96-004073CON Hospice Of Northwest Florida, Inc. vs. Bay Medical Center; Panhandle Hospice, Inc.; And Agency For Health Care Administration Status: Closed Recommended Order on Monday, May 19, 1997.

Summary: Additional hospice needed numerically and in absence of explanation for lower hospice patient factor in District 1. New hospice creates demand for hospice care.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

HOSPICE OF NORTHWEST FLORIDA, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 96-4073

)

AGENCY FOR HEALTH CARE )

ADMINISTRATION, )

)

Respondent. )

____________________________________)

RECOMMENDED ORDER

This case was heard by Eleanor M. Hunter, the Administrative

Law Judge for the Division of Administrative Hearings, from

February 17 - 21 and 24, 1997, in Tallahassee, Florida.

APPEARANCES

For Petitioner, J. Robert Griffin, Attorney

Hospice of J. Robert Griffin and Associates, P.A.

Northwest Florida, 2559 Shiloh Way

Inc.: Tallahassee, Florida 32308

For Respondent, Richard Ellis, Senior Attorney

Agency For Health Agency for Health Care Administration

Care 2727 Mahan Drive

Administration: Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

For Respondent, Darrell White, Attorney

Bay Medical William B. Wiley, Attorney

Center: McFarlain, Wiley, Cassedy and

Jones, P.A.

215 South Monroe Street

600 Barnett Bank Building

Post Office Box 3174

Tallahassee, Florida 32316-2174

STATEMENT OF THE ISSUES

Whether a need exists for an additional hospice in Agency

for Health Care Administration service area 1. Whether the

certificate of need application of Bay Medical Center to

establish the hospice, on balance, meets the criteria for

approval.

PRELIMINARY STATEMENT

The Agency For Health Care Administration (“AHCA”) published

a need for an additional hospice program in AHCA service area 1.

In response, Bay Medical Center (“BMC”) and Panhandle Hospice,

Inc., (“Panhandle”) applied for the certificate of need (“CON”)

to establish the additional hospice program. AHCA preliminarily

approved the application of BMC and preliminarily denied that of

Panhandle. Hospice of Northwest Florida, Inc., an existing

provider of hospice services in the area, filed a petition

challenging the need for an additional hospice and opposing the

approval of either application.

On October 3, 1996, Panhandle Hospice, Inc., filed a Motion

For Summary Recommended Order to dismiss the CON of BMC.

Panhandle claimed (1) that the letter of intent should have been

adopted by BMCH rather than BMC; (2) that the chairman/record

custodian's certification of Board action, which was

prospectively executed was invalid; and (3) that BMC is not the

type of organization which can be licensed as a hospice pursuant

to Section 400.601(3), Florida Statutes . Following the filing of

responses and after arguments at a motion hearing, Panhandle's

motion was denied by Order, dated January 21, 1997. Panhandle

voluntarily dismissed its petition, on February 17, 1997,

immediately prior to the commencement of the final hearing.

At the final hearing, BMC presented the testimony of Gregory

Ohe, expert in health care administration; Jay D. Cushman, expert

in health care planning; Ronald V. Wolff, expert in hospital

administration; Tammy Sharp Henely, expert in health services

marketing and public relations; Dorothy Perry, R.N., expert in

hospice administration; Sharon Gordon-Girvin, expert in health

care planning; and Darryl Weiner, expert in health care finance,

including financial feasibility. BMC’s exhibits 1-13, 15-40, 42

and 43 were received in evidence.

AHCA presented the testimony of Elizabeth Dudek, expert in

health planning, CON policy, and CON procedure. AHCA’s exhibits

1 and 2 were received in evidence.

Hospice of Northwest Florida, Inc. (“HNWF”) presented the

testimony of Dale Knee, expert in hospice operations and

management, and health care administration; Thomas D. Sunnenberg,

M.D., expert in oncology, hematology and hospice medical care;

Donald J. Gaetz, expert in hospice and health care

administration; Joseph D. Mitchell, expert in accounting and

health care finance; Donna Elaine (Laney) Beard, R.N., expert in

hospice nursing; Elizabeth Kuehn, expert in hospice social work

and social work; Chetta McCart, expert in hospice social work and

hospice AIDS program administration; Sandra J. Kerns, expert in

hospice social work and bereavement, and pediatric and adolescent

services; Julie Patton, expert in hospice quality assurance and

quality improvement; Jo Marilyn Webb, R. N., expert in hospice

education and nursing; Charles Timothy Davis, Ph.D.; Lynne

Mulder, expert in health care planning; and Janet Wilke, expert

in hospice bereavement services. HNWF’s exhibits 1-9 and 11-21

were received in evidence.

The last of the twelve volumes of the final hearing

transcript was filed on March 17, 1997. Proposed recommended

orders were filed by BMC and HNWF on March 27, 1997. On May 5,

1997, AHCA filed a Notice of Joinder In Proposed Recommended

Order of Bay Medical Center. On March 27, 1997, BMC also filed a

Motion For Official Recognition of Halifax Hospital Medical

Center, etc. v. AHCA , DOAH Case No. 95-0742 (R.O. 9/30/96, F.O.

1/14/97). The Motion For Official Recognition is granted, no

response in opposition having been filed.

FINDINGS OF FACTS

1. The Agency For Health Care Administration (“AHCA”) is

the state agency which administers the certificate of need

(“CON”) program for health care facilities and services in the

state. AHCA published a need for one additional hospice program

in service area 1, in Volume 22, Number 5 of the Florida

Administrative Weekly (February 2, 1996).

2. Bay Medical Center (“BMC”), which currently operates a

hospice in service area 2A, is the applicant for CON 8377 to

establish the additional hospice program in service area 1.

Hospice of Northwest Florida, Inc. (“HNWF”) is an existing

provider of hospice services in both service areas 1 and 2A.

Service area 1 encompasses Escambia, Santa Rosa, Okaloosa, and

Walton Counties. Adjacent service area 2A includes Bay, Holmes,

Washington, Jackson, Calhoun and Gulf Counties.

3. Hospice care is provided to terminally ill persons,

defined as those with a life expectancy of six months or less if

their disease runs its normal course. It is palliative and

comfort-oriented, rather than curative. Clinical, pschosocial,

and spiritual services are provided by an interdisciplinary team,

which includes a physician, nurses, social workers, home health

aides, chaplains, and bereavement counselors. In addition to

paid staff, hospices also use volunteers. Social workers,

chaplains, and bereavement counselors work with patients'

families for up to a year following death. Services are provided

in patients' homes, nursing homes, or acute care hospitals.

Hospice care is less expensive than aggressive acute care for the

terminally ill. It is estimated that every dollar of hospice

care saves a dollar and a half in Florida.

4. Hospice services began in the United States in the

1970’s and were approved for government reimbursement in the

1980’s. Routine home hospice care is reimbursed at a per diem

rate, for which the hospice provides care, and pharmaceutical

drugs and supplies. Hospices also receive financial support from

fund raising activities, and typically provide substantial

community services which are otherwise unfunded and not

reimbursed. These include community outreach programs in

churches and schools, and services to families in which a death

was accidental.

5. In 1985, the national hospice penetration rate or P

Factor (the percentage of total deaths in which patients received

hospice care) was approximately 8 percent. By 1995, the P Factor

had increased to 17 percent, with the greatest rate of growth in

the most recent five years. In Florida, approximately 29.6

percent of all deaths occur after a person has been admitted to a

hospice program. In service area 1, the P Factor is 21 percent.

Bay Medical Center

6. BMC is a legislatively - created independent special

governmental district, authorized initially to provide health

care services to Bay County, but now also to surrounding areas.

It operates a 353-bed public, not-for-profit full service

hospital in Panama City, Florida, but does not receive tax

support. Over 190 physicians staff BMC’s hospital with every

specialty, except rheumatology, endocrinology, and neonatology.

BMC’s tertiary services include an open heart surgery program.

BMC also provides ambulatory or outpatient services.

7. Since 1992, BMC has operated a hospice program in

service area 2A, with offices in Panama City (on the campus of

the BMC hospital) and in Marianna. The Marianna office opened in

February 1997, as a result of the Florida Legislature's 1995

amendment to the enabling legislation allowing BMC to offer

services beyond Bay County. The 1995 legislation also expressly

authorizes BMC to provide hospice services and to create other

organizations to further its mission.

8. The Board of Directors of BMC created the Bay Medical

Center Hospice (BMCH). BMCH is governed by a board of directors

which is separate and distinct from the board of BMC, although

BMC is the entity licensed to operate the hospice program in

service area 2A. The BMCH board members live and work in each of

the six counties of service area 2A.

9. BMC, which holds the existing license, is the applicant

in this proceeding. The board of BMC met on the day that the

letter of intent was due, February 19, 1996. A few days prior to

the meeting the Chairman of the Board executed the letter of

intent, and sent it to a health planning consultant in

Tallahassee. After the Board met and passed the resolution

authorizing the filing of the letter of intent, the consultant

filed the letter of intent with AHCA in Tallahassee.

10. In service area 2A, BMCH has an average daily census of

58-64 patients. BMC projected and HNWF stipulated that BMC can

reasonably attain 250 admissions for a total of 12,471 patient

days in year one, and 300 admissions for 18,706 patient days in

year two of operation in service area 1.

11. BMCH currently advertises its hospice services on

television and radio stations, and in newspapers with coverage

extending into service area 1. Fund-raising events, including

the holiday tree lighting program, are used to market hospice

services. Hospice services are also explained in newsletters

which reach 27,000 households and all physicians in the area.

BMC purchased over 100 sixty-second radio spots, which aired on

three stations over a two month period in 1996. The hospice

radio spots reached an estimated 87,000 people an average of five

times each.

12. BMC estimates a total project cost of $129,591, if CON

8377 is approved, to extend hospice services into service area 1.

BMC proposes to condition CON 8377 on the provision of a minimum

of 12.8 percent Medicaid and 3.65 percent charity care by the end

of the second year of operation, and the care of 7 AIDS patients

(with a minimum of 350 total visits) each year.

Hospice of Northwest Florida

13. HNWF is an existing provider of hospice services in

AHCA service areas 1 and 2A. It is the only licensed hospice in

service area 1 and competes with only BMC in 2A. HNWF, organized

by hospitals in Pensacola, was issued a CON in December 1982 and

a license in 1983, to operate a hospice in Escambia, Santa Rosa,

Okaloosa, Walton, Holmes, Washington and Jackson Counties. The

home office of HNWF is located in Pensacola. HNWF admitted its

first patients and families in January 1984. In 1987, HNWF

opened a branch office in Fort Walton Beach, later apparently

consolidated with a Niceville office, to serve Okaloosa and

Walton Counties. An additional branch office was opened in

Marianna in 1991. An adjunct medical director for the Marianna

and Niceville offices was hired in 1996. In December 1995, HNWF

received a CON waiver and its license was amended to allow it to

operate in the remainder of service area 2A, in Bay, Gulf, and

Calhoun Counties. HNWF then opened a branch office in Panama

City, in August 1996. HNWF also operates, and is expanding from

six to eight beds, a residential facility in Pensacola, to house

hospice patients without homes or without at-home caregivers.

14. Prior to opening the Panama City office, HNWF

historically served Holmes, Washington, and Jackson Counties,

while BMCH served patients in Bay, Gulf, Washington, and Calhoun

Counties. From 1993 to the present time, HNWF has increased its

contracts or agreements from the Pensacola hospital to all of the

hospitals in the service areas, including two military hospitals,

from none to virtually all assisted living facilities, and from

five to all except two or three nursing homes.

15. HNWF operates an extensive outreach and educational

effort, including a monthly half-hour television show, which is

estimated to reach over 200,000 people in Escambia and Santa Rosa

Counties. Other efforts include radio talk show appearances,

speaking engagements reaching over 5,000 people in 1996, and

extensive direct physician contact. HNWF also relies on it

chaplaincy and bereavement programs to extend information about

hospice care, particularly to culturally diverse groups of

people. Despite these efforts, the number of hospice patients in

service area 1 has remained relatively constant. HNWF served 969

patients in calendar year (CY) 1995, and 963 in CY1996.

16. HNWF contends that its lack of growth is due, in part,

to declining referrals from nursing homes despite increased

referrals from other sources. HNWF attributes the nursing home

decline to government investigations of suspected excessive

nursing home reimbursements. There is no waiting list for HNWF's

services, and its goal is to admit patients within 24 hours of

referral.

17. HNWF criticized BMCH’s outreach efforts as inadequate

and misdirected, attracting only “easy” patients, those easily

diagnosed as qualified for hospice care by well-informed referral

sources. On this basis, HNWF expects BMC to take hospice

patients from HNWF and not from any growth in hospice patients.

HNWF also expects competition from BMC to adversely affect its

ability to provide enhanced and unfunded services, including

bereavement services in schools, on military bases, and in work-

places, and its ability to operate satellite offices and the

residential facility. Revenues from patient care are

supplemented by donations and grants. In 1992, HNWF established

a foundation to coordinate fund raising efforts.

18. The approval of the BMC application, according to HNWF,

will also affect the types of hospice services available in the

area. In general, more sophisticated hospice services can be

provided by larger hospices, including palliative chemotherapy

and radiation. BMC’s expert testified that HNWF will continue to

be a large hospice with or without the approval of a CON for BMC,

and that the additional program will create additional demand for

the service.

19. The parties stipulated that subsections 408.035(1)(m)

and (3), Florida Statutes , and Rule 59C-1.0355(7) and (8),

Florida Administrative Code , are not applicable to this

proceeding. At hearing, the parties also stipulated that BMC's

list of capital projects meets the requirements of subsection

408.037(2)(a).

Rule 59C-1.0355(4)(a) - Numeric Need;

Subsections 408.035(1)(b) - like and existing

services; (d) - available alternatives

20. Rule 59C-1.0355, the hospice rule, includes the formula

for calculating the numeric need for hospice programs. Numeric

need exists if the projected total number of hospice patients in

service area one for the planning horizon (1400 for July 1997)

minus the actual number of hospice patients in the base year (969

in calendar year 1995) is equal to or greater than 350 (in this

case, 431). The statewide P Factor, 29.6 percent, is used in the

formula to calculate the ratio of projected hospice patients to

projected total deaths. The statewide rate represents the

normative minimum applied to each service area by operation of

the formula in the rule. In service area 1, the P Factor in the

base year was 21 percent.

21. The statewide P Factor is an average of rates for

various disease categories and ages. Those rates range from a

high of hospice care for 70.9 percent of deaths due to cancer in

people 65 and over, to a low of 14.1 percent for people under 65

with all other diseases.

22. BMC cites HNWF's relativ ely low hospice penetration

rate as proof of the need for an additional hospice program to

create and accommodate additional potential demand. HNWF

asserts, however, that certain local circumstances cause the

deviation from the statewide P Factor. HNWF also contends that

more people received hospice services than the number used in the

formula for the base year. The result, according to HNWF is an

excess projected demand for hospice services by the July 1997

planning horizon. The extenuating local circumstances cited by

HNWF, are the sizable active duty military population, the strong

Medicaid AIDs program, the aggressiveness of home health

agencies, the prevalence of cancer centers, and the established

practice parameters of medical doctors in the service area.

23. The number of active duty military in service area 1 is

23,162. The number of those who die from terminal illnesses is

statistically insignificant, because it is military policy to

retire personnel who are diagnosed with terminal illnesses, which

enhances death benefits to survivors. BMC's expert confirmed

that policy and the improbability of serving military patients,

although HNWF has served military base families after active duty

casualties. Military families represent some of those served by

HNWF in the base year, who are not included in the numeric need

formula as hospice admissions. In the numeric need formula,

according to BMC's expert, military personnel are included in

projected deaths to younger age cohorts from causes other than

cancer. Of the 431 projected additional hospice admissions,

BMC’s expert calculated that, at most, 3 projected hospice deaths

of those result from including the active duty military

population. By contrast, HNWF's expert testified that the

military population of 23,162 multiplied by the statewide death

rate of .008 results in an estimated 186 deaths, or approximately

62 hospice patients.

24. The background information in support of the fixed need

pool, prepared by AHCA, shows that AHCA calculates projected

hospice patients by age and disease. The actual base year

service area non-cancer deaths under 65 (1010) divided by the

actual service area total deaths (4562), times total projected

deaths (4816) gives the total projected deaths non-cancer under

65 (1066). Of the 1066 deaths, 150 are expected to be hospice

patients. It is not reasonable to assume that 186 deaths will

occur among active duty military, or that 62 of the 150 non-

cancer hospice patients under 65 will be in that group. It is

more reasonable to assume, as BMC's expert did and as the state

numeric need methodology does, that the age cohort of that group

has and will continue to have a significantly lower death rate

and lower hospice admissions than the 65 and over population.

25. HNWF's expert health planner was unable to distinguish

service area 1 from the rest of the state in terms of the

strength of the Medicaid AIDs waiver program, the presence of

prisons, the existence of home health agencies, the presence of

cancer centers, or physicians' practice patterns. Similarly,

BMC's expert found no statistical relationship between home

health agency visits and hospice utilization. BMC's expert also

noted that some hospices provide services to prisoners. HNWF's

expert agreed that there is no prohibition to providing hospice

services to prisoners. In some areas of the state, such as

Gainesville and Tampa, cancer centers co-exist with high levels

of hospice utilization. There was no evidence to distinguish

physicians' practice patterns in service area 1 from the areas of

the state. The argument that HNWF served more than the reported

969 in the base year, through it AIDs support groups, in schools,

and for families in which deaths were accidental also does not

distinguish HNWF. The evidence shows that hospices typically

provide services to persons other than patients and their

families, and benefit in terms of marketing and fund-raising.

26. The incidence of AIDS in service area 1 is below that

of the state. That could affect the gap between 21 percent and

29 percent, by approximately 3 or 4 percent.

27. Late referrals to hospice services can adversely affect

utilization rates. The federal government program, Restore

Trust, initiated a HCFA Inspector General's investigation into

charges of waste, fraud, and abuse in nursing homes and home

health agencies. The decline in referrals to hospice programs

coincided with the investigation, while hospice referrals and

admissions in non-nursing home settings increased. There is no

evidence, however, that service area 1 nursing homes were subject

to more intense scrutiny than any others in the state. In fact,

the Executive Director of HNWF testified that the effects of

Restore Trust were national.

28. The active duty military population difference of 3

fewer projected hospice deaths, and the 3 or 4 percent gap in the

P Factor due to the lower incidence of AIDs are insufficient to

explain the gap between P Factors of 21 and 29 percent. BMC's

expert's estimate that ninety percent of the gap results from the

lower than average P Factor is, at most, reduced to eighty-six

percent.

29. From 1994 to 1996, as the hospice utilization statewide

reached 27.7 percent, the rate increased from 22 to 27 percent in

service area 2A. By contrast, the rate increased from 17 to 22

percent in service area 1. For the six months ending December

31, 1996, the rate in service area 1 declined to 18 percent,

while that in service area 2A increased to 24 percent. One of

the highest rates in service area 2A is in relatively rural

Washington County, in which BMC and HNWF have the greatest

overlap in services. HNWF has approximately 60 percent and BMC

has 40 percent of the hospice market in Washington County. In

western Washington County, hospice rates range from 27 to 100

percent, with the remainder of the county in the 18 to 27 percent

range. In service area 2A, there has been a steady increase in

hospice admissions for HNWF and BMC, except for a decline at BMC

immediately after HNWF opened an office in Panama City.

Subsection 408.035(1)(a) - need in relation

to district and state health plans; Rule 59C-

1.0355(5) and (4)(e)

30. District health plan allocation factor one favors

applicants having hospice services available seven days a week,

district-wide for 24 hours a day as needed, regardless of a

client’s ability to pay. BMCH currently complies with the

requirement in service area 2A and can do so in service area 1.

By carefully selecting patients, hiring staff in appropriate

locations to serve the patients, and expanding slowly

geographically, as HNWF has done, BMC can meet the requirements.

Initially, BMC will focus on adjacent Okaloosa and Walton

Counties.

31. District allocation factor two, for proposals to add

beds or use existing inpatient facilities rather than construct

new facilities, is met by BMC. By proposing to contract with

existing hospitals and nursing homes, BMC also meets the

preference in Rule 59C-1.0355(4)(e)2.

32. State health plan preference one, for applicants who

seek Medicare certification, is consistent with BMC’s current and

proposed operations.

33. State health plan preference two favors members of the

National Hospice Organization ("NHO") and applicants accredited

by the Joint Commission on Accreditation of Health Care

Organizations ("JCAHO"). BMCH is a member of the NHO. BMC is

JCAHO-accredited, after receiving a rating of ninety-six of a

possible one hundred in the scoring system in December 1996.

Recently, BMCH was separately surveyed by the JCAHO, and received

favorable exit comments. BMCH is also annually surveyed by AHCA,

which identified no deficiencies in its January 1996 report.

BMCH and HNWF each had one complaint regarding practices and

procedures in 1996. A BMCH nurse disposed of controlled drugs

when no longer needed in the patient's home, without the required

signature of the patient's family representative on the disposal

record. HNWF received a complaint and disciplined the

responsible admitting nurse who failed to convene the appropriate

staff to timely prepare an Interdisciplinary Care Plan. Neither

incident indicates that the hospices are not providing a high

quality of care. It is reasonable to expect BMC hospice to meet

the requirements of the preference and to provide appropriate

hospice care. See , also , subsection 408.035(1)(b) and (c), on

the quality of care of the existing hospice and the applicant’s

ability to provide quality of care.

34. In proposing to establish a physical presence in rural,

underserved Walton County, BMC meets state preference three and

the preference in Rule 59C-1.0355(4)(e)4.

35. State health plan preference four for applicants

proposing to meet unmet needs of specific groups, such as

children, is consistent with BMC's current and proposed

operations. The same preference is also a requirement of Rule

59C-1.0355(4)(e)1.

36. State health plan preference five favors applicants

proposing residential services to patients without at-home

assistance. BMC proposes to provide caregivers or to use

existing inpatient facilities to provide residential services.

The proposal is, therefore, also consistent with Rule 59C-

1.0355(4)(e)3 as it relates to those who are without primary

caregivers at home or who are homeless.

37. The sixth and final state health plan preference, for

hospices proposing to use additional beds in existing facilities

rather than new construction, is not applicable to the BMC

proposal.

38. On balance, the BMC application meets the preferences

in the rule, and in state and district health plans.

Subsection 408.035(1)(b) and (1)(d) -

availability and quality of like and existing

services; other alternatives

39. Alternatives to hospice care include home health,

acute, and nursing home care, all of which are available. The

state policy, as reflected in numeric need methodology,

encourages the use of hospice services until every service area

achieves the state norm. Consistent with that policy,

theoretically, HNWF could be even more aggressive in marketing

and outreach than it has been. Historically, for BMC and HNWF,

however, hospice services are more available, more accessible,

better utilized, and higher in quality of care in areas in which

they compete.

Subsection 408.035(1)(c) - economics and

improvements of joint, cooperative or shared

resources

40. Because BMC operates an existing hospice, it is

reasonable to expect economics of scale and improvements based on

its experience, if it establishes a second hospice. BMC expects

to use existing human resources and billing departments.

Subsection 408.035(1)(f) - need for special

equipment or services not available in

adjoining areas

41. The statutory criterion is inapplicable to the case.

Subsection 408.035(1)(g) and (h) - need for

research, educational, health professional

training

42. BMC's is not a proposal which is intended to assist a

research or educational program. In-service and volunteer

training programs are proposed for the benefit of its staff and

to assure the quality of its own services.

Subsection 408.035(1)(h) - available

manpower, management personnel; (1)(i) -

immediate and long-term financial feasibility

of the proposal

43. BMC has over $21 million in cash, and revenues and

gains in excess of $4 million for the year ending September 30,

1995. BMC has and continues to generate sufficient funds to

provide over $24 million for planned capital projects over the

next two years, including $129,591 in costs for the additional

hospice program. BMC’s proposal is financially feasible in the

short term.

44. HNWF claims that the BMC proposal is n ot financially

feasible in the long term, based on understated salaries, wages,

and benefits, travel expenses, depreciation, and interest.

45. Salaries, wages, and benefits are based on the staffing

ratios at BMCH, which, according to HNWF, serves a more

concentrated population in Panama City. Initially, BMC plans to

serve Okaloosa and Walton Counties from a Destin office, with

staff appropriately located throughout the areas to timely and

efficiently serve patients. BMC plans to hire 6.6 full time

equivalent (FTEs) administrative staff and 11.4 FTEs patient care

staff. HNWF asserts that BMC will need an additional 1.7 FTEs

for nurses, 2.6 for home health aides, and 1 FTE for a social

worker. HNWF also questioned the ability of BMC to implement its

proposed children's programs without a registered nurse with

pediatric experience. HNWF asserted that .4 FTE for a chaplain

was inadequate, as is reliance primarily on volunteer chaplains.

46. The adequacy of the proposed staffing is supported by

calculating the 50 day average length of stay times the annual

volume of 250 patients, times 1.6 (the projected worked hours per

patient day), which equals 10.85 FTEs for patient care. BMC's

11.4 FTEs for patient care in year one is a reasonable,

conservative complement of staff. In addition, HNWF received 19

percent of its 1996 hours worked from volunteers, and has a

history of hiring specialized staff and establishing specialized

programs and departments when justified by the demand for those

services. For its first seven or eight years, HNWF was well-

served by a volunteer medical director. The bereavement

coordinator was hired in 1990. The children's bereavement

specialist was hired in 1993, when bereavement and social

services became separate departments.

47. Travel expenses, projected by BMC, were also criticized

by HNWF. HNWF would increase miles for each visit from 13.9, as

estimated in BMC’s CON application, to 18.3 miles per visit as

experienced by HNWF. One assumption, which invalidates HNWF’s

projection of travel distances, is that each separate visit will

originate and end at the Destin office, not that BMC staff would

make some visits going directly from their residences to the

patient's home, or that they would arrange schedules to make

several visits without returning to the office between each

visit. In addition, BMCH will initially cover two counties

rather than the entire service area.

48. As a result of a mathematical error in the BMC CON

application, the depreciation expense for year one of operations

is $25,578, not $21,962.

49. HNWF's expert's adjustments to interest expenses

assumed that any additional expenses would require additional

borrowing. BMC, however, has not materially underestimated

expenses, considering the $3,616 difference in depreciation. The

pro forma is conservatively based on revenues and expenses

without reliance on charitable donations, although hospices

typically depend on donations to break-even financially.

50. In 1996, HNWF received a total of $339,780 in

contributions. To estimate what BMC might expect in District 1,

it is reasonable to exclude from HNWF's experience, approximately

$80,000 in interest on reserve invested income (used by HNWF in

1996) and $90,000 in grants, since BMC has not applied for any

grants. The balance, representing memorials and fund-raising of

$240,000 reasonably indicates the level of contributions which a

new BMC hospice might expect in service area 1. That level, for

BMC, is proportionately half that projected by BMC, or $60,000 to

$80,000 in year one, and $130,00 to $185,000 in year two of

operations.

51. With a projected loss in income of $28,091 in year one,

a projected profit of $74,054 in year two, and considering

historical hospice fund-raising, BMC's operation of a hospice in

service area 1 is reasonably expected to be financially feasible

in the long term.

Adverse Impact

Subsection 408.035(1)(l) - probable impact on

costs, effects of competition.

52. Using BMC's experts' utilization projections for

service area 1, HNWF projects that its net operating income will

decline from a negative $408,070 to a negative $655,712 in year

one, and from a negative $355,404 to a negative $612,696 in year

two. Approximately $420,000 in total contributions to HNWF is

expected each year, although that number has increased annually

since 1993, from 183,750, to $224,415 in 1994, to $282,368 in

1995, and $339,780 in 1996. BMC suggests that the adverse impact

analysis should consider HNWF's total operations in service areas

1 and 2A to determine financial feasibility.

53. Health planning experts for both BMC and HNWF

acknowledge that there are up to 431 more people available for

hospice admissions than are currently receiving hospice services.

They also agree that number will increase by approximately 100 a

year as the population increases, and that the presence of a new

hospice provider will increase hospice penetration rates. In

addition, as HNWF's witnesses emphasized, nursing home hospice

admissions were depressed temporarily due to a government

investigation.

54. BMC’s expert also noted that, as long as available

admissions exist, increasing hospice utilization is largely a

function of how the hospice delivers its services. For example,

the historic requirement that patients have a caregiver at home

has adversely affected HNWF’s penetration rate. As recently as

November 1996, at least one referral source, Sacred Heart

Hospital, in Pensacola was distributing an HNWF brochure which

specifically required an eligible hospice patient to have “[a]

capable caregiver in the home to meet the patient’s day-to-day

basic needs." Essentially, the same requirement is included in a

list of admissions criteria on page 49 of BMC's CON application.

HNWF and BMC have both changed their policies and now admit

patients without caregivers, which is reasonably expected to

increase admissions of patients. With competition to identify

and alleviate access barriers, HNWF and BMC are better able to

increase hospice utilization rates by eliminating self-imposed

constraints.

55. Based on the rapid increase in hospice utilization in

service area 2A after HNWF began to compete with BMC, it is

reasonable to assume the same effect of competition in service

area 1. By the year 2000, BMC's expert reasonably projects

hospice penetration rates of 29 percent in service area 1,

equaling the current statewide average. As the late entrant into

a limited geographical area within the market, BMC is projected

to capture approximately one-third of that market by the years

2000 to 2001, leaving two thirds for HNWF. At the same time BMC

and HNWF are reasonably expected to divide in half the market in

service area 2A. At those levels, HNWF will range, in total

projected admissions for both service areas, from 1,186 to 1,400,

from 1997 to 2001. The evidence that a BMC hospice in service

area 1 will not adversely impact HNWF is more persuasive.

56. The suggestion that health care providers or the public

will be confused by the presence of BMCH in service area 1 is

rejected.

Subsection 408.035(1)(n) - The applicant’s

past and proposed provision of health care

services to Medicaid patients and the

medically indigent.

57. BMC is a disproportionate share Medicaid provider,

having historically provided over 97 percent of all indigent care

in Bay County. In 1995, the charity care write-off was over $8.5

million.

58. The effect of approving BMC’s CON is increased hospice

penetration in service area 1, caused by an expanding market for

hospice services. As a disproportionate share provider of

inpatient acute care services, BMC is uniquely capable of

identifying and referring low income patients for hospice care.

Subsection 408.035(1)(0) - The applicant’s

past and proposed provision of services which

promote a continuum of care in a multilevel

health care system, which may include, but is

not limited to, acute care, skilled nursing

care, home health care, and assisted living

facilities.

59. BMCH is a part of a multilevel system with levels of

care ranging from a 353-bed acute care tertiary hospital to a

home health agency. Because of 1995 legislation, these services

are available to persons beyond the boundaries of Bay County.

Consistent with this statutory criterion, hospice services should

also be extended.

CONCLUSIONS OF LAW

60. The Division of Administrative Hearings has

jurisdiction over the subject matter and parties to this

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

Florida Statutes .

61. As the applicant, BMC has the burden of demonstrating

that, on balance, its CON application meets the statutory and

rule criteria for approval. Florida Department of Transportation

v. J.W.C. Company, Inc. , 396 So.2d 778 (Fla. 1 st DCA 1981); Boca

Raton Artificial Kidney Center v. Department of Health and

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

62. Consistent with Rule 59C-1.0355(4)(a), BMC demonstrated

that a numeric need exists for an additional hospice in AHCA

service area 1. There are no special local circumstances which

make the application of the numeric need methodology to service

area 1 unreasonable.

63. The BMC proposal meets, on balance, the need for a new

hospice in relation to the state and district health plans.

Subsection 408.035(1)(a).

64. BMC's proposal also meets the requirements of Rule 59C-

1.0355(4)(e)1.-4., Florida Administrative Code .

65. The existing hospice in service area 1 is available,

accessible, adequate, appropriate, efficient, and offers a high

quality of care. The numeric need methodology, which

incorporates state health policy indicates that utilization is

lower than desired in service area 1. Subsection 408.035(1)(b).

66. BMC established its record and ability to provide a

high quality of hospice care. Subsection 408.035(1)(c).

67. Alternative health care services and facilities are

available in the service area, but the alternatives are not

adequate for all terminally ill patients, and none of those

formally include the patients' families as the unit for care.

Subsection 408.035(1)(d).

68. Having experience in operating a hospice in service

area 2A, BMC reasonably expects to benefit from economies of

scale and improvements in operating an additional hospice.

Subsection 408.035(1)(e).

69. The BMC proposal will not provide special equipment or

services which are not available in adjoining areas, nor meet the

needs of research or educational facilities. Subsections

408.035(1)(f) and (g).

70. BMC has resources and funds to staff, establish, and

operate the hospice in a manner which is financially feasible in

the immediate and long term. Subsection 408.035(1)(h) and(i).

See , also , Halifax Hospital Medical Center, etc. v. AHCA , Case

No. 95-0742 (F.O. 1/14/97).

71. BMC's proposal does not meet the special needs of a

health maintenance organization, nor those of an entity servicing

people outside the service area. Subsections 408.035(1)(j) and

(k).

72. There is no impact on the cost of hospice services as a

result of the approval of BMC's application. There is evidence

of a direct, positive impact on utilization and, therefore,

innovations in the delivery of hospice services from the

competition between BMC and HNWF. Subsections 408.035(1)(l) and

408.043(2).

73. No construction costs or significant capital

expenditures are associated with the establishment of the hospice

as proposed by BMC. Subsections 408.035(1)(m) and (2).

74. BMC has a history of providing a disproportionate share

of services to Medicaid and indigent patients. Its proposal

includes specific commitments to these payor categories.

Subsection 408.035(1)(n).

75. BMC operates a multilevel health care system currently

serving patients from areas within service area 1, for whom the

continuum of care will be enhanced by the availability of hospice

care. Subsection 408.035(1)(o).

76. On balance, BMC meets the criteria for approval of CON

8377 to establish a hospice in AHCA service area 1, on the

conditions proposed by BMC.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that the Agency For Health Care Administration

enter a Final Order issuing CON 8377 to Bay Medical Center to

establish a hospice program in service area 1, conditioned on

providing annually a minimum of 12.8 percent Medicaid care, 3.65

percent charity care, and service to a minimum of 7 AIDs patients

with a minimum of 350 visits.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this

19th day of May, 1997.

___________________________________

ELEANOR M. HUNTER

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 19th day of May, 1997.

COPIES FURNISHED:

Richard Ellis, Senior Attorney

Agency for Health Care Administration

2727 Mahan Drive

Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

Darrell White, Esquire

William B. Wiley, Esquire

McFarlain, Wiley, Cassedy & Jones, P.A.

Post Office Box 2174

Tallahassee, Florida 32315-2174

J. Robert Griffin, Esquire

J. Robert Griffin & Associates, P.A.

2559 Shiloh Way

Tallahassee, Florida 32308

Sam Power, Agency Clerk

Agency For Health Care Administration

2727 Mahan Drive

Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

Jerome W. Hoffman, General Counsel

Agency For Health Care Administration

2727 Mahan Drive

Fort Knox Building 3, Suite 3431

Tallahassee, Florida 32308-5403

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15

days from the date of this recommended order. Any exceptions to

this recommended order should be filed with the agency that will

issue the final order in this case.