97-000389CON Wuesthoff Memorial Hospital, Inc. vs. Agency For Health Care Administration Status: Closed Recommended Order on Friday, July 18, 1997.

Summary: Application to de-license 100 beds and establish 50-bed satellite. There was no fixed need, no abnormal circumstance, and no need based on alleged need for competition.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

WUESTHOFF MEMORIAL HOSPITAL, INC. , )

)

Petitioner , )

)

vs. )

)

STATE OF FLORIDA, AGENCY FOR HEALTH )

CARE ADMINISTRATION, )

)

Respondent, ) Case No. 97-0389

)

and )

)

HOLMES REGIONAL MEDICAL CENTER , )

INC., )

)

Intervenor . )

____________________________________)

RECOMMENDED ORDER

On March 17 through 26, 1997, a formal administrative

hearing was held in this case in Tallahassee, Florida, before

J. Lawrence Johnston, Administrative Law Judge, Division of

Administrative Hearings.

APPEARANCES

For Petitioner : David C. Ashburn, Esquire

Gunster, Yoakley, Valdes-Fauli and

Stewart, P.A.

215 South Monroe Street, Suite 830

Tallahassee, Florida 32301

For Respondent : Mark Thomas, Esquire

Agency for Health Care Administration

Office of the General Counsel

2727 Mahan Drive

Tallahassee, Florida 32308

For Intervenor : Stephen K. Boone, Esquire

Boone, Boone, Boone and Hines, P.A.

Post Office Box 1596

Venice, Florida 34284

and

R. Terry Rigsby, Esquire

Blank, Rigsby & Meenan

204 South Monroe Street

Tallahassee, Florida 32301

STATEMENT OF THE ISSUE

The issue in this case is whether the Agency for Health Care

Administration (AHCA) should grant the application of Wuesthoff

Memorial Hospital, Inc. (WUESTHOFF), for a Certificate of Need

(CON) (CON 8597) to establish a new 50-bed general acute care

hospital in South Brevard County, District 7.

PRELIMINARY STATEMENT

When AHCA gave notice of intent to deny CON 8597, WUESTHOFF

petitioned for formal administrative proceedings. The case was

referred to the Division of Administrative Hearings (DOAH) on

January 13, 1997, and final hearing was scheduled for

March 17 through 28, 1997. Holmes Regional Medical Center, Inc.

(HRMC ), was granted leave to intervene and participate as a party

to the case in support of AHCA’s intent to deny.

At the outset of hearing, HRMC argued the Motion for Summary

Recommended Order it filed on March 14, 1997; ruling was deferred

to give WUESTHOFF time to respond in writing.

At final hearing, WUESTHOFF called 23 witnesses and had

WUESTHOFF Exhibits 1 through 10 admitted in evidence. AHCA

called one witness and had AHCA Exhibit 1 admitted in evidence.

HRMC called ten witnesses and had HRMC Exhibits 1 through 34

admitted in evidence.

During the hearing, HRMC’s Motion for Summary Recommended

Order was denied; however, it was indicated that the substantive

issues raised would be addressed in this Recommended Order.

At the conclusion of the presentation of the evidence, AHCA

and WUESTHOFF ordered the preparation of a transcript of the

final hearing, and the parties requested and were given 30 days

from the filing of the transcript in which to file proposed

recommended orders. The complete transcript (1550 pages in 13

volumes) was filed on April 24, 1997, making proposed recommende d

orders due to be filed on May 27, 1997; later, the parties

requested and were given an extension until June 2, 1997.

In addition to the joint proposed recommended order it filed

with AHCA, HRMC also filed a Motion for Entry of a Recommended

Order Denying WUESTHOFF’s CON Application on the Merits.

WUESTHOFF responded in opposition and moved to strike. Since it

is too late for a summary disposition, the motion to strike is

granted; however, as previously indicated , the substantive issues

are addressed in this Recommended Order.

FINDINGS OF FACT

1. WUESTHOFF is a 303-bed , acute care hospital in Brevard

County, Florida. In addition to its hospital, WUESTHOFF has

three home health locations, eight or nine walk-in clinics, a

hospice, a durable medical equipment business, an ambulatory

surgery center, two freestanding diagnostic centers, and

outpatient labs throughout Brevard County.

2. HRMC is a JCAHO accredited, 528-bed, regional, not-for-

profit community hospital based in Melbourne, Brevard County,

Florida. HRMC is comprised of two acute care campuses : a 468-

bed tertiary hospital in Melbourne, and a 60-bed, general acute

care hospital in Palm Bay. The Melbourne campus operates a

10-bed, Level II, neonatal, intensive care unit, and 428 general

medical and pediatric beds.

The Proposed Project

3. WUESTHOFF chose to establish a satellite hospital

complex in South Brevard County by applying separately for:

(1) a certificate of need (CON) to decertify and de-license 100

general acute care hospital beds and undertake certain

renovations and improvements at its existing Rockledge hospital

facility; (2) a CON for a medical office building (MOB); (3) a

non- reviewability letter for a $35 million diagnostic and

treatment center (DTC), which would provide all of the ancillary

services for the new satellite hospital; and (4) the CON to

establish the 50-bed hospital (CON 8597) which is at issue in

this case.

4. In CON 8597, WUESTHOFF has asked AHCA to treat the $35

million DTC as the “sunk” costs of an existing facility, and to

review the CON application at issue in this case incrementally—

i.e. , as consisting of only the inpatient tower and the

additional ancillary activities that would take place at the

complex, over and above those that would take place at the DTC

without the inpatient tower. Viewing CON 8597 in this way,

WUESTHOFF presented total project costs of only $13 million.

5. In preparing the financial schedules for CON 8597,

WUESTHOFF presented the revenues and expenses of the entire

hospital operation (including the DTC), except for the additional

activities (inpatient and ancillary) that would result from the

addition of the inpatient tower, and the revenues and expenses of

the entire hospital operation, including the additional

activities (inpatient and ancillary) that would result from the

addition of the inpatient tower. By presenting the financial

schedules in this manner, WUESTHOFF never presented the revenues

and expenses of the entirety of the new satellite hospital it is

proposing to establish, and AHCA has not had the opportunity to

review those revenues and expenses.

6. WUESTHOFF planned to build the MOB, the DTC and the

inpatient tower in one continual course of construction and to

open the entire complex at the same time; the complex, when

completed, was planned to function as a single, integrated

hospital facility.

7. AHCA granted the first three applications comprising

WUESTHOFF’s project but denied CON 8597.

8. In a subsequent batch, WUESTHOFF filed a letter of

intent for a single CON application that the combined the DTC and

inpatient tower projects at a total cost of approximately

$50,000,000.

Need In Relation To State And District Health Plans : Section

408.035(1)(a) Florida Statutes

a. State Health Plan

9. The first State Health Plan preference favors applicants

who demonstrate that the subdistrict occupancy rate is at or

exceeds 75 percent, or in the case of existing facilities, where

the occupancy rate for the most recent 12 months is at or exceeds

85 percent. WUESTHOFF failed to meet this preference. For the

applicable period, the subdistrict occupancy was approximately 53

percent; however, more recent data shows that occupancy is below

53 percent, which suggests a continuing decline in inpatient

occupancy rates in the subdistrict. During the applicable

period, the occupancy rate at WUESTHOFF’s Rockledge facility was

only slightly more than 45 percent.

10. The second State Health Plan preference favors an

applicant with a history of providing a disproportionate share of

the subdistrict’s acute care and Medicaid patient days, and

further meets the Medicaid disproportionate share hospital

criteria. WUESTHOFF failed to meet this preference, as it is not

a disproportionate share provider.

11. The third State Health Plan preference favors an

applicant that provides or proposes to provide disproportionate

share of Medicaid and charity care patient days in relation to

other hospitals within the district or subdistrict. WUESTHOFF’s

existing facility is not a disproportionate share hospital.

(Although WUESTHOFF’s CON application proposes to condition award

of the CON setting aside 15 percent of its discharges for

Medicaid, charity, and indigent patients, its application does

not provide percentages for each category.)

12. The fourth State Health Plan preference considers the

current and projected indigent inpatient case load, the proposed

facility size, and the case and service mix, WUESTHOFF’s

application partially complies with the preference in that it

proposes to provide some indigent care.

13. The fifth State Health Plan preference favors proposals

that would not negatively affect the financial viability of an

existing, disproportionate share hospital. This preference is

not applicable in this case.

14. The sixth State Health Plan preference favors

applicants with a record of accepting indigent patients for

emergency care. WUESTHOFF meets this preference.

15. The seventh State Health Plan preference favors

applicants for any type of hospital project if the facility is

verified as a trauma center. WUESTHOFF does not meet this

preference. WUESTHOFF claims that it operate the emergency room

at the proposed facility with “the same level of services as

WUESTHOFF’s existing emergency room.” WUESTHOFF does not

currently operate a Level II trauma center at its Rockledge

campus.

16. The eighth State Health Plan preference favors

applicants who can document that they provide a full range of

emergency services. WUESTHOFF’s Rockledge facility offers a

range of emergency services, but the emergency department at the

proposed facility will necessarily offer a limited range of

services, as the proposed facility will not be a tertiary care

hospital, and emergency patients in need of those services will

have to be transferred.

17. The ninth State Health Plan preference favors

applicants who can document that it has not been fined by HRS for

any violation of the emergency services statutes. WUESTHOFF

meets this preference.

b. Local Health Plan Preferences

18. The District 7 Local Health Plan sets forth five

preferences to be used in evaluating CON applications for the

transfer/relocation/ delicensure of acute care beds. The health

plan provides that “[p ]reference shall be given to applications

for transfer of existing acute care beds, delicensure/conversion

of existing acute care beds and/or relocation of an entire

facility if the applicant can provide substantial documentation

of:

a. The need for acute care beds or specialty beds in

the service area proposed to receive the beds. Need

should address specific populations, access

consideration, etc.

b. The impact of the proposed project on the parent

facility including projected occupancy declines,

curtailing of service effect on operating cost, use of

vacated space at the main campus and charge changes.

c. The proposed service improving access by at least

25 minutes to at least 10 percent of the population or

a minimum of at least 35,000 people. This should be

substantiated by analyses of patient origin to existing

providers, physician referral practices and location of

physician offices.

d. Commitment to provision of care to both no-pay and

low-pay medically indigent patients and Medicaid

patients at a minimum of no more than 2 percent below

the most recent HCB publication for the District of the

charity/uncompensated care percentage of net revenues.

e. Agreement to participate in any indigent care

programs which exist in the county or counties proposed

to be served. Participation should be at a rate equal

to or greater than the average for the general

hospitals also serving that area.

19. As to the first preference, WUESTHOFF failed to

demonstrate a need for the proposed 50-bed general acute care

hospital. Even with the delicensure of 100 acute care beds as a

result of WUESTHOFF’s companion application, there still is an

oversupply of 215 acute care beds in the county. The evidence

presented at the final hearing failed to demonstrate any

geographic or other barriers to accessing acute care services

that would warrant the expenditure proposed by WUESTHOFF to

construct the proposed project. Indeed, WUESTHOFF’s own evidence

was clear that every resident of Brevard County has access to a

general acute care hospital within a maximum drive time of 30-40

minutes and, in almost all instances, to two different acute care

facilities within a 30-40 minute drive time.

20. WUESTHOFF contends that its proposed 50-bed general

acute care hospital is needed for four reasons: (1) to provide a

high quality alternative inpatient health care provider in south

Brevard County; (2) to introduce competition into the south

Brevard area; (3) to enhance access to care to Medicaid, charity,

and indigent population, as well as to enhance access for the

managed care segment of the population; and (4) to enable

WUESTHOFF to remain competitive in the marketplace.

21. The evidence is clear that HRMC provides high quality

inpatient health care in south Brevard County. See Findings 30-

44, infra . In addition, WUESTHOFF already serves some patients,

residing in south Brevard County, and so does Sebastian River

Medical Center, located in the adjacent county to the south.

22. The evidence also is clear that there already is

competition for inpatient hospital services in south Brevard

County. HRMC serves a much greater percentage of those patients

primarily due to its location and the high quality and low costs

of HRMC’s services. In view of the excess capacity of hospital

beds in the county, it does not make sense to add a satellite

WUESTHOFF hospital in south Brevard County that would duplicate

the services of the existing providers.

23. WUESTHOFF also attempted to show that its proposed

acute care hospital was needed in order to provide services for

managed care participants. However, WUESTHOFF failed to offer

any competent evidence to show that participants in managed care

programs are a traditionally underserved population group and did

not prove that WUESTHOFF’s ability to participate in managed care

networks is a valid basis for determining the need of additional

acute care services in south Brevard County. To the contrary,

the evidence tended to show that the expansion of managed care

programs would result in a decrease in the utilization of

inpatient acute care services. Furthermore, there is no barrier

to WUESTHOFF’s participating in managed care programs with one or

more facilities in the southern portion of Brevard County, and in

fact WUESTHOFF has aligned itself with Sebastian River Medical

Center in a number of managed care contracts serving residents of

southern Brevard County.

24. While WUESTHOFF is offering a larger discount to

managed care payers, its charges are higher, resulting in net

revenue per managed care case that is still higher than HRMC’s.

The price the managed care providers pay to HRMC is actually 14

percent lower than what they pay to WUESTHOFF. Not only does

HRMC provide a better “deal” to managed care payers, but HRMC’s

managed care volume is also greater than WUESTHOFF’s, indicating

HRMC’s willingness to negotiate and work with managed care

companies.

25. At the time WUESTHOFF submitted its CON application,

the penetration of managed care in Brevard County was

approximately 8.6 percent. However, more recent data from 1996

shows a significant increase in the penetration of managed care

to 15 percent, without the allegedly needed new hospital.

26. A primary thrust of WUESTHOFF’s case for the need for

its proposed project was that patients in the southern portion of

Brevard County cannot be admitted into HRMC’s Palm Bay facility

because its physicians do not enjoy staff privileges at that

facility. Each hospital establishes criterion for staff

privileges. In order to be eligible for staff privileges, it is

normally required that the physician reside or have his or her

office within certain geographic boundaries surrounding the

hospital. The primary reason for such requirement is to ensure

that the physician is capable of responding to patient needs

within a time certain and that the physician will be able to

provide coverage for his or her patients admitted into a

facility. Dr. Arnold, a physician with staff privileges at

WUESTHOFF who operates an office in West Melbourne, conceded that

if his physician group associated with a physician living within

HRMC’s geographic boundaries who was able to meet response time

criteria, the physician group could admit patients into HRMC.

Dr. Arnold also conceded that his physician group is not eligible

for staff privileges at other Brevard hospitals, based on

geographic considerations.

The Availability, Quality Of Care, Efficiency, Appropriateness,

Accessibility, Extent Of Utilization, And Adequacy Of Like And

Existing Health Care Services In The Service District : Section

408.035(1)(b), Florida Statutes.

27. There is no need for another hospital in South Brevard

County. The county already has more than enough hospitals. Even

in light of a 27-29 percent increase in population, utilization

of Brevard County hospitals has dropped 10 percent in the last

five years.

28. There has been a marked shift in the Brevard County

area away from inpatient services toward outpatient services.

That shift is still growing.

29. HRMC is the only hospital in Brevard County which has

been nationally recognized for quality care by the National

Research Corporation.

30. According to AHCA’s hospital report card, HRMC was

shown to be a consistent, low-charge provider, operating within

the expected range of outcomes.

31. According to a study done by AHCA, HRMC performs as one

of the top five hospitals in Florida for reducing overall

C-section births and increasing vaginal births after Cesarean

(“ VBAC”). This is important because vaginal births are safer for

both mother and baby and save approximately $3,000 per delivery

when compared with Cesarean births. HRMC has the lowest Cesarean

Section rate and the highest VBAC rate in Brevard County and is

one of the five lowest charging hospitals in the State for these

services. Wuesthoff, on the other hand, has some of the highest

costs in the county for these services.

32. HRMC is providing efficient hospital services when

compared with WUESTHOFF and other markets where competition is a

factor.

33. Of the zip codes addressed in WUESTHOFF’s travel study,

there is no zip code in Brevard County that is more than 30

minutes from an existing hospital. Of the fourteen intersections

tested, the addition of the proposed project would decrease

travel times from only three intersections, with the greatest

decrease in travel time being only nine minutes. Thus, the

construction of WUESTHOFF’s proposed facility would not

significantly increase access for Brevard County patients.

34. HRMC delivers the majority of Medicaid babies in the

county and is also a contract provider for Children’s Medical

Services.

35. HRMC worked with the Public Health Department to

develop a better system for giving prenatal care and delivery to

Medicaid and indigent mothers. HRMC offered to subsidize the

salary of a doctor, and eventually two midwives, to work with the

Public Health Department for this purpose.

36. HRMC’s HOPE programs provides access to Medicaid and

indigent patients. HOPE clinic and HOPE van expenses are direct

expenses of HRMC. In addition to medical care, the HOPE program

also provides free medication to those who cannot afford it.

37. HRMC’s HOPE van provides services to the homeless every

Tuesday, seeing as many as 40 patients each visit. Patients are

provided with an examination, medications, and referrals to

specialists or the hospital, if necessary. This care is provided

at no charge to the patient.

38. HRMC’s HOPE program was given the Nova award by the

American Hospital Association for its ground-breaking effort in

community health improvement. It is the only program in Florida

which has been so recognized. The HOPE program has also received

the Heartland Award from Governor Chiles for its work at

improving the status of life in Florida.

39. HRMC supports a variety of agencies to provide care to

indigent AIDS patients. HRMC provides services to a nonprofit

outpatient AIDS services organization, which offers reduced-rate

and free lab services. HRMC, along with the Public Health Unit,

funded a dental clinic for the AIDS organization.

40. The hospitals in Brevard County do a good job in regard

to taking care of the patients who are incapable of paying, with

HRMC going the extra mile to provide services to the poor.

41. There was no evidence that persons in need of quality,

general acute care services are not able to access those services

at any existing provider in Brevard County. There is no lack of

availability or access to general acute care services based on

either geographic or financial grounds. WUESTHOFF’s proposed 50-

bed general acute care hospital is not needed to accomplish this.

The Ability Of The Applicant To Provide Quality Of Care And The

Applicant’s Record Of Providing Quality Of Care : Section

408.035(1)(c), Florida Statutes .

42. It is clear that WUESTHOFF is capable of providing

quality inpatient health care services. However, it is found

that HRMC is providing higher quality services (and at a lower

cost).

43. As shown in AHCA’s hospital report card, WUESTHOFF

performed in the lowest 15 percent in the State in 5 of 6

serviced lines where mortality was measured. On the other hand,

HRMC was indicated to be consistently a low-charge provider,

operating within expected outcomes.

44. HRMC’s C-section rate is significantly lower than

WUESTHOFF’s, and its VBAC rate much higher. The results of a low

C-section rate are lower lengths of stay and less risk to both

mom and baby.

The Availability And Adequacy Of Other Health Care Facilities And

Services In The District Which May Serve As Alternatives For The

Services To Be Provided By The Applicant : Section 408.035(1)(d),

Florida Statutes .

45. WUESTHOFF already has three home health locations, 8 or

9 walk-in clinics, a hospice, a durable medical equipment

business, an ambulatory surgery center, 2 freestanding diagnostic

centers, and outpatient labs in Brevard County. In addition,

WUESTHOFF plans to construct a new outpatient and diagnostic

center in south Brevard County.

46. In addition, inpatient surgeries have shifted to

private, for-profit outpatient centers and ambulatory surgery

centers that have opened in the last five years in Brevard

County.

47. The competent, substantial evidence presented at the

final hearing demonstrates that within Brevard County, there are

available and adequate alternatives to the inpatient services

proposed by WUESTHOFF. First, as discussed above, the existing

providers of acute inpatient health care services have capacity

to absorb any increase in the utilization of acute care services

in the County. Second, data introduced at the final hearing

demonstrate that overall utilization for the types of services

WUESTHOFF proposes to offer are declining and demonstrate that

residents are seeking out alternatives to inpatient hospital

services. For example, from 1993-1996, inpatient surgery

services in Brevard County showed a marked decline of

approximately 20 percent, both in number of patients and

procedures. This trend is not unique to Brevard County, but is

occurring throughout the state. Health care providers are

seeking alternatives to hospitalization, with procedures being

performed in physician offices and ambulatory surgical centers.

48. Likewise, there has been a decline in utilization of

several other services WUESTHOFF is proposing for its 50-bed

hospital. During the period 1993-1996, while the population of

Brevard County was growing at a rate of approximately 2.4 percent

per year, the rate of obstetric admissions as a percentage of

admissions to Brevard hospitals declined.

49. There is excess capacity for pediatric and obstetrical

services in Brevard County. The average daily census in

obstetrical beds has dropped from approximately 34 patients per

day to approximately 29 per day. With 66 reported available

obstetrical beds in Brevard County, that means that on any day

only 44 percent of the available capacity is being utilized.

Likewise, pediatric census has gone from approximately 32

patients per day to only about 25. With 78 reported pediatrics

beds, a demand for only 25 beds means that approximately 32

percent of available capacity is utilized.

Probable Economies And Improvements In Service That May Be

Derived From Operation Of Joint, Cooperative, Or Shared Health

Care Resources : Section 408.035(1)(e), Florida Statutes .

50. WUESTHOFF does not propose the operation of a joint,

cooperative, or shared program with any other entity. WUESTHOFF

contends that its application is consistent with this criterion

because it proposes the sharing of certain resources with its

main facility. But the construction of a satellite facility will

result in the duplication of certain services. It is actually

less efficient for a hospital to operate two campuses.

The Need in the Service District for Special Equipment and

Services Which Are Not Reasonably and Economically Accessible in

Adjoining Areas : Section 408.035(1)(f), Florida Statutes .

51. WUESTHOFF’s CON application does not propose to provide

special equipment. This criterion is not met.

The Need For Research And Educational Facilities, Health Care

Practitioners, And Doctors Of Osteopathy And Medicine At The

Student, Internship, And Residency Training Levels : Section

408.035(1)(g), Florida Statutes .

52. This need is already being met in the community.

WUESTHOFF, HRMC, and other Brevard County hospitals are already

active in community training programs through their links with

Brevard Community College and the University of Central Florida.

53. HRMC has institutional training programs with the

University of Florida, all Children’s Hospital, the local vo-

tech, and University of Central Florida, in addition to other

community programs.

The Immediate And Long-Term Financial Feasibility Of The

Proposal : Section 408.035(1)( i), Florida Statutes .

54. The immediate financial feasibility of a proposed

project is satisfied by showing that the applicant has adequate

financial resources to fund the capital costs of the project and

the financial ability to fund short-term operating losses.

WUESTHOFF has demonstrated that its proposed project is

financially feasible in the short-term.

55. Long-term financial feasibility is established by

demonstrating that projected revenues can be attained in light of

the projected utilization of the proposed service and average

length of stay.

56. WUESTHOFF has not demonstrated that it can achieve its

projected revenues by the second year of operation and has,

therefore, failed to demonstrate long-term financial feasibility.

It is impossible to tell from the information contained in

WUESTHOFF’s CON application 8597 what the revenues and expenses

of the new hospital will be.

57. Staffing and supply costs associated with the ancillary

building, but which will be used by the hospital when constructed

and which amount to millions of dollars, are not broken out in

the application.

58. The application also does not show the totality of the

costs associated with the 50-bed hospital WUESTHOFF seeks to

establish. For example, provision for bad debt expense does not

appear in the application, nor does the indigent care tax

expense. Furthermore, the application does not provide for any

administrative staff for the new hospital, nor has all other

necessary staff been provided for. If these positions are

included under “other,” then the salary expense projected is not

enough . Also, the salaries listed on Schedule 6 do not include

benefits.

59. The preopening expenses figure shown in WUESTHOFF’s

application is reasonable only if the entire facility, the

ancillary, outpatient, and inpatient tower would open all at the

same time.

60. It is very difficult to analyze the reasonableness of

the financial projections because the revenues and expenses do

not match. All the revenue from the proposed new facility

appears to be included, but not all of the expenses.

61. Schedule 8A shows that daily ancillary expenses are

$470 at WUESTHOFF’s existing hospital but only $82 at the new,

proposed hospital. It is implausible that the new hospital would

have costs this much lower than the existing hospital.

62. WUESTHOFF’s staffing projections do not account for a

significant number of nursing and other staff necessary for the

operation of the facility as a hospital. The projections only

address nursing positions for the 50-bed, inpatient tower. The

schedule fails to show those nurses assigned to the ancillary

services areas in the outpatient diagnostic center who will be

working with inpatients. For example, the scrub nurses in the

emergency department who will be working on inpatients are not

included in the schedule, and the nurses working in radiology who

will be caring for inpatients are not shown. The schedule fails

to include a director of nursing at the proposed hospital

facility. Although WUESTHOFF claimed that it will assign a

director of nursing when patient volumes reach 50%, it failed to

include projections for that position in this second year

projections, even though patient volumes are projected to reach

50% in the second year. Wuesthoff also failed to include

benefits in its computation of salaries on Schedule 6, even

though it expects to pay benefits at a rate of 20% of salary.

63. Interest expenses are also significantly understated.

The project is financed with 100 percent debt, which should

amount to an interest expense of approximately $850,000.00 per

year. However, the application shows interest in year one as

$197,000.00 and for year two, $393,000.00. It is unusual that

interest would be higher in year two than year one.

64. There is no way to tell from looking at the schedules

or assumptions in the application what the utilization of the new

hospital will be, or how the patient days break out by payor.

Therefore, reasonableness of the financial projections cannot be

tested.

65. Without additional information, one cannot determine if

the average charges projected are reasonable. There are unusual

projections, such as the charges during construction, year one,

and year two, in the application which without explanation are

not reasonable.

66. The financial projections as to the whole facility are

unreasonable. They show that WUESTHOFF, which currently makes $7

or $8 million dollars each year, will lose money once the new

facility is open but that, in its second year, the new facility

will make $6.9 million. Such a projection is unreasonable.

67. By focusing only on the incremental effect of adding an

inpatient tower to a presumed existing DTC, WUESTHOFF’s financial

projections are not sufficient to allow a conclusion to be drawn

as to the financial feasibility of the new 50-bed hospital.

However, it would appear that, if those schedules had been

presented, they would have shown the new satellite hospital,

taken in its entirety, not to be financially feasible in the long

term.

The Special Needs Of Health Maintenance Organizations : Section

408.035(1)(j), Florida Statutes .

68. The application is not mad e on behalf of an HMO, and

this criterion is not applicable.

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 District : Section 408.035(1)(k),

Florida Statutes .

69. The CON application does not address serving a

substantial number of persons or providing a substantial portion

of services to individuals residing outside the district, and

this criterion is not applicable.

The Probable Impact Of The Proposed Project On The Costs Of

Providing Health Services Proposed By The Applicant, Including

The Effect On Competition : Section 408.035(1)(l), Florida

Statutes .

70. There is significant competition for managed care

services in Brevard County. HRMC seeks and desires to enter into

managed care contracts and is as competitive in the managed care

arena as WUESTHOFF is. In fact, HRMC’s managed-care, patient

volume is higher than WUESTHOFF’s.

71. Managed care penetration in Brevard County has

increased over the last five years and especially in the last two

years.

72. One particular HMO in Brevard County that is just

getting started has received an acceptable managed care offer

from HRMC. If they did not receive an acceptable offer from

WUESTHOFF.

73. Brevard County does not need another inpatient facility

to allow the County to achieve higher levels of managed care

penetration. There are no barriers in Brevard County to

increasing HMO and other managed care penetration.

74. Even though HRMC has an 82 percent market share in

South Brevard County, that by itself does not indicate HRMC is

charging non-competitive prices. In fact, HRMC’s charges are

much lower than WUESTHOFF’s.

75. Both the State of Florida and the FTC found that HRMC’s

merger with Cape Canaveral when Health First was formed did not

create an adverse, competitive effect on the marketplace.

76. Because HRMC’s charges are so much lower than

WUESTHOFF’s, the addition of the proposed hospital would not

introduce price competition into the market.

77. The majority of the proposed hospital’s patients are

likely to come from South Brevard County-–an area where HRMC has

an 82.5 percent market share. Thus, the bulk of the proposed

hospital’s patients will come from HRMC.

78. If the proposed hospital meets its projected

utilization, HRMC stands to lose somewhere between $4 and $5

million a year. While that loss may not put HRMC into

bankruptcy, it will have a significant adverse effect.

The Costs And Methods Of The Proposed Construction And The

Availability Of Alternative, Less Costly, Or More Effective

Methods Of Construction : Section 408.035(1)(m), Florida

Statutes .

79. WUESTHOFF’s proposal to establish a 50-bed, general,

acute care hospital entails the construction of a 3-story, 50-bed

patient tower adjoining an outpatient diagnostic center. The

outpatient diagnostic center, and not the inpatient tower, will

encompass virtually all of the ancillary services necessary for

WUESTHOFF to obtain a license to operate its facility as a

hospital.

80. As more fully discussed below, WUESTHOFF’s proposed 50-

bed inpatient hospital will require substantial design

modification and increased square footage in order to obtain

licensure as a general, acute care hospital.

The Applicant’s Past And Proposed Provision Of Health Care

Services To Medicaid Patients And The Medically Indigent :

Section 408.035(1)(n), Florida Statutes .

81. The evidence showed that all acute care hospitals in

Brevard County provide a fair level of Medicaid and indigent care

in comparison to the remainder of the state. In its CON

application, WUESTHOFF proposes to condition approval of its 50-

bed, general, acute care hospital on providing 15 percent

Medicaid and charity care, but did not provide a breakdown of

each. There was no documented access problems for Medicaid or

indigent patients that would warrant a new health care facility.

82. Because indigent care is reported to the State based on

a hospital’s charges, WUESTHOFF and HRMC could be doing the same

amount of indigent care, but WUESTHOFF could appear to be doing

more because its charges are higher.

Whether Less Costly, More Efficient, Or More Appropriate

Alternatives To The Proposed Inpatient Services Are Available :

Section 408.035(2)(a), Florida Statutes .

83. HRMC’s average charges are significantly lower than

WUESTHOFF’s on both a per case and per patient day basis. HRMC’s

costs are also lower , indicating it is more efficient.

Therefore, the addition of another less-efficient, higher-

charging WUESTHOFF hospital into the market would be more costly

and less efficient than what it is there now.

84. The greater weight of the evidence establishes that

denial of WUESTHOFF’s proposed 50-bed, general acute care

hospital is the least costly, more efficient, and appropriate

alternative. The existing providers of acute care services in

Brevard County are operating efficiently and have unused capacity

that is available to serve Brevard residents. Data suggests that

while the population of Brevard County is growing, there is no

corresponding increase in utilization of general, acute care

services. While Brevard enjoys a proportionately higher growth

rate than the rest of the State, the growth does not translate

into higher utilization of general acute care services. Further,

the age 65 population, those most likely to use hospital

services, has experienced an annual growth of approximately

3.7 percent between 1990-1996, which is higher than the overall

rate of growth for Brevard.

85. While there has been a sig nificant growth in the number

of elderly and Medicaid eligible population, only approximately

10 percent of those eligible for Medicaid in the 14 zip codes

targeted as the service area of WUESTHOFF’s proposed hospital

actually use hospital services.

86. In 1993, the last year of available data, the actual

county-wide use rate for Medicaid eligible residents was only

8.4 percent. This is expected to remain constant in subsequent

years, as the demand for inpatient acute care services has not

increased, but has in fact decreased.

87. There is insufficient utilization of the inpatient

acute care services which already exist in Brevard County, with

approximately 50 percent of the available beds unoccupied. The

addition of another health care facility will not improve access,

improve delivery of services, or make services available to a

population that is not presently being adequately and

appropriately served by existing providers.

88. In a market where inpatient volume is going down,

length of stay is going down, and utilization is going down, it

does not make sense to spend scarce dollars on new inpatient

services.

Whether The Existing Facilities Providing Similar Inpatient

Services Are Being Used In An Appropriate And Efficient Manner:

Section 408.035(2)(b), Florida Statutes .

89. The greater weight of the evidence established that

there is available capacity for inpatient services like those

proposed by WUESTHOFF at the existing, general, acute care

facilities in Brevard County. WUESTHOFF did not demonstrate that

any provider is suffering from over utilization or that any

patient has not been able to access general acute care services

when such services were necessary. On the contrary, there was a

consensus among the experts, even WUESTHOFF’s experts, that there

is no problem with geographic or financial access to existing

providers.

90. Between 1993 and 1996, hospital utilization dropped

from 63 percent to 52 percent. AT WUESTHOFF’s Rockledge campus,

utilization fell from a high of 63 percent in 1993, to

approximately 46 percent in 1996. During this same period, the

population of Brevard County grew at a rate of approximately

2.4 percent per year, which was proportionately higher than for

the rest of the state. At HRMC, its occupancy dropped, but not

quite as dramatically. Between 1993 and 1996, HRMC’s occupancy

went from 67 percent to approximately 62 percent. The satellite

facility, operated by HRMC in Palm Bay and located in the same

service area where WUESTHOFF proposes to construct its 50-bed

general acute care hospital, has never experienced occupancy

above 31 percent.

That Patients Will Experience Serious Problems In Obtaining

Inpatient Care Of The Type Proposed, In The Absence Of The

Proposed New Service: Section 408.035(2)(d), Florida Statutes .

91. There was no evidence to show that any population group

in Brevard County is unable to access quality health care

services at any of the subdistrict’s existing facilities.

Further, WUESTHOFF failed to establish that its proposed facility

was needed to provide general acute care services not currently

provided or currently accessible to residents of south Brevard

County. WUESTHOFF maintains that participants in managed care

contracts may not be able to access WUESTHOFF’s general acute

care services without approval of the proposed project, but there

was not demonstration that those individuals would not otherwise

have access to quality affordable health care in Brevard County.

WUESTHOFF also failed to demonstrate that participants in managed

care programs are a “traditionally underserved” population group

for a determination of need under not normal circumstances.

CON Application Content And Procedures: Section 408.037, Florida

Statutes And Rule 59C-1.008, Florida Administrative Code .

92. The parties stipulated as to the timeliness of the

submission of WUESTHOFF’s Letter of Intent, initial CON

application and response to omissions. However, the board

resolution required by Section 408.037, Florida Statutes, and

Rule 59C-1.008, Florida Administrative Code, is fatally

defective. The applicant is required to provide certification

that its governing board enacted a resolution to license and

operate the proposed facility. In this case, the proposed 50-

bed, inpatient tower cannot be licensed by the applicant as a

hospital. In order to obtain hospital licensure, the proposed

project would necessarily include the $35 million that WUESTHOFF

proposes to spend on its outpatient diagnostic center.

93. WUESTHOFF’s CON application also fails to comply with

Section 408.037(2)(c), which requires detailed financial

projection including a statement of the revenues and expense for

the period of construction and the first two years of operation

after completion of the project. The proposed project is a

“hospital.” The hospital will report all of the revenues and

expenses of the inpatient and outpatients to the state in its

actual report, and those same projected revenues and expenses

should be in the pro forma of a certificate of need application

for a new hospital project. Instead, the projected revenues and

expenses in the pro formas take an “incremental” approach and

focus only on the 50-bed tower and an unspecified portion of the

diagnostic center. WUESTHOFF’s own financial expert admitted

that one cannot determine the revenues and expenses of the new

hospital from the information contained in the application. AHCA

does not have sufficient information with respect to revenues and

expenditures in the pro formas to determine the financial

feasibility of the hospital project. The pro formas do not meet

the statutory requirement contained in 408.037(2)(c), Florida

Statutes, and are fatally defective.

94. Neither AHCA nor its predecessor agency ever have

approved a CON to establish a hospital without ever seeing

projections of the revenues and expenses of the hospital as a

whole. Additions to hospitals have been approved on a strictly

incremental basis; but, in those cases, the revenues and expenses

of the hospital as a whole already had been reviewed and

approved.

95. Inpatient cardiac catheterization programs also have

been approved, based on a strictly incremental review of the

financial impact of converting from an existing outpatient to an

inpatient program. But there is a meaningful difference between

the approval of a program in a hospital facility that already has

been reviewed and approved as a whole and what WUESTHOFF is

seeking to have done in this case.

96. There also is a difference between treating the costs

of an existing and operating facility or program as being “sunk”

and treating the $35 million capital cost and additional

operating costs of the proposed DTC in this case as being “sunk.”

In the former, the costs have been or are being spent and truly

are “sunk”; in the latter, despite WUESTHOFF’s assurances, the

DTC money has not been spent, and the DTC has not been

established. Indeed, the decision properly before AHCA in this

case is whether those expenditures should be made for purposes of

establishing a hospital. If not, the hospital should not be

approved. If WUESTHOFF still wants to build and operate its

proposed $35 million anyway, as it has assured AHCA that it will

do, it is free to do so.

Criteria Used In Evaluation Of CON Applications : Rule 59C-1.030,

Florida Administrative Code .

97. AHCA’s rules set forth additional criteria used to

evaluate CON applications which focus on whether there is a need

for the proposed service in the population to be served and

whether the proposed project is accessible to those in need of

the service. The evidence in this case showed that there was no

unmet need in Brevard County for inpatient, general, acute care

services and that the target population is adequately served by

the existing providers of general acute care services.

Furthermore, the evidenced showed that the anticipated population

growth in Brevard County is not likely to generate additional

numbers of inpatient admissions, based on the decline in

utilization during a period when Brevard County was experiencing

unprecedented annual growth at a rate of 2.4 percent overall and

3.7 percent in the 65 population. Any attendant increase in

demand for inpatient general acute care services can be easily

accommodated by the existing providers in Brevard County. The

rule also examines the extent to which an applicant provides

services to Medicare, Medicaid, and the medically indigent

patients. The evidence showed that WUESTHOFF provides a fair

amount of general acute care services to Medicare, Medicaid, and

charity patients, as do the other existing providers in Brevard

County.

Hospital Physical Plant Requirements For Licensure : Rule 59A-3,

Florida Administrative Code .

98. WUESTHOFF’s 50-bed, general, acute care hospital, as

proposed, cannot meet licensure standards without significant

adjustment to the design to bring it into compliance with the

licensure rules.

99. Rule 59A-3.081(4)(c), Florida Administrative Code,

specifically requires that the critical care nurse’s station be

situated so that nurses have visual control of each patient from

common spaces. The schematics provided by WUESTHOFF indicate

that there is no visual control of two patient rooms located in

the northwest end of the unit.

100. As to functionality of the space, there is no

observation from the nurses station to trauma rooms located at

the end of the unit and inadequate proximity to support spaces,

such as soiled and clean utility and med prep, to the trauma

rooms. Seriously injured patients would necessarily be

transported up to surgery through what would be public corridor

spaces in order to access elevators and then through additional

public spaces on the second floor.

101. Inpatient access to the CT scan room and MRI room

appears to be made through a narrow, 5-foot wide corridor.

Hospital licensure regulations require inpatient access through

an 8-foot corridor. The only 8-foot corridors available for

inpatient use, the service corridor off the housekeeping and

staff facilities area to the rear of the unit and the corridor

located between radiology and dietary, do not appear to be

appropriate means for inpatients to access these rooms.

102. On the third floor of the facility, WUESTHOFF proposes

to locate an aerobics and exercise room, directly above the

second floor patient recovery area and two of the operating

rooms. With an exercise area located above such critical areas,

there is the possibility that vibrations would transmit to

operating room lights, ceiling mounted microscopes, and other

instruments. It would be costly to sufficiently stiffen the

structure to minimize vibrations.

103. In order to bring the proposed project into compliance

with hospital licensure regulations, material changes to the

plans must be made, which will necessarily increase the square

footage of the facility. The square footage of the facility

would likely be increased by approximately 5,000 square feet, and

many of the areas would have to be significantly redesigned to

accommodate concerns with compliance to ADA and hospital

licensure regulations.

CONCLUSIONS OF LAW

104. As the applicant challenging AHCA’s preliminary

decision to deny its CON application, WUESTHOFF bears the burden

of establishing its entitlement to a certificate of need to

establish a new, 50-bed, general acute care hospital in Brevard

County, District 7. Boca Raton Artificial Kidney Center, Inc.

vs. Department of Health and Rehabilitative Services , 475 So. 2d

260 (Fla. 1st DCA 1985) ; Humana, Inc. vs. Department of Health

and Rehabilitative Services , 469 So. 2d 889 (Fla. 1st DCA 1985).

105. Section 408.037(2)(c), Florida Statutes, requires that

an applicant for a CON include a statement of the projected

revenue and expenses for the period of construction and for the

first 2 years of operation. As found, WUESTHOFF’s application

did not present the revenue and expenses associated with all

portions of the new hospital during its first two years of

operation. Because WUESTHOFF’s application fails to satisfy

minimum statutory requirements, it must be denied. Humhosco vs.

Department of Health and Rehabilitative Services , 561 So. 2d 388,

(Fla. 1st DCA 1990).

106. Even disregarding the fatal flaw in WUESTHOFF’s

application, WUESTHOFF’s application also must be denied, based

on a balanced consideration of the review criteria.

107. A CON application is evaluated according to the

statutory criteria set forth in Section 408.035, Florida

Statutes, and the valid rules properly promulgated thereunder. A

balanced consideration of the applicable statutory and rule

criteria must be made. Balsam v. Dept. of Health and Rehab.

Services , 486 So. 2d 1341 (Fla. 1 st DCA 1986) ; Humana, Inc. vs.

Department of Health and Rehabilitative Services , 469 So. 2d 889

(Fla. 1st DCA 1985). “[T ]he appropriate weight to be given to

each individual criterion contained in the statute regarding CON

applications is not fixed, but rather must vary on a case-by-case

basis, depending on the facts in each case.” Collier v. Dept. of

Health and Rehab. Services , 462 So.2d 83 (Fla. 1 st DCA 1985).

108. As reflect ed in the Findings of Fact, a balanced

consideration of the pertinent statutory and rule criteria

requires denial of CON 8597. Under those criteria, a new, 50-bed

hospital is not needed in south Brevard County. Besides,

WUESTHOFF has not proven that such a project is financially

feasible in the long term.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of

Law, it is

RECOMMENDED that the Agency for Health Care Administration

enter the final order denying WUESTHOFF’s CON 8597.

RECOMMENDED this 18 th day of July, 1997, in Tallahassee,

Leon County, Florida.

___________________________________

J. LAWRENCE JOHNSTON

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488- 9675 SUNCOM 278-9675

Fax FILING [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 18th day of July, 1997.

COPIES FURNISHED:

David C. Ashburn, Esquire

Gunster, Yoakley, Valdes-Fauli and

Stewart, P.A.

215 South Monroe Street, Suite 830

Tallahassee, Florida 32301

Mark Thomas, Esquire

Agency for Health Care Administration

Office of the General Counsel

2727 Mahan Drive

Tallahassee, Florida 32308

Stephen K. Boone, Esquire

Boone, Boone, Boone and Hines, P.A.

Post Office Box 1596

Venice, Florida 34284

R. Terry Rigsby, Esquire

Blank, Rigsby & Meenan

204 South Monroe Street

Tallahassee, Florida 32301

Douglas M. Cook, Director

Agency for Health Care Administration

2727 Mahan Drive

Tallahassee, Florida 32308

Jerome W. Hoffman, General Counsel

Agency for Health Care Administration

2727 Mahan Drive

Tallahassee, Florida 32308

Sam Power, Agency Clerk

Agency for Health Care Administration

2727 Mahan Drive

Tallahassee, Florida 32308

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15

days from the date of this Recommended Order. Any exceptions to

this Recommended Order should be filed with the agency that will

issue the final order in this case.