STATE AGENCY ACTION REPORT CON APPLICATION FOR CERTIFICATE OF NEED

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1 STATE AGENCY ACTION REPORT CON APPLICATION FOR CERTIFICATE OF NEED A. PROJECT IDENTIFICATION 1. Applicant/CON Action Number: Wildwood Medical Center, Inc./CON # SW 1 st Avenue Ocala, Florida Authorized Representative: Garry L. Karsner (352) Service District/Subdistrict District 3/Subdistrict 7 (Lake and Sumter Counties) B. PUBLIC HEARING No public hearing was requested. The applicant submitted six letters of support from community leaders and two area physicians for the proposed project to establish a 100-bed class I acute care hospital in Wildwood, Sumter County. The letters from the community leaders were similar in content and attributed their support to the following: population growth due to expansion of the master planned community The Villages and the accompanying economic development of the area; need for a facility within shorter driving distances; need for an additional facility to provide patient choice. The two letters from area physicians were almost identical in content and stated that need exists in southern Sumter County for an additional facility, and each physician stated that if a hospital were available in that area of Sumter County, each would establish an office, perform surgery in that hospital and follow existing patients there. Although Wildwood s location is in the southwestern portion of The Villages planned community, it should be noted that the proposed facility would be located in the northeastern corner of Sumter County.

2 Three letters of opposition were received regarding the proposed project, with one each from the President/Chief Executive Officer of Leesburg Regional Medical Center and The Villages Regional Hospital, the Executive Vice President/Chief Financial Officer of Munroe Regional Medical Center and the President/Chief Executive Officer of Florida Hospital Waterman. The letters were similar in content and presented variations of the following: the proposed facility would reduce utilization at existing hospitals; would increase the duplication of services; would not offer new or unique services to the area; would redirect the mix of payers that help offset the costs of care, thereby undermining the ability to fund charity care; would not improve quality or access; would strain clinical staffing resources; would not result in beneficial price based competition; utilization rates in the area suggest available capacity; existing providers have ongoing expansion plans; existing providers can accommodate projected population growth; existing providers are central to population centers; adding 100 beds at an existing facility would generally be less cost per bed than building a 100-bed hospital; area residents need primary care physicians and outpatient services more than another hospital; existing hospitals need to grow to the level where they can provide sophisticated services and technologies. C. PROJECT SUMMARY Wildwood Medical Center, Inc. (CON #9937) is applying for a certificate of need (CON) to establish a new 100 private bed acute care hospital in Wildwood, Sumter County, Subdistrict 7, District 3. The applicant is not an existing provider of care in Florida; however, the parent corporation of the applicant, Hospital Corporation of America (HCA), operates 40 class I acute care facilities throughout the state. The proposed facility would be located on a 50 plus acre site at the intersection of State Road 44 and Buena Vista Boulevard in Wildwood. The applicant proposes that the project be conditioned for the specific site within the subdistrict, and that the proposed facility would provide a minimum of 3.0 percent of acute inpatient discharges to Medicaid/Medicaid HMO patients and an additional 3.0 percent to charity/self-pay/underinsured patients. The reported total project cost is $158,672,296. Total construction costs are reported at $85,803,550 and the project will involve 245,153 GSF of total construction. 2

3 D. REVIEW PROCEDURE The evaluation process is structured by the certificate of need review criteria found in Section , Florida Statutes and rules of the State of Florida, 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 and data provided in the application and independent information gathered by the reviewer. Applications are analyzed to identify strengths and weaknesses in each proposal. If more than one application is submitted for the same type of project in the same district (subdistrict), applications are comparatively reviewed to determine which applicant(s) best meet the review criteria. Rule 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, the consultant Karen Weaver Webb analyzed the application with consultation from the financial analyst John Williamson who reviewed the financial data and architect Scott Waltz who evaluated the architecturals and the schematic drawings. 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. 3

4 1. Fixed Need Pool a. Does the project proposed respond to need as published by a fixed need pool? Or does the project proposed seek beds or services in excess of the fixed need pool? Ch. 59C-1.008(2), Florida Administrative Code. The Chapter 59C acute care bed need rule was repealed April 21, 2005; therefore, numeric need for additional acute care beds was not published for this batching cycle, and thus this project is not submitted in response to published numeric need but is predicated upon arguments of special circumstance as detailed below. District 3, Subdistrict 7 had a total of 662 licensed acute care beds with an occupancy rate of percent for the most recent 12-month reporting period, calendar year (CY) Of the four existing facilities in Subdistrict 7, one facility is located in Sumter County: The Villages Regional Hospital (TVRH). TVRH experienced a CY 2005 occupancy of percent. Subsequently, TVRH notified 1 the Agency of its intention to add 132 acute care beds to its existing count of 60. The Agency s Office of Plans and Construction records indicate that the facility received its 80 percent inspection and was nearing completion at the time of this writing. The applicant presents the following contentions of need: population growth; geographic barriers; need for competition/choice in the service area. The applicant has selected a nine zip code area for its primary service area (PSA): 32162, 33585, 34484, 34785, 32159, 34731, 34762, and 34491, primarily located in Sumter County with overlapping in Lake County and Marion County (Subdistrict 4). Two class I acute care facilities are located within this nine zip code area, TVRH and Leesburg Regional Medical Center. The applicant proposes four zip codes for its 1 A 2004 change in the CON statute allows hospitals not located in statutorily defined low-growth counties for CON review to add beds by simply notifying the Agency of their intention to do so. At the time of the request, Sumter County did not meet the criteria under s (1)(g), Florida Statutes for a low-growth county and therefore, The Villages Regional Hospital was not required to submit a CON application to add beds but was required under s (5)(c), Florida Statutes to notify the Agency of its intention to add 132 acute care beds. As of this writing, the only county in Florida to meet the statutory definition of a low-growth county for purposes of CON review is Escambia County. Any existing hospital in any Florida county other than Escambia can notify the Agency at any time of its intention to add acute care beds, and that action is not subject to CON review. 4

5 secondary service area: 33513, 33514, and No class I acute care facilities are located within this four zip code area. The following map illustrates the proposed location, as well as the top five providers of discharges to residents of the selected zip codes: Service Area Map of Existing Providers and Proposed Facility Source: Microsoft MapPoint 2004 Regarding the applicant s first contention of need, that high population growth is projected for the area, the following table illustrates 10 years of total population growth: Population Growth Total Population Total Sumter County 6.87% 7.80% 3.70% 4.27% 10.11% 9.33% 5.99% 4.23% 3.09% 2.46% 75.00% Subdistrict % 5.48% 4.19% 4.49% 5.65% 5.27% 4.32% 3.72% 3.29% 3.01% 54.38% District % 2.82% 2.75% 3.17% 3.39% 3.14% 2.77% 2.50% 2.31% 2.17% 31.32% State 2.61% 2.09% 2.30% 2.59% 2.37% 2.24% 2.21% 2.16% 2.10% 2.04% 25.20% Source: Population Estimates, published September

6 As seen in the table above, the county of location for the proposed project experienced growth exceeding that of the district and state for the estimated years of , and is projected to continue growing through 2010 at a faster rate than the district and state. Sumter County growth exceeded that of its subdistrict for all but two of the estimated years and is projected to exceed the growth rate of its subdistrict through Subdistrict 7 is comprised of Sumter County and Lake County, and therefore the difference in growth between Sumter County and Subdistrict 7 is attributable to Lake County. The applicant has proposed two zip codes of its PSA that are entirely located within Lake County as well as two zip codes of its PSA that are located partially within Lake County 2. For the 10-year period of January 1, 2000 through January 1, 2010, Sumter County is projected to grow a total of percent, versus percent for the subdistrict, percent for the district and percent for the state. The following table illustrates projected growth for the 65 and older population for the five-year period of : Projected Population Growth 65 and Older Population Sumter County 7.01% 5.12% 3.89% 3.23% 4.16% 25.66% Subdistrict % 4.20% 3.95% 3.84% 4.20% 22.59% District % 3.27% 3.45% 3.58% 3.66% 18.21% State 2.00% 2.78% 3.34% 3.69% 3.45% 16.21% Source: Population Estimates, published September As seen in the table above, growth of the 65 and older population in Sumter County is projected to exceed growth in the subdistrict, district and state for the five-year period of 2006 through The applicant associates this growth in the 65 and older population with increased utilization of acute care services. The following table illustrates the proportion of the 65 and over population to total population for each indicated area: 65 and Over Population as Percentage of Total Population Sumter County 30.30% 30.59% 30.85% 31.09% 31.32% 31.55% Subdistrict % 26.64% 26.76% 26.93% 27.15% 27.42% District % 21.84% 22.01% 22.25% 22.56% 22.88% State 16.92% 16.88% 16.98% 17.19% 17.47% 17.73% Source: Population Estimates, published September Additionally, the applicant proposes one zip code that would be located entirely within Marion County, which is Subdistrict 4. 6

7 As seen in the table above, the 65 and over population is better represented in Sumter County than in the subdistrict, district or state. This larger proportion of 65 and over to the total population in Sumter County underscores the projected growth for the 65 and over population in Sumter County, as discussed above. The applicant states that because of this, it has secured a commitment from the leading group of orthopedic surgeons in the Ocala area 3 to practice at the proposed facility. The applicant states that estimates and projections published by the state of Florida differ from the projections published by Claritas, with the Claritas projections exceeding those of the state. From January 2006 through January 2011, state data indicate Sumter County will grow 20.7 percent, whereas the applicant quotes Claritas as projecting a 30.5 percent increase for Sumter County for this same time. Concerning the applicant s entire PSA, which includes zip codes (entirely and partially) in Lake County and Marion County, the applicant states that 175,253 people resided in the area as of January 2006 and are projected 4 to increase 33.4 percent to 233,722 people in January It is noted that the applicant is using a conservative approach given recognized sources of population data available. The applicant attributes the Sumter County increases to the development of the Villages master-planned community, which the applicant states had completed development of approximately 54 percent of its scheduled dwelling units by January 1, The Villages community is stated to be one of a number of planned communities under development in Sumter County, with others stated to be undergoing Development of Regional Impact (DRI) review. The applicant states that from April 1, 2000 through January 1, 2006, the portion of the Villages community within Sumter County grew 43.7 percent. Because population growth does not necessarily translate to increases in health care utilization, the following table illustrates the bed counts and utilization percentages of subdistrict facilities: 3 CON application 9937, page The applicant s projections are based on state projections for Sumter County and Claritas zip code level data for the zip codes outside of Sumter County. The applicant backs out of its figures the Sumter County portion of the zip code, which falls in both Sumter and Lake Counties, in an effort to avoid double counting residents of that zip code. 7

8 District 3 Subdistrict 7 Utilization CY 2005 Facility County Bed Count Occupancy Leesburg Regional Medical Center Lake % *South Lake Hospital Lake % Florida Hospital Waterman Lake % The Villages Regional Hospital Sumter % Subdistrict % *Disproportionate Share Hospital Source: Florida Hospital Bed Need Projections & Service Utilization by District published 7/28/2006. As stated previously, TVRH notified the Agency in 2006 of its intention to increase its acute care bed count by 132, for a total of 192 acute care beds. As of the writing of this report, TVRH had not licensed the additional 132 beds. The Florida Hospital Bed Need Projections & Service Utilization by District published 7/28/2006 indicates that TVRH reported 22,368 patient days for CY 2005, which when spread over 60 beds equates to utilization of percent; however, if those same patient days were spread over 192 beds (the total acute care bed count after the additional beds are licensed), TVRH would have experienced a utilization rate of percent. This would have reduced the subdistrict average to percent. However, it is likely that when TVRH licenses these additional 132 beds, the patient days provided at TVRH will increase. The following table illustrates utilization of subdistrict facilities for the past five years: District 3 Subdistrict 7 Utilization CYs Facility 2001 ** Leesburg Regional Medical Center 78.06% 77.07% 61.95% 65.37% 61.73% *South Lake Hospital 58.46% 60.64% 70.83% 98.70% 82.82% Florida Hospital Waterman 69.42% **62.82% 60.84% 63.11% 65.42% The Villages Regional Hospital N/A 40.95% 85.85% 95.10% % Subdistrict % **64.73% 62.89% 71.10% 69.48% *Disproportionate Share Hospital **2002 utilization indicated here reflects a correction from the original publication for Florida Hospital Waterman and for Subdistrict 7. Source: Florida Hospital Bed Need Projections & Service Utilization by District published for indicated years. As seen above, utilization in the subdistrict increased from percent in 2001 to percent in During these years, the following bed counts were increased: Leesburg Regional increased from 238 beds in 2002 to 294 in 2003; South Lake Hospital increased from 68 beds in 2004 to 104 beds in 2005; Florida Hospital Waterman increased from 153 beds in 2001 to 182 beds in 2002 to 204 beds in Therefore, utilization for the subdistrict has remained approximately stable despite bed additions. It should again be noted that TVRH is approved to add 132 acute care beds to its existing count of 60, which will likely decrease that facility s utilization and the overall utilization in the subdistrict. 8

9 Because TVRH had not licensed these additional beds as of the writing of this report, the extent to which their utilization would be affected cannot be adequately evaluated. It should be noted that Leesburg Regional experienced a decrease of percent in utilization from and maintained the lowest utilization in the subdistrict during CY Leesburg Regional provided the greatest number of discharges to service area residents for each of the five years from , and during CY 2005, discharges from the nine PSA zip codes accounted for percent of all Leesburg Regional s discharges. The following table illustrates the top five hospitals from which service area residents were discharged from CY , with South Lake Hospital included to present all of Subdistrict 7: Discharges of PSA Zip Code Residents by Facility CY Leesburg Regional Medical Center 59.85% 56.89% 46.95% 46.76% 46.02% The Villages Regional Hospital N/A 8.48% 22.25% 21.61% 20.74% Munroe Regional Medical Center 11.57% 10.76% 9.23% 8.85% 9.24% Ocala Regional Medical Center 6.51% 5.80% 4.70% 4.38% 4.54% Florida Hospital Waterman 2.99% 2.85% 2.67% 4.20% 4.25% *South Lake Hospital 0.75% 0.41% 0.55% 0.67% 0.77% Subdistrict % 68.63% 72.42% 73.23% 71.80% Outside Subdistrict % 31.37% 27.58% 26.77% 28.20% *Disproportionate Share Hospital Source: Florida Center for Health Information and Policy Analysis As seen above, the majority of service area resident discharges over the past five years were made from Subdistrict 7 facilities, with the top provider of discharges to residents of the nine PSA zip codes being Leesburg Regional Medical Center for each year. Data available from the Florida Center for Health Information and Policy Analysis indicate that Leesburg provided 47,214 patient days to service area residents in CY 2005 out of 77,246 patient days it provided in total, equating to percent PSA patient days out of total patient days at Leesburg Regional. In other words, Leesburg Regional is the primary provider of discharges for PSA residents and in turn, PSA residents make up more than half the volume at Leesburg Regional. As discussed previously, Leesburg experienced a decrease of percent in utilization from , and maintained the lowest utilization in the subdistrict during CY 2005 at percent. 9

10 TVRH, an affiliate 5 of Leesburg Regional, initiated services in 2002 providing the third greatest number of discharges that year, increasing in 2003 and beyond to the second greatest number of discharges from the service area. Together, the affiliated facilities Leesburg Regional and TVRH provided percent of all service area discharges. In CY 2005, PSA patient days accounted for percent of TVRH s total patient days, and with percent of the service area discharges, TVRH provided the second greatest number of discharges of PSA residents. In 2003, 2004 and 2005, the third and fourth greatest providers of discharges for service area residents were two facilities in Subdistrict 4, Marion County; however, it is not clear that this constitutes evidence of outmigration, as one of the nine PSA zip codes, 34491, is entirely located in Marion County. Approximately percent of the discharges of residents of zip code were made by facilities located in the subdistrict where is positioned, Subdistrict 4, and approximately percent of the zip code s resident discharges were made by facilities located in Subdistrict 7, the location of the proposed facility. In 2005, 105,712 patient days were provided to PSA residents regardless of facility, which would equate to 290 beds at 100 percent occupancy or 362 beds at 80 percent occupancy. Currently, there are 662 beds with percent occupancy in the subdistrict and an additional 132 acute care beds are already approved. It should be noted that Subdistrict 7 does not include a statutorily defined low-growth county, and therefore any addition of beds at existing facilities would not be subject to CON review per (1)(g), Florida Statutes. The applicant is proposing 23,624 patient days for its second year of operations in 100 beds, which would result in a percent occupancy for the proposed facility. Elevated projections of population growth combined with stable utilization despite bed additions at existing facilities suggest possible need for the project; however, the tripling of TVRH s acute care bed count will have an unknown effect on area utilization rates. Further, two existing affiliated facilities derive a majority of their volume from the PSA, with one of these experiencing a percent decrease in utilization over the past five years, and the other intends to triple its bed count. It is cannot be determined if the notable population projections will be achieved. The likelihood that this elevated population growth, if achieved, would translate to increased need for acute care services beyond the expansion abilities of existing providers cannot be adequately evaluated. 5 The Villages Regional Hospital is operated by The Villages Tri-County Medical Center, Inc., a corporation with one member: Leesburg Regional Medical Center, Inc. 10

11 The applicant contends that geographic barriers exist in accessing Sumter County s existing facility TVRH that result in an inhibited ability of TVRH to meet current and future acute care needs of most Sumter County residents. It is here noted that the applicant s proposed service area includes areas within Sumter and Lake Counties and that the planning area is both Sumter and Lake Counties. The applicant states that TVRH s location in the far northeast corner of Sumter County (proximate to Lake County and Marion County), as well as its distance from major roadways constitute geographic barriers for the residents of Sumter County. The following map indicates the existing facilities and proposed location as they are located within the three above named counties: Service Area Map of Existing Providers and Proposed Facility Source: Microsoft MapPoint 2004 The following map is repeated from earlier discussion to illustrate the placement of the proposed facility and existing area facilities: 11

12 Service Area Map of Existing Providers and Proposed Facility Source: Microsoft MapPoint 2004 As seen in the map above, TVRH and Leesburg Regional are both located within 10 geographic miles of the proposed facility. The proposed facility, like TVRH, would be placed near the northeastern corner of the county. The applicant states that Leesburg Regional is 10.1 roadway miles from the proposed site and that TVRH is 17 roadway miles away. It is not clear that this distance represents an improvement in access for the service area. As noted by the applicant, TVRH is located near U.S. Highway 27, while the proposed facility would be located off of State Road 44, which is nearer to the Florida Turnpike and Interstate 75. However, it is not clear that this proximity to major roadways constitutes need for the proposed project considering the similar service area shared with TVRH, the 132 approved beds at TVRH and the ability of existing providers to add beds outside of CON review. 12

13 The applicant contends that need exists for the proposed project to offer competition and patient choice in the service area. The applicant concludes that because the two facilities that are physically located within the nine zip code area are affiliated and together provided the majority of service area discharges, access to acute care services among managed care enrollees is impeded. The applicant states that this limitation in patient choice results in extensive outmigration of managed care patients, for which it quotes that these two providers captured 33 percent of the managed care market share in the area (uncredited source) compared to its majority share of the total payer market. As discussed in section E.3.f. below, the applicant is projecting that approximately 17.3 percent of its patient days are expected to come from managed care organizations. The Agency s Financial Analysis Unit found this level of managed care provision to be between the control group median and lowest values for similar hospitals; therefore, it is not clear that the applicant s proposal would improve access for this payer group. The following table illustrates the PSA discharges by Leesburg Regional and TVRH by payer group for CY 2005, as compared with the applicant s projected provisions for year two of the project by payer group: PSA Discharges by Payer Group Comparison for Leesburg Regional and The Villages Regional for CY 2005 and Proposed Provisions for Applicant Facility in Year Two of Project (2011) Proposed Wildwood Medical Center Projected 2011 Leesburg Regional Actual 2005 The Villages Regional Actual 2005 Charity 1.22% 0.85% 0.80% Commercial HMO 0.02% 3.04% 3.60% Commercial Insurance 11.54% 9.81% 6.70% Commercial PPO 5.34% 1.57% 12.60% Medicaid 12.38% 1.71% 2.40% Medicaid HMO 2.73% 0.33% 0.60% Medicare 60.60% 77.13% 68.80% Medicare HMO 0.21% 0.67% 0.30% Self pay/underinsured 4.49% 3.08% 2.40% Other 1.48% 1.80% 1.81% Total % % % Source: Florida Center for Health Information and Policy Analysis and page 30 of CON application As seen in the table above, commercial HMO/insurance/PPO provisions at Leesburg Regional totaled 16.9 percent during CY 2005, compared with percent for TVRH, while the applicant projects percent for the second year of the proposed project. Because the service area is described as an integrated retirement community and because the applicant cites growth in the 65 and over population as part of its need contentions, a comparison of Medicare percentages is also pertinent to the service area. The applicant proposes to provide a greater percentage of Medicare in 2011 than Leesburg provided in 2005, and proposes to provide a lesser percentage than provided in 2005 by TVRH. As with 13

14 Medicare, the applicant s proposals for most of the above indicated payer groups are approximately equal to those provided in CY 2005 by the two facilities the applicant purports to surpass in managed care provisions. However, the most notable difference illustrated above is the proposed Medicaid provision for Wildwood compared to the actual provisions of the two existing facilities. The applicant indicates it will provide 2.4 percent of its discharges in 2011 to Medicaid patients, while Leesburg Regional provided percent. TVRH provided 1.71 percent. As previously stated, it is not clear that patients are out-migrating from the applicant s proposed service area or Subdistrict 7 or that access would be improved for managed care patients. Additionally, it is not demonstrated that access would be improved for any singular payer group with an approval of the proposed project. The following table is repeated from earlier discussion to illustrate the top five hospitals from which service area residents were discharged from CY , with South Lake Hospital included to present all of Subdistrict 7: Discharges of PSA Zip Code Residents by Facility CY Leesburg Regional Medical Center 59.85% 56.89% 46.95% 46.76% 46.02% The Villages Regional Hospital N/A 8.48% 22.25% 21.61% 20.74% Munroe Regional Medical Center 11.57% 10.76% 9.23% 8.85% 9.24% Ocala Regional Medical Center 6.51% 5.80% 4.70% 4.38% 4.54% Florida Hospital Waterman 2.99% 2.85% 2.67% 4.20% 4.25% *South Lake Hospital 0.75% 0.41% 0.55% 0.67% 0.77% Subdistrict % 68.63% 72.42% 73.23% 71.80% Outside Subdistrict % 31.37% 27.58% 26.77% 28.20% *Disproportionate Share Hospital Source: Florida Center for Health Information and Policy Analysis As seen above, the majority of service area resident discharges over the past five years were made from Subdistrict 7 facilities. In 2003, 2004 and 2005, the third and fourth greatest providers of discharges for service area residents were two facilities, Munroe Regional Medical Center and Ocala Regional Medical Center, in Subdistrict 4, Marion County; however, it is not clear that this constitutes evidence of outmigration, as one of the nine PSA zip codes, 34491, is entirely located in Marion County. Patients living in Marion County seeking services at Munroe Regional or Ocala Regional would not be out-migrating from their subdistrict. Excluding zip code from the PSA would result in percent of PSA residents seeking care within the subdistrict during 2005, while percent out-migrated to another subdistrict. However, percent of the patients from zip code (Subdistrict 4) were discharged from facilities within Subdistrict 7, which represents inmigration for the proposed subdistrict. 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 14

15 topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. As discussed above, population projections for Sumter County are notable, and the applicant presents Claritas data in conjunction with state published data to indicate that growth for the area may exceed earlier projections. Utilization in the subdistrict has remained approximately stable in recent years despite bed additions at existing facilities. As previously mentioned, the following bed counts were increased between 2001 and 2005 in Subdistrict 7: Leesburg Regional increased from 238 beds in 2002 to 294 in 2003; South Lake Hospital increased from 68 beds in 2004 to 104 beds in 2005; Florida Hospital Waterman increased from 153 beds in 2001 to 182 beds in 2002 to 204 beds in District 3 Subdistrict 7 Utilization CYs Facility 2001 ** Leesburg Regional Medical Center 78.06% 77.07% 61.95% 65.37% 61.73% *South Lake Hospital 58.46% 60.64% 70.83% 98.70% 82.82% Florida Hospital Waterman 69.42% **62.82% 60.84% 63.11% 65.42% The Villages Regional Hospital N/A 40.95% 85.85% 95.10% % Subdistrict % **64.73% 62.89% 71.10% 69.48% *Disproportionate Share Hospital **2002 utilization indicated here reflects a correction from the original publication for Florida Hospital Waterman and for Subdistrict 7. Source: Florida Hospital Bed Need Projections & Service Utilization by District published for indicated years. Forecast growth and recent utilization in the subdistrict suggest possible need for the proposed project; however, one existing facility, TVRH, is located within 10 miles of the proposed site, shares a similar service area with the applicant s proposal and has already notified the Agency of its intention to increase its acute care bed count by 132. Subdistrict utilization levels are bolstered by the current occupancy at this facility, percent, but this utilization will likely decrease once the additional 132 beds are licensed. Other facilities in the area currently 15

16 serving the applicant s PSA may increase acute care bed counts at any time without CON review. Two area facilities, though affiliated, draw the majority of their operations from the applicant s PSA, and one of these facilities, Leesburg Regional, has experienced decreases in utilization over the past five years. The applicant contends that geographic barriers exist in accessing TVRH that inhibits TVRH s ability to meet current and future acute care needs, due to TVRH s location in the far northeast corner of Sumter County, as well as its distance from major roadways; however, the proposed facility would also be located near the northeastern corner of the county, and both of the two existing primary providers to this service area are located within a 10-mile radius of the proposed site. The proposed site would be located nearer to major roadways, but it is not clear that this proximity to major roadways constitutes need for the proposed project considering the other factors discussed above. The applicant contends that need exists for the proposed project to offer competition and patient choice in the service area, due to the affiliation of the two primary providers, and concludes that a financial barrier to care exists for service area residents covered by managed care HMOs and PPOs. However, comparison of the most recent payer group provisions by the two facilities in question along with the payer group provisions proposed by the applicant, it appears that the applicant s proposed provisions for most payer groups are approximately equal to those provided in CY 2005 by the two facilities. Further, the applicant s proposed Medicaid provision is 2.4 percent of its discharges for the second year of the project, while Leesburg Regional provided percent and TVRH provided 1.71 percent. This was the largest discrepancy in the payer group provisions between the three entities. It is not demonstrated that access would be improved for any singular payer group with an approval of the proposed project. Sumter County s director of planning and development was quoted by the Ocala Star-Banner in a November 21, 2006 article as indicating that new construction in The Villages has slowed down significantly, and two Sumter County Commissioners are quoted as indicating decreases in home sales over the past year. Therefore, it cannot be evaluated whether the population growth forecasts discussed above will be realized. Of the two subdistrict hospitals that primarily serve this patient population, one is expected to triple its capacity and the other has experienced decreases in utilization. Need for a new hospital in the subdistrict has not been clearly demonstrated. 16

17 2. Agency Rule Criteria The Agency does not currently have adopted preferences or rule criteria relating to acute care beds. The acute care rule was repealed as a result of statutory changes made on July 1, The rule repeal was effective April 21, Statutory Review Criteria a. Is need for the project evidenced by the availability, quality of care, efficiency, accessibility and extent of utilization of existing health care facilities and health services in the applicant's service area? ss (1), (2), (5) and (7), Florida Statutes. As discussed above, population projections for Sumter County are notable, and the applicant presents Claritas data in conjunction with state published data to indicate that growth for the area may exceed earlier projections. Utilization in the subdistrict has remained approximately stable in recent years despite bed additions at existing facilities. As previously mentioned, the following bed counts were increased between 2001 and 2005 in Subdistrict 7: Leesburg Regional increased from 238 beds in 2002 to 294 in 2003; South Lake Hospital increased from 68 beds in 2004 to 104 beds in 2005; Florida Hospital Waterman increased from 153 beds in 2001 to 182 beds in 2002 to 204 beds in Forecast growth and recent utilization in the subdistrict suggest possible need for the proposed project; however, one existing facility, TVRH, is located within 10 miles of the proposed site, shares a similar service area with the applicant s proposal and is already approved to increase its acute care bed count by 132. Subdistrict utilization levels are bolstered by the current occupancy at this facility, percent, but this utilization will likely decrease once the additional 132 beds are licensed. Other facilities in the area currently serving the applicant s PSA may increase acute care bed counts at any time without CON review. Two area facilities, though affiliated, draw the majority of their operations from the applicant s PSA, and one of these facilities, Leesburg Regional, has experienced decreases in utilization over the past five years. The applicant contends that geographic barriers exist in accessing TVRH that inhibits TVRH s ability to meet current and future acute care needs, due to TVRH s location in the far northeast corner of Sumter County, as well as its distance from major roadways; however, the proposed facility would also be located near the northeastern corner of the county, and both of the two existing primary providers to this service area are located within a 10-mile radius of the proposed site. The proposed site would be 17

18 located nearer to major roadways, but it is not clear that this proximity to major roadways constitutes need for the proposed project considering the other factors discussed above. The applicant contends that need exists for the proposed project to offer competition and patient choice in the service area, due to the affiliation of the two primary providers, and concludes that a financial barrier to care exists for service area residents covered by managed care HMOs and PPOs. However, comparison of the most recent payer group provisions by the two facilities in question along with the payer group provisions proposed by the applicant, it appears that the applicant s proposed provisions for most payer groups are approximately equal to those provided in CY 2005 by the two facilities. Further, the applicant s proposed Medicaid provision is 2.4 percent of its discharges for the second year of the project, while Leesburg Regional provided percent and TVRH provided 1.71 percent. This was the largest discrepancy in the payer group provisions between the three entities. It is not demonstrated that access would be improved for any singular payer group with an approval of the proposed project. Need for the project is not evidenced by the availability, quality of care, efficiency, accessibility and extent of utilization of existing health care facilities and health services in the subdistrict or applicant's proposed service area. b. Does the applicant have a history of and demonstrate the ability to provide quality care? ss (3), (12), Florida Statutes. Wildwood Medical Center, Inc. is not an existing provider in Florida. The parent corporation of the applicant, Hospital Corporation of America (HCA), operates 40 class I acute care facilities throughout Florida 6. There were 296 closed confirmed complaints for these 40 facilities for the 36 months ending 11/16/2006: 12 for administrative; one for billing/refunds; one for call lights; 10 for discharge planning; four for emergency access; 63 for EMTALA; one for environment; eight for failing to report incident; eight for falls/injuries; five for inappropriate 6 Aventura Hospital and Medical Center, Blake Medical Center, Brandon Regional Medical Center, Capital Regional Medical Center, Cedars Medical Center, Central Florida Regional Hospital, Columbia Hospital, Community Hospital, Doctors Hospital of Sarasota, Edward White Hospital, Englewood Community Hospital, Fawcett Memorial Hospital, Fort Walton Beach Medical Center, Gulf Coast Medical Center, JFK Medical Center, Kendall Regional Medical Center, Lake City Medical Center, Largo Medical Center, Lawnwood Regional Medical Center, Memorial Hospital Jacksonville, North Florida Regional Medical Center, Northside Hospital, Northwest Medical Center, Oak Hill Hospital, Ocala Regional Medical Center, Orange Park Medical Center, Osceola Regional Medical Center, Palms West Hospital, Plantation General Hospital, Putnam County Medical Center, Raulerson Hospital, Regional Medical Center Bayonet Point, St. Lucie Medical Center, St. Petersburg General Hospital, South Bay Hospital, Twin Cities Hospital, University Hospital and Medical Center, West Florida Hospital, West Marion Community Hospital, Westside Regional Medical Center. 18

19 discharge; six for infection control; eight for lack of assessment; one for lack of supervision; two for medical records/charting; five for medical services; 19 for medicine problems/errors/formulary; 23 for nursing services; one for operating outside the scope of the license; five for patient abuse/neglect; 55 for patient care; 17 for patient rights; one for phlebotomy; five for physical plant; six for plan of care; six for pressure sores; two for restraints; 10 for sanitation; four for staffing; one for surgery to remove foreign object; one for surgery unrelated to diagnosis; one for surgical repair of injury; one for toileting; three for untrained/ unqualified staff. The applicant states that the proposed facility would share in all HCA resources available to ensure quality of care, including assistance from Ocala Regional Medical Center in implementing the proposed project 7. Of the complaints indicated above, 11 apply to Ocala Regional Medical Center and the co-licensed West Marion Community Hospital: 1 for administrative; five for EMTALA; one for medical services; one for medicine problems/errors/formulary; one for nursing service; one for patient care; and one for plan of care. The applicant states that HCA hospitals consistently receive very high satisfaction scores from their patients, with over 90 percent telling HCA that they would return to one of its hospitals if they needed to be hospitalized again. c. What resources, including health manpower, management personnel, and funds for capital and operating expenditures, are available for project accomplishment and operation? ss (6), Florida Statutes. The 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 $3,449 in assets as of August 31, The applicant is a wholly owned subsidiary of Hospital Corporation of America (HCA) (Parent). HCA will provide funding for this project. Therefore, the audited financial statements of the parent for the periods ending December 31, 2005 and 2004 were analyzed for the purpose of evaluating the parent s ability to provide the capital and operational funding necessary to implement the project. 7 The applicant notes that the proposed project would not be a satellite of Ocala Regional Medical Center. 19

20 Short-Term Position: HCA s current ratio of 1.3 indicates current assets are 130 percent of current liabilities, an acceptable position. The ratio of cash flow to current liabilities of 0.8 is slightly above average and an adequate position. The working capital (current assets less current liabilities) of $1.32 billion is a measure of excess liquidity that could be used to fund capital projects. Overall, the applicant has a good short-term position. (See table below). Long-Term Position: The long-term debt to equity ratio of 2.8 indicates long-term debt is greater than equity. This is well above average and a weak position. The cash flow to assets ratio of 14.2 percent is above average and a strong position. The most recent year had net income of $1.4 billion, which resulted in a 6.4 percent margin. Overall, the applicant has a strong long-term position. (See table below). Capital Requirements: Schedule 2 indicates the applicant has $159.9 million in capital projects. This project will be funded by HCA, Inc. who provided a letter from its vice president of finance, committing HCA to providing funding for the project. Available Capital: HCA had, at of December 31, 2005, $336.0 million in cash in hand, $1.3 billion in working capital and $3.2 billion in cash flows for the year ended. Staffing: The applicant s modified version of the Schedule 6 indicates fulltime equivalents (FTEs) are budgeted for year two of operations, including a separated accounting of its nurses by department. For the proposed facility s medical/surgical floors, the following FTEs are indicated: FTEs for registered nurses, FTEs for charge RNs, FTEs for licensed practical nurses (LPN) and 8.94 FTEs for certified nursing assistants. For the proposed facility s ICU, the following FTEs are indicated: 8.07 FTEs for registered nurses, 4.59 FTEs for charge RNs and FTEs for unit coordinators. For the proposed facility s emergency room, the following FTEs are indicated: FTEs for registered nurses, 4.59 FTEs for charge RNs, 1.94 FTEs for licensed practical nurses and 5.50 FTEs for techs. For the proposed facility s surgery department, the following FTEs are indicated: 6.02 FTEs for RNs and 4.47 FTEs for LPNs. For the proposed facility s recovery and holding department, the following FTEs are indicated: 4.35 FTEs for RNs and 1.08 for charge RNs FTEs are allotted in the second year for radiology techs, 6.37 FTEs are allotted for phlebotomists and 9.59 FTEs 20

21 are indicated for respiratory therapists. The applicant presents a thorough staffing profile, including numerous non-clinical positions such as security guards and trash techs. The applicant states that its staffing profile is based on the experience of Ocala Regional Medical Center. The applicant states that recruitment for the proposed facility would be handled by the human resource department at Ocala Regional Medical Center until the proposed facility becomes operational, at which time the proposed facility would assume recruiting efforts. Physician recruitment would reportedly be handled by HCA Physician Recruitment, although the applicant states it has secured a commitment from the leading group of orthopedic surgeons in the Ocala area to practice at the proposed facility. The applicant states that population growth within the Villages has historically attracted the physician base necessary to meet resident needs. The applicant describes its recruitment strategies to include internal postings, internal promotions, advertisements, mailings, career fairs, international recruitment, internet postings, sponsorship of events for nursing student graduate, relocation assistance for critical positions, referral bonuses, hiring bonuses and relationships with job placement programs. The applicant describes its retention strategies to include variable staffing standards, flexible work schedules, certification differentials in pay, tuition reimbursement, continuing education reimbursement, routine evaluation of pay grades in competitive markets, an employee stock option plan, retirement benefits, health/dental benefits, and others such as discounted child care and employee recreational activities. Conclusion: Based on the financial position of the applicant s parent, HCA, Inc., funding for this project should be available as needed. 21

22 CON #9937 Hospital Corporation of America 12/31/ /31/2004 Current Assets $ 5,215,000,000 $ 5,058,000,000 Cash and Current Investment $ 336,000,000 $ 258,000,000 Assets Restricted for Capital Projects $ $ Total Assets $ 22,225,000,000 $ 21,840,000,000 Current Liabilities $ 3,895,000,000 $ 3,549,000,000 Total Liabilities $ 17,362,000,000 $ 17,433,000,000 Net Assets $ 4,863,000,000 $ 4,407,000,000 Total Revenues $ 24,455,000,000 $ 23,502,000,000 Interest Expense $ 655,000,000 $ 563,000,000 Net Income $ 1,424,000,000 $ 1,246,000,000 Cash Flow from Operations $ 3,159,000,000 $ 2,954,000,000 Working Capital $ 1,320,000,000 $ 1,509,000,000 Current Ratio (CA/CL) Cash Flow to Current Liabilities (CFO/CL) Long-Term Debt to Equity (TL-CL/NA) Times Interest Earned (NPO+Int/Int) - - Total Equity to Total Assets (TE/TA) 21.9% 20.2% Operating Margin (ER/TR) 5.8% 5.3% Return on Assets (ER/TA) 6.4% 5.7% Operating Cash Flow to Assets (CFO/TA) 14.2% 13.5% d. What is the immediate and long-term financial feasibility of the proposal? ss (8), Florida Statutes. A comparison of the applicant s estimates to the control group values provides for an objective evaluation of financial feasibility (the likelihood that the services can be provided under the parameters and conditions contained in Schedules 7 and 8) and efficiency (the degree of economies achievable through the skill and management of the applicant). In general, projections that approximate the median are the most desirable and balance the opposing forces of feasibility and efficiency. In other words, as estimates approach the highest in the group, it is more likely that the project is feasible because fewer economies must be realized to achieve the desired outcome. Conversely, as estimates approach the lowest in the group, it is less likely that the project is feasible because a much higher level of economies must be realized to achieve the desired outcome. These relationships hold true for a constant intensity of service through the relevant range of outcomes. As these relationships go beyond the relevant range of outcomes, revenues and expenses may either go beyond what the market will tolerate or may decrease to levels where activities are no longer sustainable. 22