STATE AGENCY ACTION REPORT ON APPLICATION FOR CERTIFICATE OF NEED

Transcription

1 STATE AGENCY ACTION REPORT ON APPLICATION FOR CERTIFICATE OF NEED A. PROJECT IDENTIFICATION 1. Applicant/CON Action Number Tampa Bay Long Term Acute Care Hospital, LLC/CON # US Highway 19 North Palm Harbor, Florida Authorized Representative: Mr. Mike A. Marks (727) Service District District 5 B. PUBLIC HEARING A public hearing was not held or requested regarding the establishment of the proposed long-term acute care hospital in District 5. Tampa Bay Long Term Care Hospital, LLC submitted 27 letters of support for the project and the Agency received two letters of opposition. Six identical letters were from local area physicians stating there are many patients who spend weeks in a short-term acute care hospital because their clinical condition is too complex for admission to a skilled nursing facility or rehabilitation hospital, and who would benefit from the focused services of a long-term acute care hospital. Representatives of Largo Medical Center, Northside Hospital, St. Petersburg General Hospital, Edward White Hospital, Regional Medical Center Bayonet Point, (HCA District 5 acute care hospitals), Oak Hill Hospital (District 3); Brandon Regional Hospital, South Bay Hospital (District 6); Fawcett Memorial Hospital and Doctors Hospital of Sarasota (District 8) submitted essentially identical letters of support for the project. These letters state that frequently their patients spend considerable amounts of additional days and some times weeks in the acute care hospital setting because their clinical acuity level is greater than the care provided by a skilled nursing facility or rehabilitation

2 hospital. However, these patients would benefit from the focused services provided in a long-term acute care hospital. Long-stay and medically complex patients generally consume a large number of ICU days and with longer ICU stays, these patients tend to create capacity problems in the ICU which restricts access for other patients. These letters conclude that Tampa Bay LTCH would provide patients with increased choice and needed services in the Tampa Bay area. Two letters of opposition were submitted. One was from BayCare Long Term Acute Care, Inc., holder of CON #9753, which proposes to operate as BayCare Alliant Hospital ( Alliant ). Alliant asserts that as a start-up facility that will be open on or about January 1, 2008, it should have the opportunity to attain appropriate utilization at its facility prior to the approval of any additional long-term care hospital beds in Pinellas County. Alliant also contends that with its new 48-bed facility and Kindred Hospital s 82-bed facility, there is sufficient capacity available in Pinellas County and District 5 to accommodate the future demand for long-term acute care services. The second letter of opposition was submitted by Kindred Hospital Bay Area St. Petersburg. Kindred states that the approval of this proposal would have significant adverse impact. Kindred further explains that four HCA hospitals operate in Pinellas County and during the 12 months ending August 2007 those hospitals provided 27 percent of its admissions with Edward White Hospital alone accounting for 16 percent; losing those patients would seriously threaten the financial viability of Kindred. Kindred also states that as a second point of opposition, it has substantial bed capacity to care for the patients that Tampa Bay LTCH proposes to serve. During the eight months ending August 2007 Kindred states its 82 beds operated at only 65 percent occupancy; therefore, it has 28 available beds on average to treat patients in the area. Kindred also states that Tampa Bay LTCH will not significantly increase geographic accessibility of LTCH services for residents of District 5. Edward White Hospital is only four miles from Kindred and many of the key admitting physicians to Kindred are on staff at Edward White Hospital. Kindred further states that the additional LTCH will result in a wasteful duplication of services, and will not increase geographic accessibility of LTCH services to the residents of District 5. 2

3 C. PROJECT SUMMARY Tampa Bay Long Term Acute Care Hospital, LLC (CON #9990) is a newly-formed corporation and wholly owned subsidiary of HCA. The applicant proposes to build a 20-bed long-term care hospital (LTCH) in District 5. The facility will be located within Edward White Hospital, a 167-bed acute care hospital in St. Petersburg in southern Pinellas County. The project involves the renovation of the fifth floor of Edward White Hospital and the conversion of 34 existing acute care beds to 20 private LTCH beds. The proposed project involves 9,500 GSF of renovation. Total construction costs are estimated to be $2,531,516 with total project costs of $3,559,267. The applicant proposes to condition the project to the facility being located within Edward White Hospital. The applicant states that it is committed to serving medically indigent patients and Schedule 7A indicates that the facility will provide two percent of its annual patient days to Medicaid patients. However, the applicant is not proposing to condition award of the CON upon providing a percentage of care to the medically indigent population. D. REVIEW PROCEDURE The evaluation process is structured by the certificate of need review criteria found in section , Florida Statutes. 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 assessing the responses 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 best meet the review criteria. 3

4 Chapter 59C-1.010(2)(b), Florida Administrative Code, allows no application amendment information subsequent to the application being 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, Cheslyn Green, analyzed the application in its entirety with consultation from the Financial Analyst, Ryan Fitch, who evaluated the financial data, and the Architect, Scott Waltz, who evaluated the architecturals and the schematic drawings as part of the application. E. CONFORMITY OF PROJECT WITH REVIEW CRITERIA The following indicate the level of conformity of the proposed project with the criteria and application content requirements found in Florida Statutes, sections , and and applicable rules of the State of Florida, Chapter 59C-1 and 59C-2, and Florida Administrative Code. 1. Fixed Need Pool a. Does the project proposed respond to need as published by a fixed need pool? Ch. 59C-1.008, Florida Administrative Code. The Agency does not have a numeric need formula in rule for long-term care hospital (LTCH) beds. It is the applicant s responsibility to demonstrate need. A long-term care hospital is defined as a hospital licensed under Chapter 395, Florida Statutes, which meets the requirements of Part 412, subpart B, paragraph (e), Code of Federal Regulations; seeks exclusion from the acute care Medicare prospective payment system for inpatient hospital services. The long-term care hospital setting is usually the most costly post-acute care setting. 4

5 The Medicare Payment Advisory Commission (MedPAC) is a commission that makes recommendations to Congress and the Secretary of the Federal Department of Health and Human Services regarding reimbursement for long-term hospital services. Medicare is the primary payer for LTCH services and accounts for over 70 percent of LTCH discharges. 1 Tampa Bay LTCH proposes to provide 78.0 percent of its services to Medicare patients in its first and second years of operation. The MedPac March 2007 report to Congress reiterates its June 2004 report recommendations that long-term care hospitals should be defined by patient and facility criteria that ensure that patients admitted to these facilities are medically complex and have a good chance of improvement. Further, Facility-level criteria should characterize this level of care by features such as staffing, patient evaluation and review processes, and mix of patients. Patient-level criteria should identify specific clinical characteristics and treatment modalities. Quality improvement organizations (QIOs) should be required to review long-term care hospital admissions for medical necessity and monitor that these facilities are in compliance with defining criteria. These recommendations were made based on the commission s findings that this type of post-acute care is provided to a small number of medically complex patients and that acute care and skilled nursing facilities are the principle alternatives to LTCHs. While LTCH patients cost Medicare more than similar patients using alternative settings, the cost differences narrowed considerably if LTCH care was targeted to patients of the highest severity. However, the MedPac March 2007 report indicates that QIO medical record review found 29 percent of 1,400 randomly selected LTCH Medicare admissions in 2004 did not need LTCH care and a more recent QIO study found that 5.9 percent of LTCH cases reviewed were not medically necessary. CMS has made changes effective July 2006, to reduce payments for short-stay outlier payments, which it anticipates will reduce Medicare payments to LTCHs by an estimated 3.7 percent. 1 MedPAC Report to the Congress: Medicare Payment Policy/March 2007, page

6 The March 2007 MedPac report also indicates that LTCHs that have entered the Medicare program since October 2003 frequently have located in markets where LTCHs already existed instead of opening in new markets. The study concludes that this is surprising because LTCHs are supposed to serve unusually sick patients and one would expect these patients to be rare. The clustering of LTCHs and the location of new facilities raises questions about the roles these facilities play. The applicant proposes to locate its facility approximately four miles from an existing LTCH and in a service area that has two CON approved LTCHs with pending licensure. It is important that the determination of specific clinical complexity and severity of conditions of patients being served in LTCHs be identified and that the establishment of a LTCH does not represent a more costly and possibly duplicative post-acute care option. It is further important that sufficient appropriate staff be identified and that sufficient patient volume based on need for services be demonstrated. a. Determination of Need. In the absence of agency policy regarding long-term care hospital beds and services, Chapter 59C (2)(e), Florida Administrative Code, provides 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: a. Population demographics and dynamics; b. Availability, utilization and quality of like services in the district, subdistrict or both; c. Medical treatment trends; and d. Market conditions. 6

7 The existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area. At present there are 15 long-term care hospitals (LTCHs) with 943 beds licensed to operate in the State of Florida. Highlighted facilities are located in the areas included in the applicant s projections. Florida Long-Term Care Hospitals Hospital District # Beds Select Specialty Hospital Panama City 2 30 Kindred Hospital-Ocala 3 31 Kindred Hospital - North Florida 4 80 Specialty Hospital Jacksonville Kindred Hospital - Bay Area - St. Petersburg 5 82 Kindred Hospital - Central Tampa Kindred Hospital - Bay Area-Tampa 6 73 Select Specialty Hospital-Orlando, Inc Select Specialty Hospital-Orlando (South Campus) 7 40 HealthSouth RidgeLake Hospital 8 40 Kindred Hospital - South Florida Hollywood Kindred Hosp.-South Florida-Ft. Lauderdale Kindred Hospital South Florida Coral Gables Select Specialty Hospital-Miami Sister Emanuel Hospital for Continuing Care State Total 943 Source: Florida Hospital Bed Need Projections & Service Utilization by District published 07/27/07. As shown in the next table, there are an additional 561 approved, but not yet licensed LTCH beds distributed throughout Florida in Districts 1, 2, 3, 5, 7, 8, 9, and 11. Florida Approved-Not Yet Licensed Long-Term Care Hospital Beds Hospital District Beds Select Specialty Hospital- Escambia 1 54 SemperCare Hospital of Tallahassee 2 29 Promise Healthcare of Florida, III, Inc University Community Hospital, Inc Baycare Long Term Acute Care, Inc Kindred Hospitals East, L.L.C Select Specialty Hospital-Lee, Inc Kindred Hospitals East LLC 9 70 Select Specialty Hospital Palm Beach 9 60 Miami Jewish Home & Hospital For the Aged Select Specialty Hospital-Dade, Inc Total 561 Source: Florida Hospital Bed need Projections and Service Utilization by District published 7/27/07. District 5 has one operational LTCH, Kindred Hospital-Bay Area-St. Petersburg, an 82-bed freestanding facility. There are two approved LTCH s in District 5: BayCare Long Term Acute Care, Inc., with 48 beds; and University Community Hospital, Inc., for a 50-bed freestanding facility. 7

8 Florida Long-Term Care Hospital Bed Utilization Calendar Year 2006 # Bed Patient District Beds Days Days Hospital Occupancy Select Specialty Hospital Panama City ,950 7, % Kindred Hospital Ocala ,315 5, % Kindred Hospital - North Florida ,900 18, % Specialty Hospital Jacksonville ,055 21, % Kindred Hospital - Bay Area - St. Petersburg ,930 18, % Kindred Hospital - Central Tampa ,230 21, % Kindred Hospital - Bay Area-Tampa ,645 13, % Select Specialty Hospital-Orlando, Inc ,775 9, % HealthSouth Ridgelake Hospital ,600 5, % Kindred Hospital South Florida Hollywood ,260 28, % Kindred Hosp.-South Florida-Ft. Lauderdale , % Kindred Hospital South Florida Coral Gables ,345 15, % Select Specialty Hospital-Miami ,600 13, % Sister Emmanuel Hospital for Continuing Care ,585 8, % State Total , , % Source: Florida Hospital Bed Need Projections & Service Utilization by District published 07/27/07. As the chart above shows, Kindred Hospital-Bay Area-St. Petersburg, District 5 s one operational LTCH, averaged percent occupancy during calendar year 2006, which is slightly below the state average LTCH occupancy of percent. LTCH programs in operation for the total 12-month reporting period, ranged in occupancy from a low of percent for HealthSouth Ridgelake Hospital (District 8) to a high of percent for Select Specialty Hospital-Miami (District 11). Calendar year 2006 occupancy continues the downward trend in LTCH occupancy over the past five years. The following chart shows statewide occupancy by year for the past five years. Statewide LTCH Occupancy % % % % % Source: Florida Hospital Bed Need Projections & Service Utilization by District published July 03 July 07. 8

9 The decline is due in some measure to there being new facilities experiencing start-up periods, which typically reflect low occupancy as shown in the chart below. Licensed LTCH's can add beds through notification to the Agency without CON review. The existing Kindred Hospital Bay Area St. Petersburg is one of the oldest occupational LTCH s in Florida along with the Kindred Hospitals in Tampa Bay Area, Central Tampa, Kindred Fort Lauderdale, Hollywood and Coral Gables all of which had previously been operational as Vencor acute care hospitals dating back to the late 1980 s and early 1990 s. Although the only operational LTCH in St. Petersburg, District 5, this facility reported a percent occupancy. The following tables show the population in District 5 is expected to increase by 7.36 percent during the next five years. The 65 and over group will increase by 9.89 percent and the 75 and over age group will increase by 2.50 percent. All three groups (total, 65+, and 75+) show a rate increase lower than the state average growth which is projected to be percent (total), percent for age 65+ and percent for age 75+. The average age of long-term care hospital patients in 2006 was 71.3 years of age. Total Population Estimates for District 5 Counties and Percent Change by County County Total July 2007 Total July 2012 Percent Change Pasco 436, , % Pinellas 945, , % Total District 5 1,382,224 1,483, % Total State of Florida 18,762,014 20,835, % Source: AHCA Population Projections, published September Population Estimates for District 5 Counties and Percent Change by County For Population, 65 and over, and 75 and Over County 65+ July July 2012 Percent Change 75+ July July 2012 Percent Change Pasco 104, , % 55,784 60, % Pinellas 200, , % 110, ,834 (-0.19%) Total District 5 304, , % 165, , % Total State of FL 3,231,603 3,752, % 1,649,208 1,830, % Source: AHCA Population Projections, published September

10 The applicant analyzed the population growth patterns using the AHCA Population Estimates published September 2007, which show an increase in both projected total population growth and the projected elderly population growth for District 5. The applicant states the total population growth for Pasco and Pinellas Counties is 7.4 percent and the projected elderly population growth (65+) for Pasco and Pinellas Counties is 9.9 percent. The applicant contends that the increase in the senior population will generate a substantial increase in the volume of patients who require long-term acute care hospital services. However, there are two additional LTCH s approved for 98 beds but not yet licensed and the existing provider with 82 LTCH beds occupancy was percent during CY 2006; indicating bed availability in the area. As previously stated, the applicant projects that its LTCH will serve the needs of the HCA system in western Florida and other providers in the community. It projects that approximately 81 percent of admissions are to come from HCA hospitals, with 62 percent of HCA referrals coming from Pinellas County facilities and 19 percent from other HCA hospitals. In order to further identify its market size, the applicant analyzed the number of long-stay discharges from acute care hospitals. Long-stay discharges were defined by the applicant using the following criteria: age of patient is 18 years or older, although the average age of LTCH patients is 71.3; discharge DRG is one that is consistent with one of the discharge DRGs from a Florida LTCH 2 ; and average length of stay in the acute care hospital was at the geometric mean length of stay (GMLOS) for the specific DRG plus 15 days or more. 2 Applicant provided a listing of applicable DRGs in attachment E, in CON #

11 2006 Long-Stay Discharges from West Florida Area HCA Hospitals Hospital Discharges Patient Days Average Length of Stay Pinellas County HCA Facilities St. Petersburg General Hosp 166 5, Northside Hospital 190 6, Edward White Hospital 85 2, Largo Medical Center 109 3, Total Pinellas HCA Facilities , Pasco County HCA Facilities Community Hospital of New Port Richey 116 3, Regional Medical Center Bayonet Point 97 3, Total Pasco HCA Facilities 213 6, Total District 5 HCA Facilities , Other HCA Facilities Manatee County Blake Medical Center 94 2, Hillsborough County Brandon Regional Hospital 141 4, South Bay Hospital 61 1, Hernando County Oak Hill Hospital 126 3, Sarasota County Doctors Hospital of Sarasota 73 2, Englewood Community Hospital Charlotte County Fawcett Memorial Hospital 95 2, Total Other Area HCA Facilities , Total Area HCA Facilities 1,381 43, Source: CON #9990, page 28. According to the chart above, Pinellas County HCA facilities had a total of 550 long-stay discharges in 2006, which accounted for 18,647 patient days and an average length of stay of 33.9 days. Pasco County HCA facilities had a total of 213 long-stay discharges in 2006, with 6,435 patient days and an average length of stay of 30.2 days. In total there were 763 long-stay discharges representing 25,082 patient days or an ALOS of 32.9 days in HCA facilities in District 5 in The overall ALOS for HCA potential LTCH patients was 31.3 days. However, the applicant s DRG list included approximately 190 DRGs, with no numbers of discharges per DRG. So, it appears that patients aged 18 and over with an LOS 15 days over the GMLOS is essentially the only criteria used in the projections. The applicant provides long-term care discharges from HCA facilities in the county, district and other area HCA facilities. It is unclear from the data and the application if these discharges, which appear to have been from acute care beds, are related to patients for whom LTCH placement was sought and denied. There is no evidence that LTCH placement was denied and access/availability a problem in the area. In fact, information received from the local Kindred Hospital indicates that the local HCA hospitals accounted for 27 percent of its admissions. The applicant indicates that the District 5 aged 65 and over population will increase by 30,125 persons between July 2007 and July The 11

12 projected LTCH admissions were increased by a blended growth rate of 80 percent of total growth for persons 18 and over and 20 percent of the elderly growth rate for the proposed service area. According to the applicant, the blended growth rate was to account for the increase in the proportion of elderly in the population. However, with the LTCH patient average age of 71.3 years, the elderly population is most pertinent to need for LTCH services. The applicant indicates that its need projection is based on applying 2006 LTCH discharges in the area with an ALOS of 35 days (subtracting 10 percent of these discharges) to projected admissions in However, it is questionable as to why a 35 day ALOS or 3.7 day increase, was chosen when the applicant s Table 10 show the ALOS to be 31.3 for the potential LTCH patients from HCA facilities. The applicant s projections result in a possible 58,625 LTCH patient days or a need for 200 LTCH beds in 2012 based on 80 percent occupancy. The applicant indicates that the 10 percent reduction in length of stay is conservative and based on patients that are expected to continue to receive care in an acute care setting or at some other of postacute care. This bed need is determined by reducing the gross bed need by the number of existing and approved LTCH beds (180) in the service area. The following table shows the applicant s projections for CY 2007, CY 2009 (year one) and CY 2010 (year two) of the project. DISTRICT Long-Stay Acute Care Discharges 1,721 1,763 1,794 Ten Percent Reduction (172) (176) (179) Adjusted LTCH Discharges 1,549 1,587 1,615 Average Length of Stay Projected LTCH Days 54,215 55,545 56,525 Average Daily Census Bed Need at 80 Percent Occupancy Operational/Approved Beds Net LTCH Bed Need Source: CON #9990, page 30. Projections, if utilizing an ALOS of 31.3 days would be significantly less; resulting in no need. The applicant projects to reach 85 percent occupancy in its second year of operation (2009) 3 assuming an ALOS of 35 days. However, the applicant s financial Schedules show 85 percent occupancy reached in CY 2010 (year two). Both year two projections are interesting in that the applicant projects a need for only 10 beds for 2009 or 14 beds for 2010, yet contends that its project will not take patients from other facilities. To reach 85 percent during either year it would have to be serving more than the projected need. The applicant states that its LTCH will serve the needs of the HCA system in western Florida and other providers in the community. It projects that approximately 81 percent of admissions 3 CON #9990, page

13 are to come from HCA hospitals, with 75 percent of HCA referrals coming from Pinellas County facilities. 4 However, the applicant also indicates that the LTCH admissions from Pinellas HCA facilities will comprise 62 percent and from other HCA hospitals 19 percent of the facility s total 5. While the applicant s proposed composition of patient days from HCA are not consistent, the vast majority of patients are projected to be from HCA facilities. Below are maps of Edward White Hospital s location and the surrounding HCA facilities. The applicant projects that approximately 81 percent of admissions are to come from HCA hospitals, with 75 percent of HCA referrals coming from Pinellas County facilities. The first map is of HCA hospitals with in District 5. Three of the five hospitals are within six miles of Edward White Hospital. Community Hospital of New Port Richey is 33.7 miles from Edward White and Regional Medical Center of Bayonet Point is 55.5 miles. The second map is of other HCA facilities in surrounding areas. These hospitals are between 30 and 65 miles from Edward White Hospital approximately an hour and a half drive. The third map is of the existing and approved LTCH s in the immediate areas of the applicant s potential HCA referral hospitals. As shown, there are both existing and approved LTCH s that are closer to the potential referral hospitals. With existing LTCH s in closer proximity to potential referral hospitals, patients would most likely be inclined to choose facilities that are more convenient to where they live as opposed to traveling out of the service area to another facility. 4 CON #9990, page CON #9990, page

14 14 CON Action Number: 9990

15 15 CON Action Number: 9990

16 2. Agency Rule Criteria The Agency does not currently have adopted preferences or Rule criteria relating to LTCHs. 3. 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 (2) and (7), Florida Statutes. As stated above the applicant asserts the proposed LTCH will not have a material adverse impact on the operational or approved LTCH facilities in District 5. The applicant states that its LTCH will serve the needs of the 16

17 HCA system in western Florida and other providers in the community. Tampa Bay LTCH projects that approximately 81 percent of admissions are to come from HCA hospitals, with 62 percent from Pinellas County and another 19 percent from other HCA hospitals. Schedule 7A of this application states Tampa Bay LTCH expects an occupancy rate of 36 percent the first year of operation and 85 percent the second year. This shows a 49 percent increase from year one to year two. The following chart shows Kindred-St. Petersburg District 5 LTCH occupancy by year for the past five years. District 5 LTCH Occupancy % % % % % Source: Florida Hospital Bed Need Projections & Service Utilization by District published July 03 July 07. Kindred-St Petersburg added 22 beds effective April 23, With the exception of CY 2002 and the months prior to the bed addition, the district has had 82 LTCH beds during all years above. It is noted that Kindred Hospital has submitted a letter in opposition to the project contending that it will adversely effect its facility s utilization. The applicant states that Kindred-St. Petersburg operated near capacity until 2003 when occupancy dropped to 61.8 percent. AHCA records show that in 2002 occupancy for Kindred-St. Petersburg was at percent and in 2003 the occupancy rate was percent. Kindred-St. Petersburg averaged percent during CY The applicant states that Kindred-St. Petersburg abandoned its 22 bed addition and that the decline in occupancy is due to restricted access. However, the CY 2002 occupancy is based on 60 beds and Kindred-St. Petersburg added 22 beds effective April 23, Patient days reported for CY 2002 were 21,933 which decreased to 18,500 for CY The applicant states that testimony in the administrative hearing for the BayCare and University Community applications indicated that Kindred began to apply more restrictive admission criteria and to limit its scope of service. Kindred-St. Petersburg s reported patient days for CY 2002 compared to CY 2006 tend to support this assertion. However, it is also noted that 6 Utilization rates cited from AHCA Florida Bed Need Projections & Service Utilization by District July 03, 04 &

18 Federal CMS changes have also attempted to limit reimbursement for LTCH care, which may also be a reason for Kindred s lower utilization and no evidence was provided that the HCA facilities attempted to place patients at Kindred or other LTCH hospitals, and that such referrals were denied. In fact, Kindred-St. Petersburg indicated in its opposition letter that 27 percent of its admissions during the 12 months ending August 2007, were from HCA facilities with 16 percent coming from Edward White alone. The applicant states that the proposed LTCH will not have a material adverse impact on BayCare Long Term Acute Care, Inc. or University Community Long Term Acute Care Hospital. According to the applicant, BayCare proposed its LTCH to primarily serve patients residing in northern Pinellas and western Pasco Counties. The applicant also states that BayCare argued that its LTCH would create increased access for numerous patients not admitted by Kindred-St. Petersburg due to its financial and programmatic admission criteria. 7 The applicant goes on to explain it would not adversely impact University Community Hospital LTCH based on the knowledge that this LTCH would serve the needs of residents of Hernando and Polk Counties. The applicant states that University Community Hospital asserted in CON #9754 that 14 out of its 50 beds would serve the needs of Hernando and Polk Counties. While the applicant indicates that its proposal should have no material impact on these approved and the existing LTCH, its proposal would serve patients from Pinellas, Pasco and Hernando Counties similar to these same facilities. In addition, there are presently five licensed LTCH facilities that serve patients from the applicant s potential HCA referral hospitals and three more approved but not licensed in these areas. Access to LTCH services in the future should not be a problem and it is not demonstrated that an access issue exists presently. The five existing facilities total 328 beds with occupancy ranging from a low of percent at HealthSouth Ridgelake to the high of percent at Kindred-St. Petersburg during CY The four approved facilities are approved for a total of 198 beds, 98 of which are in District 5. The applicant did not demonstrate need for the project as evidenced by the availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the district. 7 CON #9990, page 22 referencing CON #9753 and DOAH Case Number CON. 18

19 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. Tampa Bay LTCH states it will meet the quality standards required by all of HCA Hospitals and specialty programs. The applicant indicates that all HCA hospitals are accredited by the Joint Commission on Accreditation of Healthcare Organizations and these facilities participate in a number of quality and patient safety initiatives. The applicant states that Specialty Hospital of Jacksonville will assist them in training, policies, and protocols because of its history of providing quality care. Attachments G J included Specialty Hospital of Jacksonville s, Performance Improvement plan, Plan for Provision of Patient Care, Patient Safety Plan and Comprehensive Emergency Management Plan, which the applicant indicates it will use for Tampa Bay LTCH. Tampa Bay LTCH states it will use the InterQual screening guidelines to determine appropriateness of placement and provides a detailed description of this process. The applicant provided a good description of its proposed provision of quality care. The applicant states that no corrective action has been required on any investigation surveys at Specialty in the last three years. AHCA records show Specialty Hospital Jacksonville has been cited for three confirmed complaints and those were without deficiency during the last three years. Edward White Hospital, where the applicant plans to locate its LTCH, has had three confirmed patient care complaints within the last three years; two confirmed patient care complaints and one nursing service confirmed complaint. 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. This review is for Tampa Bay Long Term Acute Care Hospital, LLC, applying to establish a 20-bed long-term care hospital (LTCH) within Ed White Hospital (District 5, Pinellas County). The financial impact of the project will include the project cost of $3,559,267 and operating costs in year two of $8,420,883. 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 a deficit of $13,957 in net assets as of 19

20 August 31, The applicant is an affiliate of HCA, Inc. (HCA or Parent). The applicant submitted the audited financial statements of the parent for the periods ending December 31, 2005 and The parent s audited financial statements were analyzed for the purpose of evaluating the parent s ability to provide the capital and operational funding necessary to implement the project. Short-Term Position: The parent s current ratio of 1.7 is below average and indicates current assets are slightly less than two times current liabilities, an adequate position. The ratio of cash flows to current liabilities of 0.5 is below average and a moderately weak position. The working capital (current assets less current liabilities) of $2.5 billion is a measure of excess liquidity that could be used to fund capital projects. Overall, the parent has an adequate short-term position. (See Table below). Long-Term Position: The long-term debt to equity ratio of a negative 2.8 indicates that the parent has negative equity, a weak position. In addition, the parent s total long-term debt increased by approximately $18.2 billion or 184 percent. The increase in long-term debt and negative equity position appears to be directly tied to HCA, Inc. s merger and recapitalization which resulted in HCA being privately held and no longer traded on a national securities exchange. The cash flow to assets ratio of 7.8 percent is slightly below average and an adequate position. The most recent year had excess revenues over expenses of $1.9 billion, which resulted in a margin of 7.3 percent. Overall, the parent has an adequate long-term operating position; however, the additional debt incurred by HCA may restrict the parent s ability to obtain funds for material capital projects in the future. (See Table below) 20

21 HCA, INC. 12/31/ /31/2005 Current Assets $6,078,000,000 $5,215,000,000 Cash and Current Investment $634,000,000 $336,000,000 Total Assets $23,675,000,000 $22,225,000,000 Current Liabilities $3,576,000,000 $3,895,000,000 Total Liabilities $35,049,000,000 $17,362,000,000 Net Assets ($11,374,000,000) $4,863,000,000 Total Revenues $25,477,000,000 $24,455,000,000 Interest Expense $955,000,000 $655,000,000 Excess of Revenues Over Expenses $1,862,000,000 $2,327,000,000 Cash Flow from Operations $1,845,000,000 $2,971,000,000 Working Capital $2,502,000,000 $1,320,000,000 FINANCIAL RATIOS 12/31/ /31/2005 Current Ratio (CA/CL) Cash Flow to Current Liabilities (CFO/CL) Long-Term Debt to Net Assets (TL-CL/NA) Times Interest Earned (NPO+Int/Int) Net Assets to Total Assets (TE/TA) -48.0% 21.9% Operating Margin (ER/TR) 7.3% 9.5% Return on Assets (ER/TA) 7.9% 10.5% Operating Cash Flow to Asset (CFO/TA) 7.8% 13.4% Capital Requirements: Schedule 2 indicates the applicant has $3.7 million in capital projects. In addition, the applicant is projecting a year one operating loss of $914,930 for this project. The applicant would have to fund this operating loss in addition to the capital projects listed on Schedule 2. Available Capital: The applicant indicates that funding for this project will come from the parent company. HCA is funding directly or through its subsidiaries the capital budgets for three other CON applicants in this batching cycle. Below is the combined capital budget and projected operating losses for the three CON applicants under review in this cycle. 21

22 CAPITAL BUDGETS AND PROJECTED OPERATING LOSSES OF HCA, INC. CON APPLICANTS Projected Applicant Capital Budget Operating Loss Total CON #9990 $3,659,267 $914,930 $4,574,197 CON #9992 $220,091,472 $1,194,718 $221,286,190 CON #9994 $145,361,156 $10,101,327 $155,462,483 Total $369,111,895 $12,210,975 $381,322,870 The audited financial statements of the parent for the most recent year show a cash and current investment balance of $634 million and $2.5 billion in working capital with a current ratio of 1.7. The audit also indicated that operating cash flow was $1.8 billion with revenues in excess of expenses of $1.9 billion or a margin of 7.3 percent. The total capital budget and projected operating losses represent approximately 15 percent of HCA s available working capital and approximately 21 percent of HCA s operating cash flow. It appears that HCA has current funds available to cover the capital budgets for all three CON applicants above. Staffing: This project calls for the recruitment of FTEs in the first year of operation, increasing to FTEs in year two. Year one FTEs are as follows: administration 4.0 FTEs, physicians 0.25 FTE, nursing FTEs, ancillary services including contracted dietician and psychologist, 6.80 FTEs, social services 1.0 FTE, housekeeping 0.07 FTE, laundry and plant maintenance will be contracted. Year two FTEs show increases in nursing, 28.0 FTEs; ancillary, FTEs; social services, 2.00 FTEs; and housekeeping TBL emphasizes that as part of the HCA hospital chain it will have access to support and ancillary services as needed. It also anticipates that sharing of staff could be accomplished by utilizing All About Staffing, Inc., an HCA affiliated entity engaged in the business of employee leasing for HCA affiliated facilities. The applicant does not provide detailed information regarding its employment recruitment and retention, employment incentives or recruitment methods. Conclusion: Based on the liquidity of the parent company, funding for this project and all capital projects should be available as needed. 22

23 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. The applicant will be compared to the hospitals in Peer Group 12 (LTCH Group). Per diem rates are projected to increase by an average of 3.6 percent per year. Inflation adjustments were based on the new CMS Market Basket, 2nd Quarter, The applicant did not provide the anticipated case mix for the project. Therefore, we have used the Group 12 median case mix of Gross revenues, net revenues, and costs were obtained from Schedules 7 and 8 in the financial portion of the application and were compared to the control group as a calculated amount per patient day. Medicare requires a six-month period (demonstration period) before a hospital is eligible for reimbursement under the LTCH PPS. This period is required to demonstrate a minimum 25-day average length of stay. During the demonstration period the hospital is reimbursed at the acute care rate. Only the 2 nd year of operation will be considered for comparison with the control group because the hospital will be operating at acute care reimbursement rates during the first six months of operations, thereby distorting net revenues when compared to the control group. 23

24 Projected net revenue per patient day (NRPD) of $1,445 is between the control group lowest and median value of $1,440 and $1,663. With net revenues approximating the lowest value in the control group, projected revenues are considered to be conservative. (See Table below). Considering CMS changes to the LTCH-PPS over the past several years, which resulted in a tightening of payment eligibility, projecting NRPD near the lowest value in the control group is considered reasonable. LTCH hospitals are restricted from receiving more than 25 percent of their admissions from the host hospital. The applicant indicates that no more than 25 percent its admissions will come from the host hospital (Ed White Hospital). A total of 62 percent of the LTCH s admissions will come from the four Pinellas County HCA hospitals (including the host) with the remainder coming equally from non-pinellas County HCA hospitals and non-hca hospitals. Projected cost per patient day (CPD) of $1,357 in year two is between the group median and lowest value of $1,453 and $1,211. With cost per patient day falling between the median and lowest level, these estimates appear to be reasonable and costs appear to be efficient. (See Table below). The year two-projected operating income is $543,829, which computes to an operating margin per patient day of $88. This is between the control group median and lowest value of $236 and a negative $231. Assuming the applicant will be able to meet its patient day and payer mix assumptions, this project appears to be financially feasible. 24

25 TAMPA BAY LONG TERM CARE HOSPITAL, LLC CON #9990 Dec-10 YEAR 2 VALUES ADJUSTED 2005 DATA Peer Group 12 YEAR 2 ACTIVITY FOR INFLATION Lowes ACTIVITY PER DAY Highest Median t ROUTINE SERVICES 40,454,224 6,520 1,907 1, INPATIENT AMBULATORY INPATIENT SURGERY INPATIENT ANCILLARY SERVICES 0 0 5,193 3,517 2,290 OUTPATIENT SERVICES TOTAL PATIENT SERVICES REV. 40,454,224 6,520 6,248 5,117 3,493 OTHER OPERATING REVENUE TOTAL REVENUE 40,454,224 6,520 6,252 5,118 3,494 DEDUCTIONS FROM REVENUE 31,489,512 5, NET REVENUES 8,964,712 1,445 1,867 1,663 1,440 EXPENSES ROUTINE 2,030, ANCILLARY 2,716, AMBULATORY 139, TOTAL PATIENT CARE COST 4,886, ADMIN. AND OVERHEAD 2,836, PROPERTY 698, TOTAL OVERHEAD EXPENSE 3,534, OTHER OPERATING EXPENSE TOTAL EXPENSES 8,420,883 1,357 1,879 1,453 1,211 OPERATING INCOME 543, % PATIENT DAYS 6,205 ADJUSTED PATIENT DAYS 6,205 TOTAL BED DAYS AVAILABLE 7,300 VALUES NOT ADJUSTED ADJ. FACTOR FOR INFLATION Lowes TOTAL NUMBER OF BEDS 20 Highest Median t PERCENT OCCUPANCY 85.00% 95.1% 65.1% 55.5% PAYER TYPE PATIENT DAYS % TOTAL SELF PAY % MEDICAID % 6.1% 0.4% -0.2% MEDICAID HMO 0 0.0% MEDICARE 4, % 98.9% 74.9% 64.3% MEDICARE HMO 0 0.0% INSURANCE % HMO/PPO % 29.1% 20.7% 0.0% OTHER 0 0.0% 25

26 TOTAL 6, % e. Will the proposal foster competition to promote quality and costeffectiveness? ss (9), Florida Statutes. Competition to promote quality and cost-effectiveness is driven primarily by the best combination of high quality and fair price. Competition forces entities to ultimately increase quality and reduce charges/cost in order to remain viable in the market. The health care industry has several factors that limit the impact competition has to promote quality and cost-effectiveness. These factors include a disconnect between the payer and the end user of health care services as well as a lack of consumer friendly quality measures and information. These factors make it difficult to measure the impact this project will have on competition to promote quality and cost-effectiveness. However, we can measure the potential for competition to exist in a couple of areas. Provider-Based Competition: The applicant is proposing adding 20 LTCH beds to a district with 82 existing and 98 approved LTCH beds. By definition, adding a viable competitor to an existing market will increase competition by increasing consumer choice. The applicant is part of a large hospital chain (HCA, Inc.) and has indicated that 81 percent of its admissions will come from affiliated hospitals (62 percent from Pinellas County HCA hospitals and 19 percent from other HCA hospitals). The remaining 19 percent of admissions is projected to come from non-hca facilities. Therefore, the applicant is projecting that it will compete for 19 percent of its admissions from outside its affiliated network. Considering that the projected occupancy in year two is 85 percent, approximately three beds will be filled by admissions from outside the affiliated network (20-beds x 85 percent occupancy x 19 percent non-affiliated admissions). Price-Based Competition: The impact of the price of services on consumer choice is limited to the payer type. Most consumers do not pay directly for hospital services rather they are covered by a third-party payer. The impact of price-based 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 15 percent of patient days from managed care payers with 80 percent of patient days expected to come from fixed price government payer sources (Medicare and Medicaid). 26

27 f. Are the proposed costs and methods of construction reasonable? Do they comply with statutory and rule requirements? ss (10), Florida Statutes; Ch. 59A-3 or 59A-4, Florida Administrative Code. Tampa Bay Long Term Acute Care Hospital, LLC proposes to establish a new 20-bed long-term care hospital (LTCH) located within Edward White Hospital. The new LTCH will be located on the fifth floor of the existing hospital and will replace an existing 40-bed medical/surgical nursing unit. All of the 20 LTCH medical patient rooms are private and exceed the minimum size requirements for new hospitals. Six patient bedrooms have a private toilet room with a lavatory and shower. A least 10 percent of the new patient bedrooms and toilet rooms have been made accessible. The patient support spaces appear to meet all of the space requirements of the current edition of the Florida Building Code (FBC). Most of the required elements to be licensed as a hospital are shared with the host facility as permitted. A separate sub-pharmacy has been provided within the unit to satisfy State requirements. The cost estimated for the construction cost and time for completion of the new LTCH appears to be reasonable. The plans submitted with this application were schematic in detail with the expectation that they will necessarily be revised and refined during the design development (preliminary) and contract document stages. The architectural review of the application shall not be construed as an indepth effort to determine complete compliance with all applicable codes and standards. The final responsibility for facility compliance ultimately rests with the owner. 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 (11), Florida Statutes. Tampa Bay LTCH, LLC, the legal applicant, does not currently own or manage any LTCH facilities in Florida, and therefore does not have any historical data regarding the provision of health services to Medicaid and medically indigent patients in Florida. According to the applicant, the HCA West Florida Division Hospitals, which will provide most patient referrals to the proposed LTCH, have a consistent history of serving the needs of the Medicaid population and the medically indigent. The applicant also states that in 2006, these 27