Collier emergency room.

44. The anecdotal evidence is insufficient to establish that "logjams" (if

they occur at all) are related to an inadequate number of beds identified as

"acute care" at NCH facilities. There are other factors which can result in

delays in moving patients from emergency rooms to acute care beds, including

facility discharge patterns, delays in obtaining medical test results and

staffing practices.

45. NCH asserted at hearing that physicians who refer patients to NCH

facilities will not refer such patients to other facilities. The evidence fails

to establish that such physician practice is reasonable or provides

justification for approval of CON applications under "not normal" circumstances

and further fails to establish that conditions at NCH are such as to result in

physicians attempting to locate other facilities in which to admit patients.

46. The rule governing approval of acute care beds provides that, prior to

such approval, the annual occupancy rate for acute care beds in the subdistrict

or for the specific provider, must exceed 75 percent. This requirement has not

been met.

47. Applicable statutes require that, in considering applications for

CON's, the AHCA consider accessibility of existing providers. The AHCA-

established standard provides that acute care bed accessibility requirements are

met when at least 90 percent of the residents in an urban subdistrict are within

a 30 minute automobile trip to such facilities. At least 90 percent of Naples

residents are presently within a 30 minute travel time to NCH acute care beds.

48. The number of acute care beds in the subdistrict substantially exceed

the demand for such beds. Additional beds would result in inefficient

utilization of existing beds, would further increase the current oversupply of

beds, would delay the time at which need for additional beds may be determined

and, as such, would prevent competing facilities from applying for and receiving

approval for such beds.

49. The financial feasibility projections set forth in the CON application

rely on assumptions as to need and utilization projections which are not

supported by the greater weight of the evidence and are not credited.

Accordingly, the evidence fails to establish that the addition of 35 acute care

beds to NCH facilities is financially feasible in the long term or that the

income projections set forth in the CON application are reasonable.

50. As to projections related to staffing requirements and costs, the beds

are existing and are currently staffed on a daily, shift-by-shift basis, based

on patient census and acuity of illness. There is reason to believe that the

staffing patterns will remain fairly constant and accordingly the projections,

based on historical data, are reasonable.

51. Generally stated, where there is no numeric or "not normal" need for

the proposed addition of 35 acute care beds in the relevant subdistrict, it

could be predicted that the addition of acute care beds would exacerbate the

oversupply of available beds and could cause a slight reduction in the occupancy

levels experienced by other providers. In this case, the market service areas

are sufficiently distinct as to suggest that such would not necessarily be the

result. However, based on the lack of need justifying approval of the CON

application under any existing circumstances, it is unnecessary to address in

detail the impact on existing providers.

52. The state and district health plans identify a number of preferences

which should be considered in determining whether a CON application should be

approved. The plans suggest that such preferences are to be considered when

competing CON applications are reviewed. In this case there is no competing

application and the applicability of the preferences is unclear. However, in

any event, application of the preferences to this proposal fail to support

approval of the application.

CONCLUSIONS OF LAW

53. The Division of Administrative Hearings has jurisdiction over the

parties to and subject matter of this proceeding. Section 120.57(1), Florida

Statutes.

54. The statutory review criteria which govern this proceeding were

previously found in Chapter 381, Florida Statutes, but have been transferred and

renumbered without substantive change to Chapter 408. However, the new section

numbers are not yet codified in the Florida Statutes, accordingly, the review

criteria will be identified by the previous section numbers. Likewise, the

relevant rule criteria were formerly found in Rule 10-5.038, Florida

Administrative Code, but have been transferred to Rule 59C-1.038 without

material change. Because Rule 10-5.038 is no longer codified in the Florida

Administrative Code, references to the rule are set forth by the new number.

55. Naples Community Hospital, Inc., has the burden to demonstrate that it

is entitled to the certificate of need. Florida Department of Transportation v.

J.W.C. Co., 396 So.2d 778 (Fla. 1st DCA 1981), Boca Raton Artificial Kidney

Center v. Department of Health and Rehabilitative Services, 475 So.2d 260 (Fla.

1st DCA 1985). A balanced consideration of applicable statutory and rule

criteria must be made. Humana, Inc. v. Department of Health and Rehabilitative

Services, 469 So.2d 889 (Fla. 1st DCA 1985). Such consideration requires that

varying weight be accorded each criterion depending on the facts of each case.

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

Services, 462 So.2d 83 (Fla. 1st DCA 1985). Based upon consideration of the

applicable criteria as related to the facts of the case, the applicant has not

met the burden of establishing that it is entitled to award of the CON.

56. Rule 59C-1.038, Florida Administrative Code, sets forth the rule

methodology related to numerical computation of acute care bed need. The rule

provides for allocation of district need by subdistricts. After the

mathematical calculation is completed for the district, a subdistrict bed

allocation adjustment is made. Based on the rule provisions, applications for

acute care beds will "not normally" be approved for a subdistrict unless the

average occupancy rate for all existing acute care hospital beds in that

subdistrict is at or exceeds 75 percent. An exception exists for an existing

hospital which permits approval of additional acute care beds where a facility's

occupancy rate exceeds 75 percent.

57. In this case the unchallenged numeric need for additional acute care

beds during the planning horizon is zero. The application filed in this case

seeks approval of acute care beds based on "not normal" circumstances related to

peak seasonal demand for services.

58. Seasonal demand is accounted for by the use of an annual average

occupancy rate in computing acute care bed need and is not sufficient, without

extraordinary conditions not present in this case, to justify approval of an

application. Approval of such applications may be appropriate where the lack of

available beds poses a credible threat of potentially negative impact on patient

outcomes. The peak seasonal demand currently experienced by NCH does not pose a

credible threat of potential negative impact on patient outcomes or will not

likely do so in the reasonably foreseeable future.

59. Section 381.705(1), Florida Statutes, identifies the specific review

criteria which the AHCA considers in CON application determinations. A review

of the criteria indicates that, on balance, the application should be denied.

60. Section 381.705(1)(a), Florida Statutes, requires consideration of the

need for the health care facilities and services and hospices being proposed in

relation to the applicable district plan and state health plan, except in

emergency circumstances which pose a threat to the public health. As to the

provision of care to disadvantaged persons, while NCH has a history of providing

such care and will continue to do so in the future, the addition of unneeded

acute care beds will not be of positive impact. As to the remaining District

and State plan objectives, the project does not meet the goals expressed in the

plans.

61. Section 381.705(1)(b), Florida Statutes, requires consideration of the

availability, quality of care, efficiency, appropriateness, accessibility,

extent of utilization, and adequacy of like and existing health care services

and hospices in the service district of the applicant. Approval of the NCH

application would not positively impact quality of care, efficiency of care,

appropriateness or utilization of facilities. While it may be suggested that

additional beds will always increase availability of care, such fails to account

for the impact of additional beds in a situation where, for the great majority

of each year, facility occupancy levels are indicative of excess capacity.

Further, based on the AHCA determination of accessibility, existing health care

services are accessible.

62. Section 381.705(1)(c), Florida Statutes, requires consideration of the

ability of the applicant to provide quality of care and the applicant's record

of providing quality of care. This criterion is met by NCH but is not

sufficient to justify approval of this CON application for additional acute care

beds.

63. Section 381.705(1)(d), Florida Statutes, requires consideration of the

availability and adequacy of other health care facilities and services and

hospices in the service district of the applicant, such as outpatient care and

ambulatory or home care services, which may serve as alternatives for the health

care facilities and services to be provided by the applicant. No need has been

established which would result in approval of this application because existing

services are available and adequate.

64. Section 381.705(1)(e), Florida Statutes, requires consideration of

probable economies and improvements in service that may be derived from

operation of joint, cooperative, or shared health care resources. Because this

proposal does not involve joint, cooperative, or shared health care resources,

there are no probable economies or service improvements anticipated.

65. Section 381.705(1)(f), Florida Statutes, requires consideration of the

need in the service district of the applicant for special equipment and services

which are not reasonably and economically accessible in adjoining areas. This

application does not provide for special equipment or services not already

available in the service area.

66. Section 381.705(1)(g), Florida Statutes, requires consideration of the

need for research and educational facilities, including, but not limited to,

institutional training programs and community training programs for health care

practitioners and for doctors of osteopathy and medicine at the student,

internship, and residency training levels. This application does not satisfy

this criterion.

67. Section 381.705(1)(h), Florida Statutes, requires consideration of the

availability of resources, including health manpower, management personnel, and

funds for capital and operating expenditures, for project accomplishment and

operation; the effects the project will have on clinical needs of health

professional training programs in the service district; the extent to which the

services will be accessible to schools for health professions in the service

district for training purposes if such services are available in a limited

number of facilities; the availability of alternative uses of such resources for

the provision of other health services; and the extent to which the proposed

services will be accessible to all residents of the service district.

68. Based on the evidence and the stipulation, NCH has the fiscal and

staff resources for project accomplishment and operation. The proposed services

will likely be accessible to all residents of the service district. The fact

that NCH has the resources and that the beds would likely be available to

residents is insufficient, without demonstrated need, to justify approval of the

application. The project will not effect clinical needs of health professional

schools or training programs in the service district.

69. Section 381.705(1)(i), Florida Statutes, requires consideration of the

immediate and long-term financial feasibility of the proposal. The financial

feasibility of the project is a reflection of need, absent which, feasibility is

doubtful. In this case, there is no need, and approval of the application would

exacerbate the existing excess bed capacity.

70. Section 381.705(1)(j), Florida Statutes, requires consideration of the

special needs and circumstances of health maintenance organizations. This is

inapplicable to this proceeding.

71. Section 381.705(1)(k), Florida Statutes, requires consideration of the

needs and circumstances of those entities which provide a substantial portion of

their services or resources, or both, to individuals not residing in the service

district in which the entities are located or in adjacent service districts.

Such entities may include medical and other health professions, schools,

multidisciplinary clinics, and specialty services such as open-heart surgery,

radiation therapy, and renal transplantation. This application does not address

this criterion.

72. Section 381.705(1)(l), Florida Statutes, requires consideration of the

probable impact of the proposed project on the costs of providing health

services proposed by the applicant, upon consideration of factors including, but

not limited to, the effects of competition on the supply of health services

being proposed and the improvements or innovations in the financing and delivery

of health services which foster competition and service to promote quality

assurance and cost-effectiveness.

73. Adding beds to an already excessive inventory could delay the point at

which occupancy levels would support a determination of numerical need, which in

turn would preclude competing facilities from seeking approval of the needed

additional beds. Otherwise stated, approval of this application will not

increase competition, but would likely decrease competition. Additionally, the

cost of carrying underutilized beds fails to promote cost-effectiveness.

74. Section 381.705(1)(m), Florida Statutes, requires consideration of 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 construction costs involved in this

proposal are minimal, however, such does not support approval of the

application.

75. Section 381.705(1)(n), Florida Statutes, requires consideration of the

applicant's past and proposed provision of health care services to Medicaid

patients and the medically indigent. Although NCH is not a Medicaid

disproportionate share provider, it does have a record of providing care to

cited populations. Approval of this application will not substantially impact

provision of such care. Even if this criterion were satisfied, it is not a

sufficient basis to justify approving this application.

76. Attention has been directed to the corporate resolution filed by NCH

as part of the letter of intent and application filed in this case. Sections

381.707(4) and 381.709(2), Florida Statutes, require that, included with a

letter of intent and an application, must be a certified copy of a resolution by

the board of directors of the applicant, or other governing authority if not a

corporation, authorizing the filing of the application, authorizing the

applicant to incur the expenditures necessary to accomplish the proposed

project, certifying that the applicant will accomplish the proposed project

within the time allowed by law and at or below the costs stated if the

certificate is issued, and certifying that the applicant shall license and

operate the facility.

77. In this case, this requirement was met by the applicant. The failure

of the corporate parent to have issued written approval of the NCH CON

application in apparent violation of NCH bylaws, does not negate the applicant's

compliance with this section. Nothing in the bylaws requires that such written

approval be issued prior to the filing of the application. In any event, the

subsequent ratification by the CHC board cured the defect. While there may be

other legal issues raised by the apparent violation of bylaws, such are outside

the jurisdiction of the Hearing Officer in this proceeding.

78. Attention was also directed to the NCH identification of capital

projects and expenditures related to the financial statement included in the

application. Section 381.707(2), Florida Statutes, requires as part of an

application for a CON submission of a "statement of the financial resources

needed by and available to the applicant to accomplish the proposed project."

The cited section further provides that the statement shall include:

(a) A complete listing of all capital

projects,... applied for, pending, approved,

or underway in any state at the time of

application....This listing shall include the

applicant's actual or proposed financial

commitment to those projects and an assessment

of their impact on the applicant's ability to

provide the proposed project.

(b) A detailed listing of the needed capital

expenditures, including sources of funds.

(c) A detailed financial projection,

including a statement of the projected revenue

and expenses for the period of construction

and for the first 2 years of operation after

completion of the proposed project. This

statement shall include a detailed evaluation

of the impact of the proposed project on the

cost of other services provided by the

applicant.

79. As to the required listing of capital projects and expenditures, NCH's

application failed to include a complete listing of capital projects and

expenditures underway at the time the letter of intent and application were

filed. However, prior to the hearing, the parties stipulated that NCH had the

fiscal resources to complete the project, which has minimal costs. Accordingly,

as to the issue of whether NCH is financially capable of completing the proposed

project, the failure to clearly identify all such projects is immaterial.

80. As to the required detailed financial revenue and expense projection

for the period of construction and for the first 2 years of operation after

completion of the proposed project, the documentation included in the

application is not persuasive. The revenue projections rely on assumed need for

the project. Because no need has been established for the project, the revenue

projections are not reliable and this requirement has not been met.

RECOMMENDATION

RECOMMENDED that a Final Order be entered DENYING the application of Naples

Community Hospital, Inc., for Certificate of Need 6797.

DONE and RECOMMENDED this 19th day of March, 1993 in Tallahassee, Florida.

___________________________________

WILLIAM F. QUATTLEBAUM

Hearing Officer

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

[phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 19th day of March, 1993.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-1510

To comply with the requirements of Section 120.59(2), Florida Statutes, the

following constitute rulings on proposed findings of facts submitted by the

parties.

Petitioner

The Petitioner's proposed findings of fact are accepted as modified and

incorporated in the Recommended Order except as follows:

3-4, 6-8, 16-20, 29-36, 38, 41, 44, 47, 49-61, 80, 88, 95-96, 100, 104, 108,

117-119, 122-125, 127, 134-138. Rejected as unnecessary.

15. Rejected as irrelevant. Peak seasonal demand is accounted for by the

numeric need determination methodology. There is no credible evidence which

supports a calculation of three years of four month winter occupancy to reach a

12 month average occupancy rate.

21-27, 37, 42-43, 62-64, 66, 97, 99, 101-103, 105-107, 109, 120-121, 126.

Rejected as not supported by the greater weight of credible and persuasive

evidence.

28. Rejected as not supported by the greater weight of credible and persuasive

evidence and contrary to the stipulation filed by the parties.

39. Rejected as not supported by greater weight of credible and persuasive

evidence which fails to establish that the transfer of patients from emergency

room to acute care beds is delayed due to numerical availability of beds.

40. Rejected as not supported by greater weight of credible and persuasive

evidence which fails to establish that the alleged lack of acute care beds is

based on insufficient number of total beds as opposed to other factors which

affect bed availability.

45. Rejected as immaterial and contrary to the greater weight of the evidence

46. Rejected as immaterial and contrary to the greater weight of the evidence

which fails to establish reasonableness of considering only a four month period

under "not normal" circumstances where the period and the peak seasonal demand

are included within the averages utilized to project bed need.

86. Rejected as cumulative.

114. Rejected as unsupported hearsay.

Respondent/Intervenor

The Respondent and Intervenor filed a joint proposed recommended order. The

proposed order's findings of fact are accepted as modified and incorporated in

the Recommended Order except as follows:

6, 45, 51, 53, 59-67, 69-70, 94-113. Rejected as unnecessary.

16. Rejected as to use of term "false", conclusion of law.

58. Rejected as not clearly supported by credible evidence.

71-93, 114-124. Rejected as cumulative.

COPIES FURNISHED:

Douglas M. Cook, Director

Agency for Health Care Administration

2727 Mahan Drive

Tallahassee, Florida 32308

Sam Power, Agency Clerk

Agency for Health Care Administration

The Atrium, Suite 301

325 John Knox Road

Tallahassee, Florida 32303

Harold D. Lewis, Esquire

Agency for Health Care Administration

The Atrium, Suite 301

325 John Knox Road

Tallahassee, Florida 32303

W. David Watkins, Esquire

Oertel, Hoffman, Fernandez, & Cole

Post Office Box 6507

Tallahassee, Florida 32314-6507

Edward G. Labrador, Esquire

Thomas Cooper, Esquire

Agency for Health Care Administration

2727 Mahan Drive

Tallahassee, Florida 32308

John D.C. Newton, II, Esquire

Aurell, Radey, Hinkle, Thomas & Beranek

Monroe Park Tower, Suite 1000

101 North Monroe Street

Post Office Drawer 11307

Tallahassee, Florida 32302

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended

Order. All agencies allow each party at least ten days in which to submit

written exceptions. Some agencies allow a larger period within which to submit

written exceptions. You should contact the agency that will issue the Final

Order in this case concerning agency rules on the deadline for filing exceptions

to this Recommended Order. Any exceptions to this Recommended Order should be

filed with the agency that will issue the Final Order in this case.

=================================================================

AGENCY FINAL ORDER

=================================================================

STATE OF FLORIDA

AGENCY FOR HEALTH CARE ADMINISTRATION

NAPLES COMMUNITY HOSPITAL,

Petitioner,

CASE NO.: 92-1510

vs. CON NO.: 6797

RENDITION NO.: AHCA-93-71-FOF-CON

STATE OF FLORIDA, AGENCY FOR

HEALTH CARE ADMINISTRATION,

Respondent,

and

SOUTHWEST FLORIDA REGIONAL

MEDICAL CENTER, INC.,

Intervenor.

_____________________________/

FINAL ORDER

This cause came on before me for the purpose of issuing a final agency

order. The Hearing Officer assigned by the Division of Administrative Hearings

(DOAH) in the above-styled case submitted a Recommended Order to the Agency for

Health Care Administration (AHCA). The Recommended Order entered March 19,

1993, by Hearing Officer William F. Quattlebaum is incorporated by reference.

RULING ON EXCEPTIONS FILED BY AHCA AND SOUTHWEST

FLORIDA REGIONAL MEDICAL CENTER INC. (SOUTHWEST)

1. As to finding of fact one, counsel for AHCA requests that the word unit

be substituted for facility on the grounds that facility implies that

rehabilitation and psychiatric care is provided in free standing facilities, not

units within the hospital. The request is granted.

2. AHCA and Southwest except to finding of fact 24. The finding is

supported by competent, substantial evidence; therefore, the exception is

denied.

3. AHCA and Southwest except to paragraphs 25, 76, and 77 wherein the

Hearing Officer concluded that the corporate resolution of Naples Community

Hospital, Inc. (NCH) complied with Sections 381.707(4) and 381.709(2), Florida

Statutes (1991), and the applicable rule. In summary, the Hearing Officer found

the resolution to be satisfactory because its content conformed to the statute

even though the resolution was defective because it failed to comply with NCH's

corporate bylaws which required approval of NCH's corporate parent.

I disagree with the Hearing Officer. Merely reciting the required

statutory language is not sufficient. The resolution's content must be

consistent with the facts. Brookwood-Jackson County Convalescent Center vs.

HRS, 591 So2d 1085 (Fla. 1st DCA 1992)(resolutions rejected because

certifications that applicants would license and operate the facilities proved

to be untrue). An invalid resolution is necessarily inconsistent with the

statute because it is not what it purports to be. University Community

Hospital, Inc. vs. HRS, 13 FALR 2362, 2375 (Final Order May 30, 1991)(rejecting

resolution that tracked exactly the statutory language because resolution was

not adopted on the date certified).

Humhosco Inc. vs. HRS, 561 So2d 388, 391 (Fla. 1st DCA 1990), characterized

as "self-evident" the "importance of action by the board of directors of the

applicant formally authorizing the filing of a CON application." What is "self-

evident" is that CON applicants, through the resolution and certification

requirements, must make an actual commitment to a project before applying for a

CON. To confirm this commitment, the agency by rule requires each applicant's

certification to contain a statement that its resolution is "still in full

force" and does not "in any manner contravene" its articles of incorporation or

bylaws. Rule 59C-1.008(1)(e)(2), F.A.C.

NCH's resolution purporting to commit NCH to implement its proposal was not

approved by the corporate parent at the time the application was submitted for

review. NCH certified that its resolution was consistent with its bylaws, but

that certification is obviously incorrect given the Hearing Officer's findings.

NCH's invalid resolution fails to satisfy the requirements of the CON law.

Sections 381.707(4), 381.709(2), Florida Statutes (1991); Section 59C-

1.008(1)(e)(2), F.A.C. The Hearing Officer's conclusion to the contrary must be

rejected.

4. The Hearing Officer's findings in paragraph 33 and 79 are not

challenged as being factually incorrect, (AHCA exception 4 and Southwest

exception 3), but as irrelevant to the issue of whether NCH's application

complied with the requirement for a complete list of capital projects. See

Section 381.707, Florida Statutes (1991). The Hearing Officer's finding in

paragraph 28 that the list was incomplete is accepted. There is no claim that

the parties opposing approval of the application were precluded from fully

addressing whether NCH substantially complied with the capital projects

requirement. The parties' stipulation regarding NCH's financial resources is

relevant; thus, the exception is denied.

5. The Hearing Officer's conclusion that NCH's failure to include the

"period of construction" in its pro forma is harmless error is challenged in

AHCA exception 5 and Southwest exception 3. The Hearing Officer based his

conclusion on the parties' stipulations that the projected costs are reasonable

and that NCH has the resources to fund the project. Also relevant is that NCH

seeks to convert 35 observation beds to the 35 acute care beds. The Hearing

Officer found that the observation beds are equipped identically to acute care

beds at NCH and are currently staffed. The cost of conversion is minimal. See

Finding of Fact 17. I concur with the Hearing Officer that the error is

harmless. The exception is denied.

6. Counsel for AHCA excepts to the Hearing Officer's legal conclusion in

paragraph 42 that conversion of the observation beds to acute care beds would

not result in an increase in the number of licensed beds. The Hearing Officer's

conclusion is rejected. If the project were approved and carried out 35 acute

care beds would be licensed that are not currently licensed.

7. Counsel for AHCA excepts to the Hearing Officer's comment in paragraph

52 that the applicability of the preferences in the state and local plans is

unclear because there were no applications competing for acute care beds in the

batching cycle. The exception is granted. All applications are reviewed for

consistency with the state and local plans.

8. The Hearing Officer's conclusion that the lack of a valid corporate

resolution committing the applicant to the proposed project could be cured four

days before the final hearing is challenged (AHCA exception 8, Southwest

exception 2). The resolution requirement is necessarily temporal and must be

met in advance of Letter of Intent and application filing. CON law requires an

applicant's commitment at the front-end of the CON process. An applicant cannot

retroactively cure an invalid resolution, via ratification or otherwise, after

the filing deadline has passed.

In Humhosco Inc. vs. HRS, 561 So2d 388 (Fla. 1st DCA 1990), a defective

resolution was attached to the Letter of Intent. A corrected resolution was

later filed with the application. The court held that the subsequent submission

of a conforming resolution did not cure the defect in the initial resolution.

In University Community Hospital, Inc. vs. HRS, 13 FALR 2362 (HRS, 1991),

UCH, certified that its resolutions were enacted on January 12, 1990. In fact,

no resolution was adopted on that date. UCH had tries to "ratify and confirm"

its "prior approval" after its application was filed, but the agency concluded

that the retroactive project approval was untimely under the statute.

The Hearing Officer's conclusion that the NCH's invalid resolution could be

cured four days before the final hearing is rejected.

9. Counsel challenges the Hearing Officer's conclusion in paragraph 79

that the failure to identify certain projects in its application was immaterial

because of the parties' stipulation that NCH is capable of completing the

project. The exception is denied. See the Ruling On Exception 4.

RULING ON EXCEPTIONS FILED BY

NAPLES COMMUNITY HOSPITAL, INC., (NCH)

NCH excepts in whole or in part to Findings of Fact 27, 28, 30-32, 34, 38,

40, 43-45, 48, 49, and 52. The findings are supported by competent, substantial

evidence; therefore, the exceptions are denied. NCH also excepts to the same

Findings of Fact which were restated in the Conclusions of Law section of the

Recommended Order. The exceptions to the Conclusions of Law are denied.

FINDINGS OF FACT

The agency hereby adopts and incorporates by reference the Findings of Fact

set forth in the Recommended Order. Certain legal conclusions placed under

"Findings of Fact" have been modified in the Ruling On Exceptions.

CONCLUSIONS OF LAW

The agency hereby adopts and incorporates by reference the conclusions of

law set forth in the Recommended Order except where inconsistent with the Ruling

On Exceptions.

NCH seeks approval of its proposal to convert 35 observation beds to acute

care beds at its two facilities in Collier County.

The applicable need formula for hospital, acute care beds is found in

Section 59C-1.038, F.A.C. 1/ All parties stipulated to the lack of numeric need

in the appropriate subdistrict; thus, the rule mandates denial unless there are

sufficient "not normal" circumstances. 2/ The need formula generates a

numerical prediction of beds needed for the planning area five years into the

future. The need formula is a mathematical calculation utilizing specified

statistical data. Because no statistics based formula can account for all

possible contingencies, subsection 7(e) of Section 59C-1.038, F.A.C. gives the

agency authority to approve additional beds despite a lack of formula or numeric

need if an applicant can prove sufficient "not normal" circumstances.

Not normal circumstances are not susceptible to rule definition, because

they fall outside the range of the accepted statistical predictors. As noted by

the Hearing Officer in paragraphs 40 and 58 "not normal" circumstances may exist

if high seasonal demand causes a shortage of beds which "poses a credible threat

of potentially negative impact on patient outcomes". Adoption of the Hearing

Officer's conclusion does not suggest that such circumstances are the only way

"not normal" circumstances can be established.

Subsection (7)(e) of the rule addresses the issue of "not normal"

circumstances. A requirement under (7)(e) is that the applicant-hospital must

have an average annual occupancy exceeding seventy-five percent (75 percent).

NCH did not meet this requirement. See paragraph 46 of the Recommended Order.

I conclude that NCH has not demonstrated the existence of "not normal"

circumstances which would justify approval of its proposal.

Based upon the foregoing, it is

ADJUDGED, that the application of Naples Community Hospital, Inc. for CON

6797 be DENIED.

DONE and ORDERED this 6th day of June, 1993, in Tallahassee, Florida.

_______________________________

Douglas M. Cook, Director

Agency for Health Care Administration

ENDNOTES

1/ In certificate of need law, a great deal of importance is attached to a

calculation of need or lack thereof under a rule formula. A lack of numeric

need under the rule formula establishes a rebuttable presumption of no need.

Humhosco vs. Department of Health and Rehabilitative Services, 476 So2d 258, 261

(Fla. 1st DCA 1985).

2/ When there is no numeric need under the rule formula, a CON application may

nevertheless be approved if there are "not normal" circumstances justifying

approval. The decision on whether to approve on the basis of "not normal"

circumstances is a conclusion of law and thus a matter of agency discretion so

long as the decision is based on competent, substantial evidence. Humana vs.

Department of Health and Rehabilitative Services, 492 So2d 388, 392 (Fla. 4th

DCA 1986); Federal Property Management vs. Department of Health and

Rehabilitative Services, 382 So2d 475, 477 (Fla. 1st DCA 1985).

COPIES FURNISHED:

W. David Watkins, Esquire

OERTEL, HOFFMAN, FERNANDEZ

& COLE

Post Office Box 6507

Tallahassee, Florida 32314-6507

Edward Labrador, Esquire

Senior Attorney

325 John Knox Road, Suite 301

Tallahassee, Florida 32303-4131

John D. C. Newton, II, Esquire

AURELL, RADEY, HINKLE,

THOMAS & BERANEK

Monroe-Park Tower, Suite 1000

101 North Monroe Street

Tallahassee, Florida 32302

William F. Quattlebaum

Hearing Officer

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

Liz Dudek (AHCA/CON)

Elfle Stamm (AHCA/CON)

Alberta Granger (AHCA/CON)

AHCA Legal

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and correct copy of the foregoing has been

furnished to the above named people by U.S. Mail this 7th day of 1993.

_______________________________

R. S. Power, Agency Clerk

State of Florida, Agency for

Health Care Administration

325 John Knox Road

The Atrium Building, Suite 301

Tallahassee, Florida 32303

[phone]

NOTICE OF RIGHT TO JUDICIAL REVIEW

A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO A JUDICIAL

REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH

THE AGENCY CLERK OF AHCA, AND A SECOND COPY ALONG WITH FILING FEE AS PRESCRIBED

BY LAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE

AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS

SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE

OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.