STATE AGENCY ACTION REPORT ON APPLICATION FOR CERTIFICATE OF NEED. President & Chief Executive Officer (CEO) (813)

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1 STATE AGENCY ACTION REPORT ON APPLICATION FOR CERTIFICATE OF NEED A. PROJECT IDENTIFICATION 1. Applicant/CON Action Number Good Shepherd Hospice, Inc./CON # Telecom Parkway, Suite 100 Temple Terrace, Florida Authorized Representative: Kathy L. Fernandez President & Chief Executive Officer (CEO) (813) Service District/Subdistrict Hospice Service Area 6B (Hardee, Highlands and Polk Counties) B. PUBLIC HEARING A public hearing was not held or requested regarding this proposal to expand existing hospice services through the establishment of a new freestanding inpatient hospice facility of 12 beds within a portion of Hospice Service Area 6B (Highlands County, Florida). Letters of Support There are 320 unduplicated letters of support included in CON #10024 s Appendix 6 Letters of Support. The President and CEO of HPC Healthcare, Inc., Kathy Fernandez, the parent and sole member of the applicant, submits a letter of support separately, as does the Vice President and General Council of HPC Healthcare Inc., H. Darrell White. Some of the support letters received in the stated appendix are listed below. Two letters show support from members of the U.S. Congress (House of Representatives): the Honorable Tim Mahoney (16 th District, Florida) and the Honorable Adam Putnam (12 th District, Florida). Three letters from members of the Florida Legislature document support, they are as

2 follows: from the Florida Senate (District 17), the Honorable JD Alexander; from the Florida House (District 66) the Honorable Baxter Troutman and the Honorable Denise Grimsley (District 77). Six support letters are from elected officials that hold local public office and include the following: Chair of the Highlands County Board of County Commissioners, Edgar Stokes, who issued a timely certified proclamation in support of this project; Mayor, City of Sebring, George Hensley, Jr.; Highlands County Sheriff, Susan Benton; Highlands County Clerk of Courts, L.E. Luke Brooker; Highlands County Tax Collector, Charles Bryan, C.F.C. and Highlands County Property Appraiser, C. Raymond McIntyre. Florida Hospital affiliates and Highlands Regional Medical Center senior executive staff support this project. These letters include favorable recommendations by the following: Chief Executive Officer, Florida Hospital Heartland Division, Timothy Cook; Administrator, Florida Hospital Lake Placid, Doug Harcombe; Director of Nursing, Florida Hospital Lake Placid, Sara Carnes, RN-BC, MSN and CCRN, [approximately 11 other Florida Hospital Lake Placid employees (many being nurses) also document their support]; Administrator, Florida Hospital Wauchula, Linda Adler, MSN; Medical Director of Hospital Medicine, Florida Hospital Heartland Division, Kathy Lee, MD, FACP; Interim Executive Director, Daybreak Behavioral Health at Florida Hospital Heartland Division, Kathryn Doddridge, MA, and approximately 53 staff at Highlands Regional Medical Center. Among the approximately 53 Highlands Regional Medical Center staff that support this project are the hospital s senior executives as follows: Chief Executive Officer, Robert Mahaffey; the Chief Operating Officer; Chief Financial Officer, San Juana Garza and Assistant Business Office Director, Beverly Young. There are 21 letters of support from physicians (20 medical doctors and one doctor of osteopathic medicine [Dr. Jose R. Thomas-Richards]); one letter is from a licensed psychologist, Dr. Roger Wilde. Fourteen letters of support are from employees at Florida Home Health (many being nurses) and 17 letters of support are from ACE HomeCare Personnel (many being nurses). Other support letters include the President of Operations and CEO of the Greater Lack Placid Chamber of Commerce, Eileen May and the President and CEO of the Greater Sebring Chamber of Commerce, Daniel Andrews. Several pastors lend their support Rev. W. Darrell Arnold (Covenant Presbyterian Church), Rev. Bruce Linhart (Highlands Community Church); Rev. Barbara Laucks (Emmanuel Church of Christ); Dr. Eugene Bengtson and Rev. Todd Patterson (Bible Fellowship 2

3 Church) and Rev. Jack Kent (affiliation not stated). Other noted support letters are from the following: President and CEO, South Florida Community College, Dr. Norman Stephens; American Cancer Society, Denise Benavides; President, Wells Dodge Chrysler, Stanley Wells and a retired Sebring Fire Chief, Vincent Smoak, Jr. In summary of the 320 support letters, many carry the following recurring themes: the applicant has been caring for the community for over 29 years and is a high-quality provider; lives, the dying process and bereavement have improved over this time and that hours of travel (to nearby counties) are currently required to receive hospice house inpatient services. Some letters are from individuals whose loved ones received care through this provider. C. PROJECT SUMMARY Good Shepherd Hospice, Inc. (CON #10024) [GSH or Good Shepherd], a Florida not-for-profit corporation, proposes to establish a 12-bed freestanding inpatient hospice facility (Highlands Hospice House) in Hospice Service Area (HSA) 6B (Hardee, Highland and Polk Counties), with the facility to be located in Highlands County and near the city of Sebring, Florida. In addition, the applicant plans to maintain four residential beds at the site. The 12-bed inpatient facility is planned for northern Highlands County. The stated primary project objective is to improve geographic accessibility of inpatient hospice care to Highlands and Hardee County residents and to relieve high occupancies in existing inpatient hospice facilities in HSA 6B. The applicant plans to lease Highlands Hospice House from the Parent, HPC Healthcare, with Highlands Hospice House being the only such facility in Highlands County. The applicant is proposing total project costs of $7,506,859. Construction costs are $4,963,108 and the project will involve 22,470 gross square feet (GSF) of new construction. Costs covered are for land, building, equipment, project development, financing and start-up costs. Good Shepherd proposes the CON be predicated on two conditions: that the Highlands Hospice House will be constructed in or near Sebring in Highlands County, Florida and also that the Good Shepherd Hospice will provide all required monitoring reports and will notify the Agency when the facility is licensed and operational on the site specified in the application. 3

4 NOTE: Hospice CON approved projects are mandated to provide applicable monitoring reports. Therefore, a monitoring condition is not warranted. Should the CON be awarded, only those conditions that are not already requirements of licensing in Florida will be placed on the CON. D. REVIEW PROCEDURE The evaluation process is structured by the certificate of need review criteria found in Section , Florida Statutes, rules of the State of Florida, and Chapters 59C-1 and 59C-2, Florida Administrative Code. These criteria form the basis for the goals of the review process. The goals represent desirable outcomes to be attained by successful applicants who demonstrate an overall compliance with the criteria. Analysis of an applicant's capability to undertake the proposed project successfully is conducted by evaluating the responses provided in the application and independent information gathered by the reviewer. Applications are analyzed to identify various strengths and weaknesses in each proposal. If more than one application is submitted for the same type of project in the same district (subdistrict or service planning area), applications are comparatively reviewed to determine which applicant best meets the review criteria. Section 59C-1.010(3)(b), Florida Administrative Code, prohibits any amendments once an application has been deemed complete. The burden of proof to entitlement of a certificate rests with the applicant. As such, the applicant is responsible for the representations in the application. This is attested to as part of the application in the certification of the applicant. As part of the fact-finding, consultant Steve Love analyzed the applications in their entirety with consultation from financial analyst Everett Butch Broussard, who evaluated the financial data and Scott Waltz, who evaluated the architectural data and schematic drawings. 4

5 E. CONFORMITY OF PROJECT WITH REVIEW CRITERIA The following indicate the level of conformity of the proposed project with the review criteria and application content requirements found in Sections , and , and applicable rules of the State of Florida, Chapters 59C-1 and 59C-2, Florida Administrative Code. 1. Fixed Need Pool a. Does the project proposed respond to need as published by a fixed need pool? Chapter 59C-1.008, Florida Administrative Code and Chapter 59C , Florida Administrative Code. The Agency does not publish need for inpatient hospice beds. Hospice programs are required by federal and state law to provide hospice patients with inpatient care when needed (42 Code of Federal Regulations ) and no more than 20 percent of a hospice s total patient days may be inpatient days per Section (4), Florida Statutes. Inpatient care may be provided through contractual arrangements in hospitals and nursing homes, and is generally provided on a short-term basis within the total hospice stay. A review of support letters indicates that most of the hospitals and nursing homes that lend support letters are able to contract with the applicant, when needed (see section E.1.b below). Good Shepherd provides (Appendix 10 Sample Contracts) an example of a hospital contract for inpatient hospice care. The applicant is currently one of three licensed hospice providers in Service Area 6B 1. The remaining two hospice providers are as follows: Cornerstone Hospice & Palliative Care and HOPE Hospice & Palliative Care. Good Shepherd operates a freestanding inpatient hospice facility in Auburndale (Polk County, Florida), the George Forsyth Hospice House, with 12 licensed beds. b. If no Agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology, which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: 1 Florida Need Projections for Hospice Programs Agency publication, issued April 4,

6 Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. Population demographics and dynamics The applicant states the first year of operations will end September 30, 2011 and the second year, by September 30, The applicant anticipates an inpatient average daily census (ADC) of 9.6 in year one and 10.8 in year two (CON #10024, page #52). Good Shepherd indicates that the project is designed to serve residents of Hardee and Highlands Counties and projects a bed need (at 85 percent occupancy) of 11 in year one and 13 in year two, respectively. For CY 2007, the applicant reports a 4.5 inpatient hospice ADC for Hardee and Highlands County residents. GSH plans to add four residential hospice beds and 12 inpatient hospice beds to accommodate demand. GSH has previously stated the purpose of the project is to improve geographic accessibility of inpatient hospice care to Highlands and Hardee County residents and to relieve high occupancies in existing inpatient hospice facilities in SA 6B. The applicant indicates that during CY 2007, the Forsythe Hospice House (12 beds) and the seven-bed dedicated Palm Terrace Unit (both in Polk County) averaged 96 percent occupancy (CON #10024, page #9). The applicant states that contract beds with hospitals will be utilized as needed for hospice patients that require general inpatient care (GIP) under three circumstances: when there is no inpatient bed available at a GSH inpatient facility; when the patient requires a special palliative procedure (e.g. surgery) that cannot be provided in one of the GSH facilities or the patient desires a hospital placement rather than a hospice facility (CON #10024, page #27). Good Shepherd indicates that it does not use nursing homes for GIP but for routine home care only. The applicant further states that by the second year of operation (September 30, 2012) the proposed daily cost per patient at its proposed site to be $605, as opposed to $687 at a contracting hospital (CON #10024, page #32, Cost Per Patient Day Comparison for the Year Ending September 30, 2012 and page #35). This is a cost savings of $82 per day per patient and by the second year of operation (September 30, 2012) the applicant estimates a cost savings of over $300,000. Good Shepherd states that in addition to increased costs associated with contracting, there are other shortcomings to contracting with hospitals. These shortcomings are the reluctance of hospice patients to accept an 6

7 institutional environment and the limitations on the ability of GSH to control the nursing and physical environment in the hospital setting (CON #10024, page #32). GSH goes further to describe other distinct benefits it anticipates from leasing the HPC Healthcare, Inc. owned Highlands Hospice House (CON #10024, page #38). GSH states the cultures of hospitals are basically inconsistent with a comprehensive approach to end-of-life care. Nine hospitals are listed as contractors with GSH for GIP services. Of these nine hospitals, one (Florida Hospital-Wauchula) is in Hardee County and three (Florida Hospital-Heartland Medical Center, Florida Hospital Lake Placid and Highlands Regional Medical Center) are in Highlands County. In their support letters, two of these hospitals (Highlands Regional Medical Center and Florida Hospital Heartland Division [both located in Highlands County]) state they lack the internal capacity to contract with the applicant, while the two other hospitals (Florida Hospital Lake Placid and Florida Hospital Wauchula) do not make this lack of internal capacity claim 2. GSH also reports 26 nursing homes in SA 6B with whom it claims to have contracts [routine home care only and not general inpatient care] (CON #10024, page # s 34 and 35). Of these 26 nursing homes, one (Hardee Manor Healthcare Center) is in Hardee County and three (Kenilworth Care and Rehabilitation Center, Oaks at Avon and The Palms of Sebring) are in Highlands County. There are two support letters of these facilities one is from Kenilworth Care and Rehabilitation Center and the other from The Palms of Sebring. Executives from these two nursing homes do not make mention of a lack of internal capacity, as do the two previously mentioned hospitals. The applicant claims that contractual relationships will not be weakened or otherwise affected by the development of the proposal. The applicant contends that scatter beds, a commonly used term to describe contracts with hospitals for the use of inpatient beds on an as-needed basis, can lead to nursing care from staff and aides unfamiliar with the needs of terminally ill patients and their families. The applicant believes its hospice house proposal will better address this concern for Highlands and Hardee County residents. As previously stated, the applicant s current Polk County hospice house and the dedicated inpatient unit at 2 According to Florida Hospital Bed Need Projections & Services Utilization by District, issued by the Agency on July 25, 2008, Highlands Regional Medical Center experienced an acute care bed occupancy rate of percent (for the 12 months ending December 31, 2007). Florida Hospital Heartland Division (Florida Hospital Heartland Medical Center) experienced a like occupancy rate of percent. The Highland s County average acute care hospital bed occupancy for the period was percent, for all of District 6, percent and for the state overall, there was a percent acute care bed occupancy rate. 7

8 Palm Terrace of Lakeland averaged 96 percent occupancy during CY Good Shepherd contends that additional dedicated bed units are not available in SA 6B. Availability, utilization and quality of like services Improved geographic access is stated by both the applicant and many letters of support as a benefit if the proposal is approved. Distance from the Sebring area (Highlands County) to the nearest licensed hospice house (Arcadia Hospice House [TideWell Hospice & Palliative Care, Inc] of DeSoto County) is stated to be over one-hour driving time, one-way, and longer during seasonal peaks. Further, GSH indicates TideWell is not licensed to provide home-based hospice care to Hardee and Highlands County residents, making the Arcadia Hospice House not an option (CON #10024, page #12). The applicant indicates all other licensed hospice houses are even further. GSH advises that near the end of life, visits by family and friends are more frequent and a reduction in driving time will add to the quality of life for both patients, their families and friends. Utilization is also stated as a justification for the project. GSH reports an approximate 85 percent market share in SA 6B (CON #10024, page #21). It also reports a relatively steady rise in penetration from 2001 to 2007, the rate going from 26 percent in 2001 to 57 percent in 2007 (all ages and all causes of death). This is compared to a statewide penetration rate of 58 percent, meaning that patients in SA 6B are only marginally less likely to receive hospice care than those in other parts of the state, on average. As stated previously, by 2012, the proposed average daily contractual cost at a hospital (scatter bed) will be $687 compared to $605 at the proposed site (as of September 30, 2012). The proposal, if approved, would generate a cost savings of $82 per patient per day. The applicant does not offer nursing home costs for contracts, stating it is not its practice to provide general inpatient care in nursing home scatter beds. The applicant alleges nurse staffing levels at some nursing homes do not meet Medicare regulations that require 24-hour coverage by registered nursing staff (CON #10024, page #35). It should be noted that many nursing homes throughout the state are contracted by other hospice providers when general inpatient care is needed, in the absence of a hospice house or when a hospice house has reached capacity. GSH indicates total occupancy rates at the 12-bed Forsythe Hospice House and at the seven-bed dedicated Palm Terrace Unit (both in Polk County) averaged 96 percent in calendar year 2007 (CON #10024, page#9), indicating high occupancy rates. 8

9 Medical treatment trends Medical treatment trends are not discussed in the application. Market conditions Market conditions are discussed above. 2. Agency Rule Criteria and Preferences a. Rule 59C (7) Florida Administrative Code states that the Agency will not normally approve a proposal for construction of a freestanding inpatient hospice facility unless the applicant demonstrates that the freestanding facility will be more costefficient than contractual arrangements with existing hospitals or nursing homes in the service area. The application shall include the following: (1) A description of any advantages that the hospice program will achieve by constructing and operating its own inpatient beds. Generally, the applicant contends the following benefits result from the provision of hospice care within its own inpatient facility: lower operating costs; improved continuum of care, a more home-like and less institutional hospice setting than is characteristic in contractual facilities (such as hospitals and nursing homes [though the applicant states it does not contract with nursing homes for general inpatient care]) and improved geographical access (shorter travel distances for Hardee and Highlands County residents). Since the applicant is already a provider in the area, increased patient choice is not applicable, except in the context of having a more geographically accessible hospice house as opposed to any other options. GSH states it provides over 75 percent of its GIP services in SA 6B in a combination of its freestanding inpatient hospice facility, Forsythe Hospice House and its Palm Terrace inpatient unit (both are located in Polk County). The applicant considers any scatter bed options to be of lesser worth in the context of a quality hospice environment. The applicant also contends it cannot assure the depth of a quality continuum of care in a scatter bed scenario due to the institutional nature of the hospital culture that focuses more on cure than palliative objectives. In the table below, GSH compares the projected cost of providing inpatient hospice services at hospitals to its proposed hospice house. 9

10 Cost per Patient Day Comparison for the Year Ending September 30, 2012 Facility Cost per Patient Day Highland Hospice House Bed (Inpatient Facility as Proposed) $ Hospital Beds (Contracted Facilities) $ Difference $ Source: CON Application #10024, page #35 As seen in the table above, the applicant concludes that the operation of the proposed inpatient facility involves lower costs per patient day ($82.57 savings per day per patient) than operations within contracted facilities. The availability of scatter beds, as an alternative to an inpatient hospice house, is discussed in section E.1.b above. A freestanding inpatient facility gives the applicant more direct control of costs, continuum of care and end-of-life services. (2) Existing contractual arrangements for inpatient hospitals and nursing homes, or in the case of the proposed new hospice program, contracts made with hospitals and nursing homes regarding contractual arrangements for inpatient care. The applicant lists nine hospitals that it has GIP contracts and 26 nursing homes that it has routine home care contracts for its hospice patients in SA 6B. The application includes (Appendix 10 Sample Contracts) an example of an applicable contract for hospitals. GSH advises that contractual relationships will not be weakened or otherwise affected by the development of the proposal. The applicant does not discuss waiting lists for any of its facilities. Therefore, waiting lists cannot be considered or the average length of time a patient is on one. As discussed previously, the applicant illustrates the expected cost benefit of the proposal over the existing contracted beds. As stated previously, GSH indicates it is not its practice to provide GIP service in nursing home scatter beds since such facilities are not characteristically the most practical and appropriate setting for intensive end-of-life care. The applicant states that it tends to decline this option because of the following: inconsistent staff training and turnover; a likely lack of 24- hour registered nursing coverage and a lack of a home-like environment (CON #10024, page #35). 10

11 (3) Anticipated sources of funds for the construction. Notes to Schedule 1 indicate that the Parent, HPC Healthcare, Inc., will secure the financing, develop and own the proposed project and will lease the facility to Good Shepherd. All project costs will be incurred by HPC Healthcare, Inc. According to notes found in Schedule 3, funding will be obtained from SunTrust Bank, which provides a letter of support (CON #10024, page #72) in which the bank states it would provide financing, estimated at up to approximately $10 million, subject to its due diligence with specific terms and conditions to be negotiated. The bank letter goes on to state it is not a commitment to provide financing but to provide indication that the parent (HPC Healthcare, Inc.) is capable of securing such financial support. As stated previously, the applicant s estimated total project costs of $7,506,859. b (9): Semi-Annual Utilization Reports. Each hospice program shall report utilization information to the Agency or its designee on or before July 20 of each year and January 20 of the following year. Good Shepherd states that it has historically met these reporting requirements and will continue to do so in the future. 3. Statutory Review Criteria a. Is need for the project evidenced by the availability, quality of care, accessibility and extent of utilization of existing health care facilities and health services in the applicant s Service Area? ss (2), (7), Florida Statutes. Good Shepherd states that its proposal would lead to savings in excess of $300,000 by the second year of operations (September 30, 2012) through utilizing the leased Highlands Hospice House as opposed to the inherent high costs associated with scatter beds at hospitals. The applicant also cites substantial challenges of maintaining end-of-life quality of care in hospital settings, contending that it is harder to maintain end-of-life quality of care in the more curative and less palliative hospital environment. GSH projects 3,893 admissions by the second year of operations and states that 908 will be residents of Hardee and Highlands Counties (CON #10024, page #44). This estimate is restated in the applicant s Hospice Inpatient Bed Need Projections for Good Shepherd Hospice Table (CON 11

12 #10024, page #45). The applicant reports that it bases this estimate on historical trends in population, death rates, hospice penetration and market share in SA 6B. The ADC, for Hardee and Highlands County residents, by the second year of operations, is estimated to be at The average length of stay (ALOS) is estimated to be 7.7 days 3. Again, the applicant is less than enthusiastic about using contract beds because it contends that experience indicates in-house facilities are more cost-effective, provide greater patient choice and a higher end-of-life quality of care than can characteristically be obtained through contracted scatter beds. GSH reports a patient assessment conducted by the hospice care teams that serve Hardee and Highlands Counties. In this assessment (a ninemonth period from July 2007 through March 2008), GSH states that 137 patients needed inpatient hospice facility care services but were unable to obtain them due to lack of timely access (CON #10024, page #49). Though the applicant claims 137 patients were unable to receive services, the reported survey is not included for Agency review. For the entirety of 2007, the applicant reports an annualized total of 180 that were unable to obtain applicable services. The applicant goes further to report that 92 percent of those that needed but were unable to obtain timely access lacked the care because they (the patient and/or family) refused the travel, which is reported as a barrier to access. In addition, the applicant reports that for those patients unable to obtain timely inpatient hospice care at a hospice house, other arrangements were provided: continuous home care (62 percent); hospital scatter beds (20 percent); intensive home care (six percent); acute hospital admission (five percent) or other (seven percent). Below is a table to account for the applicant s estimates for ADC, penetration and admissions strictly for Hardee and Highlands County residents for the years up to the second year of operations (ending September 30, 2012). 3 The applicant s chart on page 45 indicates that 499 of the 908 admissions are projected to require inpatient hospice care, resulting in 3,942 patient days or an ALOS of 7.89 days. 12

13 Average Daily Census (ADC), Penetration Rate and Admissions for Hardee and Highlands County Residents Time Period Admissions Inpatient Days ADC FY , FY , FY , FY , FY , FY , Source: CON Application #10024, page #45 Hospice Inpatient Bed Need Projections for Good Shepherd Hospice The applicant utilizes an ALOS of 7.89 days for all years except 2007, when an 8.0 ALOS is used. Considering the above, the applicant expects steadily increasing admissions for residents of Hardee and Highlands Counties, through 2012 (the second year of operations ending September 30, 2012). The applicant s ability to provide quality of care is discussed in section E.3.b. (below). b. Does the applicant have a history of providing quality of care? Has the applicant demonstrated the ability to provide quality care? ss (3), Florida Statutes. Good Shepherd includes (CON #10024, Appendix 2 Good Shepherd Licensure and Accreditations) its current Florida hospice licensure (effective May 1, 2008 through April 30, 2010). The licensure identifies GSH s authorization to operate in Hardee, Highlands and Polk Counties. The licensure also notes five branch offices and a 12-bed inpatient hospice facility in Auburndale, Florida (Polk County). In the same appendix is found a March 21, 2008 Home Care Accreditation Program certification for LifePath Hospice and Palliative Care, Inc., (GSH Division), issued by The Joint Commission. GSH states it has applied to assume ownership of the SA 6B Medicare provider number of the parent (HPC Healthcare) and has a pending application for Medicaid certification as a part of the parent s corporate reorganization. Agency records indicate two confirmed complaints and one confirmed complaint without deficiency on the applicant s hospice program, as of the three-year period ending July 25, None of the complaints were on or after the applicant s May 1, 2008 licensure effective date. One of the two confirmed complaints was for an inappropriate discharge. The other confirmed complaint was on multiple issues (one each): 13

14 administrative; lack of assessment; patient care and plan of care. The confirmed complaint without deficiency was on medicine problem/errors/formulary. c. What resources, including health manpower, management personnel, and funds for capital and operating expenditures, are available for project accomplishment and operation? ss (4), Florida Statutes. The financial impact of the project will include the project cost of $7,506,859 and incremental operating costs in year two of $2,382,978. Audited financial statements of the applicant were reviewed to assess the financial position as of the balance sheet date and the financial strength of its operations for the period presented. The applicant is a development stage company with net assets of $1,000 and no liabilities for the period ended April 30, The applicant states that its parent corporation, HPC Healthcare, Inc. (HPC or parent and formerly known as LifePath Hospice and Palliative Care, Inc.), will provide funding for the project through financing provided by SunTrust Bank. In support of this statement, the applicant provided a letter of commitment to construction and operations of the project until it reaches a break even status. As for financing available through SunTrust Bank, the applicant provided a letter of interest from SunTrust Bank that stated GSH is capable of securing financial support, but was not intended to be a commitment to provide financing. To support its ability to provide the necessary funding for the project, the applicant included a copy of HPC s audited financial statements for the period ending December 31, 2006 and 2007 (then operating as LifePath Hospice and Palliative Care, Inc.). Staff analyzed the audited financial statements included in the filing to evaluate HPC s ability to provide the capital and operational funding necessary to implement the project. Short-Term Position: The parent s current ratio of 2.1 is average and indicates current assets are slightly more than two times current liabilities, a good position. The ratio of cash flows to current liabilities of 0.6 slightly below average and an adequate position. The working capital (current assets less current liabilities) of $36.6 million indicates the applicant has excess liquidity that could be used to fund capital projects. Overall, the applicant has a good short-term position. (See Table below). 14

15 Long-Term Position: The parent s long-term debt to equity ratio of 0.4 is below average and indicates the applicant has a low proportion of long-term debt a good position. The cash flow to assets ratio of 15.3 percent is well above average and a strong position. The most recent year had excess revenues over expenses of $9.8 million, which resulted in an operating margin of 6.3 percent. Overall, the applicant has a good to strong longterm position. (See Table below). Capital Requirements: The applicant indicated on Schedule 2 of the application projects or expenditures applied for, pending approval, or planned, totaling $11,649,292 including the project subject to this CON application. In addition to the total cost projected for the project of $7,506,859, the applicant anticipates a first-year operating loss for the project of $118,041. The applicant would have to fund this operating loss in addition to the capital projects listed on Schedule 2. Available Capital: As mentioned above, the capital budget requirements for the proposed project are $7,506,859. The applicant states that its parent corporation will provide the funding for this project through financing obtained from SunTrust Bank. In addition, SunTrust Bank, while not providing a formal commitment of financing, also provided a letter of interest. A letter of interest is not considered a firm commitment to lend. However, based on the parent s strong long-term position, it should be able to acquire the debt financing necessary for this project. For the year ended 2007, HPC reported working capital of $36.6 million and net assets of $75 million with cash flows from operations of $21.4 million. The financial ratios of the parent company indicate it to be in a sound financial condition. Staffing: Schedule 6A indicates, by September 30, 2011 (the first year of the proposed project), the applicant forecasts FTEs to operate the project as follows: registered nurses [RNs] (4.23 FTEs); clinical team leader (0.21 FTEs); licensed practical nurses [LPNs] (3.63 FTEs); home health aides [HHAs] (3.63 FTEs); patient family counselor (3.66 FTEs); clinical manager (0.35 FTEs); team secretary (1.52 FTEs); medical records clerk (0.53 FTEs); chaplain (0.64 FTEs); volunteer coordinator (0.35 FTEs); bereavement PFC (0.11 FTEs); physician (1.27 FTEs); dietary coordinator (1.06 FTEs); dietary cooks (2.71 FTEs); dietary aides (2.71 FTEs); housekeeping (2.71 FTEs) and maintenance (0.63 FTEs). This total FTE count for the proposed site increases to for year two 15

16 (ending September 30, 2012), with the FTEs of the above categories staying the same with the following exceptions: RNs from 4.23 FTEs to 4.75; LPNs from 3.63 FTEs to 4.08; HHAs going from 3.63 FTEs to 4.08 and patient family counselors going from 3.66 FTEs to The respective increases in FTEs of the four staff categories experiencing increases are as follows: 0.52; 0.45; 0.45 and No staff categories decrease in FTE. In the notes to Schedule 6A, GSH affirms these totals are based on the experience of the applicant and the parent in SA 6A and 6B, that current recruitment and training will be sufficient to fill all proposed positions and that the positions will be open to existing employees. GSH does not reference or describe recruitment guidelines or employee benefit programs; however, it states fringe benefits are calculated at 25 percent of salary costs. Conclusion: Funding for this project should be available as needed. CON # LifePath Hospice and Palliative Care, Inc. and Affiliated Entities 12/31/ /31/2006 Current Assets (CA) $70,003,725 $44,858,755 Cash and Current Investment $43,042,225 $27,864,355 Assets Limited as to Use $1,173,393 $860,929 Total Assets (TA) $139,947,736 $113,796,376 Current Liabilities (CL) $33,357,915 $19,354,766 Total Liabilities (TL) $64,983,703 $52,039,345 Net Assets (NA) $74,964,033 $61,757,031 Total Revenues (TR) $155,604,304 $141,515,214 Interest Expense (IE) $1,148,400 $1,173,509 Operating Income (OI) $9,854,141 $11,718,468 Cash Flow from Operations (CFO) $21,426,016 $12,648,951 Working Capital $36,645,810 $25,503,989 FINANCIAL RATIOS 12/31/ /31/2006 Current Ratio (CA/CL) Cash Flow to Current Liabilities (CFO/CL) Long-Term Debt to Net Assets (TL-CL/NA) Times Interest Earned (OI+IE/IE) Net Assets to Total Assets (NA/TA) 53.6% 54.3% Operating Margin (OI/TR) 6.3% 8.3% Return on Assets (OI/TA) 7.0% 10.3% Operating Cash Flow to Assets (CFO/TA) 15.3% 11.1% 16

17 d. What is the immediate and long-term financial feasibility of the proposal? ss (6), Florida Statutes. For year two of operations, the applicant projected the following percentage of total patient days by group: Medicare at 88.0 percent, Medicaid at 7.0 percent, self-pay/charity at 1.0 percent, and commercial insurance at 4.0 percent. The applicant indicated on Schedule 7 that it intends to provide general inpatient care (GIP) for which the U.S. Department of Health and Human Services sets rates. The Federal rates were calculated for the Highlands County, Florida Rural Wage Index for Medicare Hospice payments of and inflated through September The average price adjustment factor used was three percent per year based on the new CMS Market Basket Price Index as published in the 1st Quarter 2008 Health Care Cost Review. Estimated patient days for each level of service from Schedule 7, year two were multiplied by the calculated reimbursement rate for that service in order to estimate the total revenue that would be generated by that number of patient days. The results were then compared to the applicant s estimated gross revenue. The results of the calculations are summarized in the Table below. The applicant s projected gross revenue was 3.5 percent, or $84,752, less than the calculated gross revenue. The majority of this difference is due to the applicant using a lower inflation rate (two percent) than the market basket rate. Understating revenue is a conservative assumption and therefore, considered reasonable. Operating profits from this project are expected to increase from a loss of $118,041 for year one to a profit of $22,073 for year two. Conclusion: This project appears to be financially feasible, provided that patient days and payer mixes are realized. 17

18 HOSPICE REVENUE CON # Good Shepherd Hospice, Inc. Wage Index for Highlands County (0.9167) Wage Component Wage Index Adjusted Wage Amount Unadjusted Component Payment Rate Routine Home Care $ $85.10 $42.28 $ Continuous Home Care $ $ $ $ Inpatient Respite $ $69.35 $64.11 $ General Inpatient $ $ $ $ Payment Rate Inflation Factor Year Two Inflation Adjusted Amount Patient Days Year 2, June Calculated Gross Revenue Routine Home Care $ $ $0 Continuous Home Care $ $ $0 Inpatient Respite $ $ $0 General Inpatient $ $ ,942 $2,504,833 Total 3,942 $2,504,833 From Schedule 7 (Gross) $2,420,081 Difference -$84,752 Percentage difference -3.50% e. Will the proposed project foster competition to promote quality and cost-effectiveness? ss (7), Florida Statutes. This application is for a new hospice inpatient facility, Highlands Hospice House, to be located in Service Area 6B, in Highlands County and near Sebring, Florida. If approved, Good Shepherd will be the only freestanding inpatient hospice facility in Highlands County and the second freestanding inpatient hospice facility in Service Area 6B. The impact of the price of services on consumer choice is limited to the payer type. Most consumers do not pay directly for hospice services, rather, they are covered by a third-party payer. The impact of price competition would be limited to third-party payers that negotiate price for services, namely managed care organizations. Therefore, price competition is limited to the share of patient days that are under managed care plans. The applicant is projecting 4.0 percent of its patient days from managed care payers with 95.0 percent of patient days expected to come from fixed price government payer sources (Medicare and Medicaid), with the remaining 1.0 percent as self-pay/charity. 18

19 Conclusion: This project is not likely to result in price-based competition. f. Are the proposed costs and methods of construction reasonable? Do they comply with statutory and rule requirements? ss (8), Florida. The applicant proposes to establish a new 12-bed inpatient hospice (Highlands Hospice House) in Highlands County, in SA 6B. The design features 16 bedrooms (only 12 for inpatient beds) clustered around a central nurse station and support area. The layout reduces unnecessary traffic through the nursing unit by locating administrative, dietary, facility services, and family support space between the main entry and the patient area. All beds are located in private rooms which exceed the minimum space requirements of the Florida Building Code (FBC). As designed, the rooms provide ample space to accommodate family members. All patient rooms are provided with a private toilet room attached. All patient bedrooms and toilet rooms will be handicapped accessible. The construction type is listed on the schematic floor plan as FBC Type II-B and National Fire Protection Association (NFPA) Type II (0,0,0). The construction type will be sufficient to meet code requirements for the proposed size and occupancy of the building. The plans do not show the location of smoke barriers or indicate the size and location of smoke compartments. It is assumed that walls located adjacent to the opposite swinging cross-corridor doors will be constructed as one-hour rated smoke barriers. It appears that the resulting smoke compartments would comply with the size and capacity requirements. All functional spaces have been provided and adequately positioned throughout the facility. Also storage rooms exceeding 100 square feet in area and all soiled linen rooms will be required to be enclosed by one-hour rated fire barriers. The project is well designed. The plans are schematic and will require further development, but there are no major code deficiencies identified at this stage. Based on the analysis of actual cost data of a similar project, the estimated construction costs appear to be within the expected range. The information provided in the project completion forecast appears to be reasonable. 19

20 The architectural review of the application shall not be construed as an in-depth effort to determine complete compliance with all applicable codes and standards. The final responsibility for facility compliance ultimately rests with the owner. The Agency for Health Care Administration (AHCA or the Agency) does not require any further plan reviews for hospice licensure; however, the Agency will provide a formal review of construction documents for any owner who wants to insure code compliance. g. Does the applicant have a history of providing health services to Medicaid patients and the medically indigent? Does the applicant propose to provide health services to Medicaid patients and the medically indigent? ss (9), Florida Statutes. Hospice programs are required by federal and state law to provide hospice patients with inpatient care when needed (42 Code of Federal Regulations ). Hospice care also must be provided regardless of ability to pay 4. GSH states it has a policy and history of providing services to all persons regardless of ability to pay, including Medicaid patients and the medically indigent (CON #10024, page #54). In Schedule 7A, it proposes 7.0 percent Medicaid days and 1.0 percent selfpay (for both years one and two of operation). In the notes to Schedule 7A, GSH states indigent care and other write-offs are based on the experience and expectation of the applicant (CON #10024, page #83). Charity care, per se, is not discussed separately. F. SUMMARY The Agency does not publish need for inpatient hospice beds. Hospice programs are required by federal and state law to provide hospice patients with inpatient care when needed (42 Code of Federal Regulations ), and no more than 20 percent of a hospice s total patient days may be inpatient days per Section (4), Florida Statutes. 4 Florida Statutes : Patient admission; assessment; plan of care; discharge; death.--(1) Each hospice shall make its services available to all terminally ill persons and their families without regard to age, gender, national origin, sexual orientation, disability, diagnosis, cost of therapy, ability to pay (emphasis added), or life circumstances. A hospice shall not impose any value or belief system on its patients or their families and shall respect the values and belief systems of its patients and their families. 20

21 After weighing and balancing all applicable review criteria, the following relevant factors are listed with regard to the project in Hospice Service Area 6B. Good Shepherd Hospice, Inc. (CON #10024), a Florida not-for-profit corporation, proposes to establish a 12-bed freestanding inpatient hospice facility (Highlands Hospice House) in Hospice Service Area 6B (Hardee, Highland and Polk Counties), with the facility located in northern Highlands County, in or near the city of Sebring. The stated primary project objective is to improve geographic accessibility of inpatient hospice care to Highlands and Hardee County residents and to relieve high occupancies in existing inpatient hospice facilities in SA 6B. The applicant plans to lease Highlands Hospice House from the parent, HPC Healthcare, with Highlands Hospice House being the only such facility in Highlands County. The applicant is proposing total project costs of $7,506,859. Construction costs are $4,963,108 and the project will involve 22,470 gross square feet (GSF) of new construction. Costs covered are for land, building, equipment, project development, financing and start-up costs. Good Shepherd proposes the CON be predicated on two conditions: that the Highlands Hospice House will be constructed in or near Sebring in Highlands County, Florida and that Good Shepherd Hospice will provide all required monitoring reports and will notify the Agency when the facility is licensed and operational on the site specified in the application. Need/Access: Support of the applicant's proposal is demonstrated by 320 unduplicated letters of support from a combination of sources: the parent corporation (HPC Healthcare, Inc.), members of the U.S. Congress, the Florida Legislature, local elected officials, local area hospitals, physicians and reverends (among others). Some recurring themes that support the project are: the applicant s 29-year history in the area; a reported high-quality program and the reduced travel time that would be realized for Hardee and Highlands County residents who seek GSH s inpatient hospice services. 21

22 GSH s existing 12-bed Forsythe Hospice House and seven-bed dedicated Palm Terrance Unit (both in Polk County) are reported as having high occupancy rates for CY 2007 (averaging 96 percent total occupancy). Given the anticipated additional demand projected by the applicant, a deficit of approximately 11 to 12 beds is projected by The applicant stresses the value of savings and quality-of-life realized when it conducts inpatient hospice services as opposed to contracting for such services. The applicant anticipates a savings of around $83 per patient day which leads to an estimated cost benefit of over $300,000 by the second year of operation ending September 30, Nine hospitals in the area and 26 nursing homes are stated as contractors with the applicant. Of the nine hospitals, two are located in Highlands County (Highlands Regional Medical Center and Florida Hospital Heartland Division) state a lack of internal capacity to contract with the applicant. The applicant contends that hospitals and nursing homes have overall institutionalized environments that are not consistent with the end-of-life objective more common in the hospice industry. Quality of Care: Agency records indicate two confirmed complaints at the applicant s existing hospice program and one confirmed without deficiency, as of the three-year period ending July 25, One complaint was for an inappropriate discharge and the other was on multiple issues (one each): administrative; lack of assessment; patient care and plan of care. The confirmed without deficiency complaint was for medicine problem/errors/formulary. The applicant includes its Agency licensure and its March 21, 2008 Home Care Administration Program certificate, given to LifePath Hospice and Palliative Care, Inc. (GSH Division), issued by The Joint Commission. Financial Feasibility/Availability of Funds: The applicant has an overall good short-term position and overall a good to strong long-term position. Funding for the project should be available as needed. 22

23 The project appears to be financially feasible, provided that patient days and payer mixes are realized. The project is not likely to result in price-based competition. Medicaid/Indigent/Charity Care: Hospice programs are required by law to provide services to all who seek them. The applicant is projecting that Medicaid will comprise 7.0 percent of total patient days in year one and two of the proposed project. Selfpay care is estimated at 1.0 percent of total patient days in both years. Schedule 7A and the accompanying notes do not directly state self-pay includes charity care; however, the notes state that indigent care and other write-offs are based on the experience and expectation of the applicant. Architectural: The 12-bed inpatient hospice facility (with four additional residential beds) has all private and accessible patient rooms, with attached private and accessible toilet rooms. The patient and toilet rooms comply with the Americans with Disabilities Act. The plans submitted meet or exceed FBC and NFPA codes and requirements. The owner should revisit the lack of a location of smoke barriers and the size and location of smoke compartments, in further plan development. Based on the analysis of actual cost data of a similar project, the estimated construction costs appear to be within the expected range and the project completion forecast appears to be reasonable. 23