STATE AGENCY ACTION REPORT ON APPLICATION FOR CERTIFICATE OF NEED

STATE AGENCY ACTION REPORT ON APPLICATION FOR CERTIFICATE OF NEED A. PROJECT IDENTIFICATION 1. Applicant/CON Action Number Promise Healthcare of Florida XI, Inc./CON #9947 999 Yamato Road, Suite 300 Boca Raton, Florida 33431-4403 Authorized Representative: Peter R. Baronoff (561) 869-3100 Kindred Hospitals East, L.L.C./CON #9948 680 South Fourth Street Louisville, Kentucky 40202 Authorized Representative: Mr. Bud Wurdock (502) 596-7718 Miami Jewish Home and Hospital for the Aged, Inc./CON #9949 5200 NE Second Avenue Miami, Florida 33137 Authorized Representative: Mr. Fred Stock (305) 751-8626 Select Specialty Hospital-Dade, Inc./CON #9950 2021 Church Street, Suite 202 Nashville, Tennessee 37203 Authorized Representative: Mr. Greg Sassman (615) 284-6716 2. Service District District 11 (Miami-Dade and Monroe Counties)

B. PUBLIC HEARING A public hearing was not held or requested with regard to the establishment of the proposed long-term care hospitals in District 11. Promise Healthcare of Florida XI, Inc. (CON #9947) did not submit any letters of support for the project. Kindred Hospitals East, L.L.C. (CON #9948) (Kindred) submitted 111 letters of support for the project. Seventy-nine of the letters were submitted for an earlier project and were dated September 2005 and 22 of the letters were not dated at all. The letters that were submitted for this project were largely from physicians at Coral Gables Hospital and Cedars Medical Center. All 111 letters were of a form letter variety and included the following in the narratives: patients could have benefited from a long-term acute care hospital; patients were not transferred to a more appropriate source of care because of distance, family concerns about a change in physician and/or nearby beds were full. None of the letters stated the disposition or patient outcomes as a result of the lack of transfer. There was no estimate offered on the average length of stay (ALOS) or number of readmissions (if any) for the patients referenced as a result of the chosen treatment option. There were other common characteristics: none of the 111 letters identified a time duration for the patients to whom they were referencing; three of the physician letters did not specify the quantity of patients to whom they were referencing, leaving the reference line blank; supporters that did quantify the number of patients referenced ranges from as few as more than 2 (signature unknown/not printed) to as many as more than 100 (T. Camayd, ARNP) Miami Jewish Home and Hospital for the Aged, Inc. (CON #9949) (MJHHA) submitted six letter of support: Jill R. Lenny, LCSW, Administrator, Social Work and Discharge Planning, Jackson Memorial Hospital (JMH). The writer states since October 2005, MJHHA has accepted four ventilator dependent medically indigent patients from JMH and that today JMH has eight ventilator dependent medically indigent patients who have no place to go. It is stated one of the eight has been in the hospital since January 2005. It is stated that additional LTCH capacity would benefit the community and JMH. Reinaldo Ojeda, Manager, Case Management & Social Work Department, Mount Sinai Medical Center (MSMC) 2

This letter states that patients requiring LTCH services have significantly increased; however, it does not offer a quantifiable number. It also states a lack of available beds results in patients, particularly medically indigent patients, having to remain in acute care hospitals while waiting for placement or expire there. Again, no exact figures are offered. Stephanie L. Rakofsky, LCSW, Director Social Work, Care, Coordination and Counseling, South Miami Hospital (SMH) A lack of ventilators in the community is stated as an issue in patient placement. However, the letter does not offer a quantifiable number of patients. Jeanie Bledsoe, Manager, Department of Care Management, Baptist Hospital (BH) This letter states medically complex patients those on ventilators with potential for weaning, with extensive wound care needs, dialysis, etc., no longer require acute care but are inappropriate to place in a SNF due to the level of care needed, remain in an acute bed. This letter did not state the number of patients affected. Joan Hinksen-Ragoonan, CPUR, Director, Case Management and Social Service Department, North Shore Medical Center (NSMC) It is stated several patients at NSMC are awaiting appropriate placement and have been doing so for months at a time. Specific information relative to the number of patients impacted is not provided. Select Specialty Hospital-Dade, Inc. (CON #9950) (Select) submitted a sum total of 208 support letters all dated last year and appear to be for an earlier project, the clear majority being form letters or combinations of form letters with slight variances, few appeared to be personally composed by the signer. A closer look revealed that 34 of the 208 were duplicates (from the same signers). Of these 34, 29 were the exact same letters - same signature, same date and same content. 3

C. PROJECT SUMMARY Promise Healthcare of Florida XI, Inc. (CON #9947), a wholly owned subsidiary of Promise Healthcare, Inc. (Promise), proposes to construct a freestanding 60-bed long-term acute care hospital 1 in the northwestern part of Miami-Dade County, District 11 with an eight-bed intensive care unit (ICU). It is noted that if approved, the hospital would be licensed as a Class I long-term care hospital, not a Class I acute care hospital. Six potential sites are identified by aerial photograph in Attachment J of the application. The sites are all relatively clustered within approximately three to four miles of each other and are to the immediate west of Interstate 75 (I-75) and the immediate south of Palmetto Expressway (State Road [SR] 826). The sites can best be described as southwest of the I-75/SR 826 interchange. According to the applicant, the parent corporation is the licensee and operator of 11 LTCHs and one short-term acute care hospital located in six states, with a total bed count of 653. The applicant does not own or operate a facility in Florida. Promise has submitted four proposals in the current review cycle to develop LTCHs within the State of Florida. These involve proposals in Districts 3, 9, 10 and 11. The proposed hospital is planned to be 59,970 gross square feet (GSF) of new construction. The applicant indicates the facility would be comprised of 32 private rooms with an ICU wing. Total construction cost is estimated to be $ 11,649,225 and total project cost is $28,266,085 2. As a condition of approval, the applicant agrees to a combined provision of three percent of patient days to Medicaid and charity patients. Kindred Hospitals East, L.L.C. (CON #9948), a wholly owned subsidiary of Kindred Healthcare, Inc. (Kindred), proposes to construct a 60-bed freestanding LTCH to be located in Miami-Dade County, District 11. All 60 beds are to be private rooms with a 10-bed intensive care unit (ICU). The applicant gave no specific information relative to the proposed site location in District 11, other than it would be in Miami-Dade County. 1 Section 59C-1.002 (1), Florida Administrative Code: "Acute care bed" means a patient accommodation or space licensed by the Agency pursuant to Chapter 395, Part I, Florida Statutes. Acute care beds exclude neonatal intensive care beds, comprehensive medical rehabilitation beds, hospital inpatient psychiatric beds, hospital inpatient substance abuse beds, beds in distinct skilled nursing units, and beds in long-term care hospitals licensed pursuant to Chapter 395, Part I, Florida Statutes. 2 The applicant stated total project costs of $28,266,085 on both Schedules A and 1. However, the architectural schedule showed total costs of $22,266,084. 4

The applicant (Kindred) indicates that it owns and operates 23 long-term care hospitals, including freestanding as well as hospitals within hospitals (HIH). This includes seven freestanding hospitals and one HIH in Florida. Kindred s eighth and most recently licensed facility in Florida is a 31-bed HIH in Ocala, District 3. The applicant has submitted one additional proposal for the current review cycle to develop an LTCH. This proposal is a 60-bed facility in District 9. The proposed project is planned to be 71,736 GSF of new construction, consisting of 70 private rooms. This includes a 10-bed ICU. The total construction costs are estimated to be $ 22,849,057 with total project costs of $35,501,803. As a condition of approval, the applicant agrees to a combined provision of 2.5 percent of its total patient days to Medicaid and charity patients starting with the second year of operation. Miami Jewish Home and Hospital for the Aged, Inc. (CON #9949) (MJHHA) proposes to establish a 30-bed LTCH hospital by adapting space in an existing building within its Douglas Gardens Campus. The facility will be considered a hospital within a hospital (HIH). Unlike cobatched applicants, MJHHA is not an existing provider of LTCH services and this is the only application MJHHA filed in this batching cycle. The proposed site, the second floor of the Chernin Building at the Douglas Gardens Campus, currently contains 40 skilled nursing beds which will be relocated to a different building within the campus. The programs currently offered by the applicant include: community outreach services; independent and assisted living facilities; nursing home diversion, chronic illness, outpatient health, acute care hospital, rehabilitation and post-acute services; and also Alzheimer s disease, pain management, skilled nursing and hospice services. The project involves 17,683 GSF of renovated space, consisting of private rooms, though 10 of the 30 are to be semi-private. The total construction cost is estimated to be $2,452,044 with total project costs of $5,213,168. As a condition of approval, the applicant agrees to a combined provision of 6.0 percent of its total patient days to Medicaid and charity care patients. It is noted that this condition offers the greatest percentage of care to the medically indigent of all co-batched applicants. 5

Select Specialty Hospital-Dade, Inc. (CON #9950) (Select) proposes to construct a 60-bed long-term care hospital in western Miami-Dade County. The applicant plans to locate the facility in an area west of the Palmetto Expressway [state road (SR) 826], east of the Florida Turnpike, north of Miller Drive, south of Dolphin Expressway (SR 835). The applicant states the location is easily accessible to Baptist Hospital of Miami, Kendall Regional Medical Center, Westchester General Hospital, Palm Springs General Hospital and Palmetto General Hospital, all being fairly accessible by way of SR 836. The project involves 62,865 GSF of new construction, consisting of 60 private rooms. The total construction costs are estimated to be $16,973,550 with total project costs of $27,079,812. According to the applicant, Select Medical Corporation currently has 96 long-term care hospitals, spread over 26 states. The applicant operates three facilities in Florida and is approved to establish six new LTCHs. On November 19, 2004, Select Medical Corporation announced that it signed an agreement to acquire and merge with SemperCare, Inc., and as a result of this transaction obtained the Panama City and Orlando LTCHs, assuming operation of these around February 1, 2005 and changing the facilities names effective March 15, 2005. Select Medical Corporation has submitted four proposals in the current review cycle to develop LTCHs within Florida. These involve proposals in Districts 3, 9, 10 and 11. As a condition of approval, the applicant agrees to a combined provision of 2.8 percent of its total patient days to Medicaid and charity care patients. D. REVIEW PROCEDURE The evaluation process is structured by the certificate of need review criteria found in Section 408.035, Florida Statutes. These criteria form the basis for the goals of the review process. The goals represent desirable outcomes to be attained by successful applicant 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 meets the review criteria. 6

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, Steve Love, analyzed the application in its entirety with consultation from the Financial Analyst, John Williamson, who evaluated the financial data, and the Architect, Scott Waltz, who evaluated the architectural 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 408.035, and 408.037 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. Need is not published by the Agency for 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 412.23(e), Code of Federal Regulations; seeks exclusion from the acute care Medicare prospective payment system for inpatient hospital services and is usually the most costly post-acute care setting. These higher costs are attributed, at least in part, to medically complex patients that require prominently higher usage rates of advanced medical technology devices (the highest single LTCH diagnostic related group (DRG) being respiratory system diagnosis with ventilator support), notably higher nursing-hours-to-patient ratios and more frequent if not daily physician-to-patient visits than would be characteristic in facilities that provide a lesser acuity of care. For example, according to the Medicare Payment Advisory Commission 7

(MedPAC) in fiscal year 2004, for patients with the most common LTCH diagnosis, Medicare rates for LTCHs range from 0.9 to 4.4 times as much as estimated rates for inpatient rehabilitation facilities, and about three to almost 12 times as much as estimated rates for skilled nursing facilities. The MedPAC is a commission that makes recommendations to Congress and the Secretary of the federal Department of Health and Human Services (DHHS) regarding reimbursement for long-term hospital services. Medicare is the primary payer for LTCH services. Under the current reimbursement system, Medicare reimbursement accounts for case-mix differences between patients, but does not account for differences within each case-mix category and therefore provides an incentive to LTCHs to admit patients with the least need for resources among those in the same diagnostic group. MedPAC determined in its 2006 review, that in 2004, 73 percent of all LTCH discharges were reimbursed by Medicare. As the Medicare program is paying for much of LTCH care in the United States, the Commission made several recommendations to the Centers for Medicare and Medicaid (CMS) in its 2006 Report to Congress: CMS should define LTCHs by facility and patient criteria to ensure patients admitted to LTCHs are medically complex and have a good chance of improvement. CMS should use quality improvement organizations to review LTCHs for admissions for medical necessity and monitor whether facilities comply with criteria established under its first recommendation. This measure is particularly needed because without admissions standards, there is no real way to measure quality of care under the current admission system. For example, an increase in admissions and a decrease in the number of patients dying in the LTCH or readmitted to an acute hospital cannot suggest improved quality of care as the LTCH may have been admitting healthier patients during the time frame measured. The 2006 MedPAC report indicated that implementation of these recommendations was urgent as it found that 29 percent of the 1,400 randomly selected LTCH Medicare admissions in 2004 did not need hospital-level care. 3 3 The 2006 MedPAC Report to Congress references the written testimony of John Votto of the National Association of Long-Term Hospitals before the Committee on Ways and Means, Subcommittee on Health, U.S. House of Representatives, 109 th Congress, 1 st session, June 16, 2005. 8

After its study, the Commission concluded that LTCHs could accommodate the cost of caring for Medicare beneficiaries in 2007 without an increase in the base rate. MedPAC made essentially the same recommendation regarding facility and patient admission criteria and quality improvement organizations in its June 2004 report to Congress. In that report, MedPAC further recommended the following: 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 should be required to review longterm care hospital admissions for medical necessity and monitor that these facilities comply 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. Additionally, that LTCH patients cost Medicare more than similar patients using alternative settings, however when LTCH care is targeted to patients of the highest severity, the cost is comparable. It is noted that in response to the Commission s 2004 recommendations, CMS contracted with Research Triangle Institute International to examine the feasibility to implementing those recommendations. As of this writing, there has been no report published from the Research Triangle Institute International. On September 28, 2006, CMS published a policy council document 4 regarding a post-acute care reform plan, stating that it is a plan to improve Medicare's payment for post-acute care services and the coordination of these services. The plan reviewed current industry practices and established overarching principles and a vision for postacute care reform. Post-acute care is care that is provided to individuals who need additional help recuperating from an acute illness or serious medical procedure. The four post-acute care settings discussed in the document were: SNFs, home health, long-term care hospitals and inpatient rehabilitation facilities, which in Florida are called comprehensive medial rehabilitation (CMR) services or hospitals. 4 http://www.cms.hhs.gov/snfpps/downloads/pac_reform_plan_2006.pdf 9

CMS notes in the document that there are mandated assessment tools in place for three of the four provider types, with LTCHs being the service without a mandated assessment tool. CMS states a vision for a postacute care system that is organized around the individual s needs, rather than around the setting where care is delivered and is in the process of evaluating assessment tools to that end. For example, the document indicates that CMS currently has activities underway with regard to payfor-performance for both the home health and SNF settings, indicating that nursing homes will be offered financial incentives to provide high quality care and/or to improve the level of care that they provide. 5 The document acknowledges the family s role in recovery but it would be premature to interpret that to mean LTCHs, like nursing homes, should be available within close proximity of any community as cost will be a factor in any determination made by CMS and skilled nursing care at one time provided a higher level of services than is currently being provided and may again be able to care for more medially complex, higher acuity patients should this pay-for-performance reimbursement be available. This document appears to indicate that reimbursement will again be offered to skilled nursing facilities to provide that higher level of service and that a common assessment tool for all four post-acute care venues will be developed to ensure the most appropriate care is received. CMS concludes that [E]economic incentives resulting from the intricacies of the four separate payment systems interfere with the PAC (post-acute care) placement decisions being made on a patient-centered basis. 6 In its June 2004 report, MedPAC also looked at the role long-term care hospitals play in providing care and determined that most LTCH patients are discharged to the LTCH from an acute care facility and that a small number are medically complex, more stable than patients in an acute care intensive care unit, but still have complex medical conditions. These complex conditions typically include need for ventilator support for respiratory problems including tracheotomy diagnosis, failure of two or more major organ systems, neuromuscular damage, contagious infections, or complex wounds that need extended care. In this comparative batch review, the four co-batched applicants have each described their respective patient populations as medically complex and indicated they were high acuity patients. As noted by MedPAC, some portion of LTCH patients nationwide can be described in the way the co-batched applicants have described their respective patient populations, while others are of a lesser acuity level and could be treated in another post-acute care setting. As discussed below, it is the burden of any CON applicant applying outside of a state published fixed need pool to define its patient population and base need projections on that 5 Ibid, page 4. 6 Ibid 10

defined patient population. If, as here, the applicant proposes to serve a medically complex, high acuity patient population, then need projections should clearly identify that population and the medically complex and high acuity population should be the only target. In its 2004 report, MedPAC also indicated that it studied where clinically similar patients, who lived in areas with no LTCHs received care and found the following: Patients transferred to LTCHs have shorter acute care stays by approximately seven days, suggesting that when there is no LTCH in an area that patients might stay an additional seven days on average in an acute care facility. Freestanding skilled nursing facilities are the primary alternative to LTCH care. Even when there is no LTCH in an area, some patients needing this service travel to receive it. Between seven and eight percent of patients with the highest probably of using LTCHs used rehabilitation hospital services in markets both with and without LTCHs. Several facility and patient criteria recommendations were made in the report involving clinical characteristics of the patient, minimum staffing levels based on patient characteristics including patient mix and severity levels, admission assessment tools, physician availability, length of stay and multidisciplinary team requirements. Because these parameters have not been assigned, MedPAC concludes that the role of LTCHs is unclear. The need for assigned facility and patient criteria was underscored by a medical records review identified by MedPAC in which of the 1,400 randomly selected LTCH Medicare admissions in 2004, 29 percent did not need hospital care. Additionally, it appears from the September 28, 2006 policy council document, CMS will be reviewing and developing a uniform assessment tool that will address admissions and that can be used to evaluate quality of care for all four post-acute care settings. Currently, CMS has the MDS 2.0 for skilled nursing facilities, the IRF-PAI for rehabilitation facilities and OASIS for home health care, but has no tool for LTCHs. The report further suggests that if its recommendations are developed, a facility that typically serves one primary hospital will need to broaden its base presumably because it will not have sufficient patient volume otherwise. 11

As noted earlier, an applicant for LTCH services must define its patient population. Medicare is identified by each co-batched applicant as it primary payer. Unlike what is used by CMS for other post-acute care providers, CMS does not have an accepted assessment tool for LTCH services and government evaluators have found some portion of LTCH admissions do not meet the patient profile described by three of the four co-batched applicants as the population it intends to serve (MJHHA is the exception since it has no LTCHs at this time. Of interest in this review is MedPAC s note that two-thirds of the LTCHs in the United States are owned by two chains Kindred Healthcare and Select Medical. Therefore, MedPACs findings relative to patient admissions not meeting the profile described by all three applicants is of particular interest in this review. Given the above, it is important that the determination of specific clinical complexity and clinical instability along with severity of conditions and multi-morbidities 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 appropriate staff be identified and that sufficient patient volume based on need for services be demonstrated. b. Determination of Need. In the absence of Agency policy regarding long-term care hospital beds and services, Chapter 59C-1.008 (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. 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 14 long-term care hospitals (LTCHs) with 876 beds licensed to operate in the State of Florida. There are an additional 482 approved, but not yet licensed LTCH beds in nine facilities. The following table illustrates the distribution of approved, but not yet licensed LTCH beds in Florida. 12

Florida Approved-Not Yet Licensed Long-Term Care Hospital Beds Hospital District Beds Select Specialty Hospital - Escambia, Inc. (CON #9800) 1 54 Select Specialty Hospital Tallahassee (CON #9244 2 29 Select Specialty Hospital - Alachua, Inc. (CON # 9704) 3 44 Kindred Hospital - North Florida (NF 0400074) 4 20 University Community Hospital, Inc. (CON # 9754) 5 50 Baycare Long Term Acute Care, Inc. (CON # 9753) 5 48 Select Specialty Hospital Orange (CON #9644 7 40 Select Specialty Hospital - Lee, Inc. (CON #9656) 8 60 Kindred Hospitals East, LLC (CON # 9662) 9 70 Select Specialty Hospital Palm Beach, Inc. (CON #9661) 9 60 Select Specialty Hospital Miami, Inc. (NF 0600005) 11 7 Total 482 Source: Florida Hospital Bed Need Projections & Service Utilization by District published 07/28/06. As shown in the table above, there are 482 approved, but not yet licensed LTCH beds distributed throughout Florida in Districts 1 5, 7 9 and 11. There are three LTCHs operational in District 11 with a total of 122 beds. One existing District 11 LTCH has notified the Agency of plans to added an additional seven beds, bring the planned operational total to 129 beds. LTCHs may add any number of beds to an existing facility, outside of CON review. The average occupancy of the operational programs reporting utilization was 64.70 percent for the January - December 2005 reporting period. LTCH programs in operation for the total 12-month reporting period, ranged in occupancy from a low occupancy rate of 55.48 percent for Specialty Hospital Jacksonville (District 4) to a high of 95.1 percent for Select Specialty Hospital-Miami (District 11). (As shown above, the Select Miami facility has notified the Agency of its intent to add seven LTCH beds). CY 2005 occupancy represents a progressive and continuous downward trend in LTCH occupancy over the past four years. In the past five years, only CY 2002 experienced an increase in occupancy over the prior year. That increase was under one percent. The following chart shows statewide occupancy by year for the past five years. Statewide LTCH Occupancy 2001-2005 2001 75.93% 2002 76.84% 2003 68.17% 2004 67.14% 2005 64.70% Source: Florida Hospital Bed Need Projections & Service Utilization by District published 07/28/06. 13

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. It is noted that there are 482 new LTCH beds approved, seven in new facilities and two in existing facilities and that LTCHs can add beds through notification to the Agency without CON review. The following table shows the beds, patient days and occupancy of Florida's operational LTCHs for the January through December 2005 reporting period:florida Long-Term Care Hospital Bed Utilization Calendar Year 2005 Hospital District # Beds Bed Days Patient Days Occupancy Select Specialty Hospital Panama City 2 30 10,950 6,299 57.53% Kindred Hospital Ocala 3 31 2,046 206 10.07% Kindred Hospital - North Florida 4 60 21,900 18,645 85.14% Specialty Hospital Jacksonville 4 107 39,055 21,668 55.48% Kindred Hospital - Bay Area - St. Petersburg 5 82 29,939 20,269 67.72% Kindred Hospital - Central Tampa 6 102 37,230 23,474 63.05% Kindred Hospital - Bay Area-Tampa 6 73 26,645 15,850 59.49% Select Specialty Hospital-Orlando, Inc. 7 35 12,775 9,398 73.57% HealthSouth Ridgelake Hospital** 8 40 8,240 578 7.01% Kindred Hospital South Florida Hollywood 10 124 45,260 26,268 58.04% Kindred Hosp.-South Florida-Fort Lauderdale 10 70 25,550 14,750 57.73% Kindred Hospital South Florida Coral Gables 11 53 19,340 16,423 84.90% Select Specialty Hospital-Miami*** 11 40 14,600 13,884 95.10% Sister Emanuel Hospital for Continuing Care 11 29 10,585 9,046 85.46% State Total 876 304,111 196,758 64.70% Source: Florida Hospital Bed Need Projections & Service Utilization by District published 07/28/06. Notes: *Kindred Hospital -Ocala was license effective 10/27/05. **HealthSouth Ridgelake Hospital was licensed effective 6/9/05. ***Select Miami notified the Agency of its intent to add seven LTCH beds. The service area for LTCH services is the district, not the county or any one geographic section or part of a county. The chart below illustrates the number of LTCH discharges in District 11 in 2005 and the discharging LTCH. As shown below, total discharges were 1,810. This total represents 1,393 discharges within District 11 (or about 77.0 percent) and 421 discharges outside District 11 (or about 23.0 percent). The clear majority (396) of the non-district 11 discharges took place at Kindred Hospital-Hollywood, District 10. The second largest non-district 10 discharge total (17) took place at Kindred Hospital-Fort Lauderdale. One Miami-Dade resident traveled as far as Kindred s Clay County facility; one traveled to Kindred s Pinellas County facility; one traveled to Kindred s Hillsborough County facility and one traveled to Select Specialty Hospital s Orange County facility. The greatest distance traveled by a Monroe County resident was to Kindred s Hillsborough County facility. 14

District 11 LTCH Discharges by Discharging Facility - 2005 AHCA ID 100016 23960011 100115 23960043 100120 100042 100512 23960028 23960044 Facility KH* North Florida KH* SPB** KH* TPA** SSH* ORL** KH* FLL** KH* HLY** KH South Florida CGS** SSH* MIA** SEH* MIA** County Total District 4 5 6 7 10 10 11 11 11 County in District Clay Pinellas HSB*** Orange Broward Broward Dade Dade Dade Miami- Dade 1 1 1 17 393 533 524 332 1,802 Monroe 1 3 2 2 8 Total District 11 1 1 1 1 17 396 535 524 334 1,810 Source: State Center for Health Statistics 2005 data *Provider Code: KH= Kindred Hospital; SSH=Select Specialty Hospital; SEH= Sister Emmanuel Hospital **City Code: SPB=St. Petersburg; TPA=Tampa; ORL=Orlando; FLL=Ft. Lauderdale; HLY=Hollywood; CRG=Coral Gables; MIA=Miami ***County Code: HSB=Hillsborough The above table and calculations reflect that in CY 2005, just over one in five (or about 23.26 percent) Miami-Dade and Monroe County residents traveled outside their home district to attain LTCH services. Existing LTCHs in District 11 experienced occupancy levels as follows for the same time period: Utilization in District 11 LTCHs - 2005 District County Facility Occupancy 11 Miami-Dade Kindred Hospital - So. FL. - Coral Gables 84.90% 11 Miami-Dade Select Specialty Hospital Miami 95.10% 11 Miami-Dade Sister Emmanuel Hospital for Continuing Care 85.46% District 11 Average 88.37% Source: Florida Hospital Bed Need Projections & Service Utilization by District published 07/28/06 NOTE: Select Specialty Hospital Miami notified the agency of its intention to add seven LTCH beds As shown above, average occupancy levels in existing facilities were high for the most recent reporting period and could account for some of the out-migration discussed earlier. However, it is as likely that a large number of the 410 District 11 residents out-migrating to the Broward County LTCHs live near the Miami-Dade and Broward County line and so are not choosing LTCHs in Miami-Dade County. The two LTCHs in Broward County experience average occupancy levels during the same time period of below 60 percent. As applicants note and as discussed in more detail below, it is anticipated that CMS will make changes recommended by MedPAC and this would very likely mean changes in LTCH admission policies that would result in fewer admissions and so LTCHs will need a larger service area than many in Florida currently have or anticipated having when they submitted a CON application. 15

The number of LTCHs in Florida has grown sizably in the past 10 years. In 1995, there were seven LTCHs in the state. By the end of 2005 that number had increased to 14, a 100 percent increase in a 10-year period. Following is an inventory of existing, recently licensed, and CON approved LTCH beds by district: Florida Long-Term Care Hospital Bed Inventory by District As of 6/16/06 Hospital District # Beds Status Select Specialty Hospital - Escambia, Inc. 1 54 CON approved Select Specialty Hospital Tallahassee 2 29 CON approved Select Specialty Hospital Panama City 2 30 Licensed in 2003 Select Specialty Hospital - Alachua, Inc. 3 44 CON approved Kindred Hospital Ocala 3 31 Licensed in 2005 Kindred Hospital - North Florida 4 60 Operational prior to 1996 Notified AHCA of intention to add 20 LTCH beds +20 Notified in 2004 Specialty Hospital Jacksonville 4 107 Operational prior to 1996 Kindred Hospital Bay Area St. Petersburg 5 82 Licensed in 1997 University Community Hospital, Inc. 5 50 CON approved BayCare Long Term Acute Care, Inc. 5 48 CON approved Kindred Hospital - Central Tampa 6 102 Operational prior to 1996 Kindred Hospital - Bay Area-Tampa 6 73 Operational prior to 1996 Select Specialty Hospital-Orlando, Inc. 7 35 Licensed in 2003 Select Specialty Hospital Orange 7 40 CON approved HealthSouth Ridgelake 8 40 Licensed in 2005 Select Specialty Hospital Lee, Inc. 8 60 CON approved Select Specialty Hospital Palm Beach, Inc. 9 60 CON approved Kindred Hospitals East, LLC 9 70 CON approved Kindred Hospital South Florida Hollywood 10 124 Operational prior to 1996 Kindred Hosp.-South Florida-Fort Lauderdale 10 70 Operational prior to 1996 Kindred Hospital South Florida Coral Gables 11 53 Operational prior to 1996 Select Specialty Hospital-Miami 11 40 Licensed in 2002 Notified AHCA of intention to add 7 LTCH beds +7 Notified in 2006 Sister Emanuel Hospital for Continuing Care 11 29 Licensed in 2004 State Total 1,358 Source: Florida Hospital Bed Need Projections & Service Utilization by District published 07/28/06 and licensure records. *Currently, 482 LTC beds have CON approval but are not yet licensed, 876 are licensed statewide. The current bed complement with the average occupancy of acute care hospital and other forms of post-acute care in District 11 is presented as follows: 16

Acute Care and Post-Acute Care Providers District 11 Beds and Utilization Facility Type Total Beds District 11 District 11 Average Occupancy Acute Care 7,819 56.62% Comprehensive Medical Rehabilitation 421 59.47% Skilled Care Community Nursing Homes 8,565 88.88% Long-Term Care Hospital 122 88.37% Source: Florida Hospital Bed Need Projections & Service Utilization by District for acute care & CMR beds for January 1, 2005 through December 31, 2005. As previously noted, LTCHs are designed to treat patients with medical conditions requiring extended hospital-level services, for a period of time of at least 25 days on average. The applicants state that their proposals will provide LTCH services to patients with complex conditions that cannot be adequately addressed in licensed acute care beds, CMR, SNFs or home health care in the service planning area (in whole or in part). However, despite claims that proposals are for medically complex and multiple co-morbidity high acuity patients, no co-batched applicant demonstrated through existing data-driven evidence that this patient population and their families: were unable to find and access needed LTCH care outside of District 11; burdened the existing District 11 acute care resources through extended acute care stays by quantifying the number of patients so impacting the facilities; or received inappropriate care that led to measurably poorer health care outcomes. The only exception is the support letter by Jackson Memorial Hospital regarding MJHHA discussed in Section B above. The MedPAC analysis of LTCHs found that between seven and eight percent of patients with the highest probability of using LTCHs used rehabilitation hospital services in markets both with and without LTCHs. As shown in the chart above, rehabilitation utilization in District 11 was 59.47 percent during CY 2005. This percentage is substantially below the 85 percent benchmark for that service, as defined by Section 59C- 1.039 Florida Administrative Code. As MedPAC points out, the diagnostic related group (DRG) itself or the length of stay in any particular group is not necessarily an indicator of need. MedPAC s findings indicate that lower acuity patients within any DRG can appropriately be served in a SNF at a lower cost as LTCHs are usually 17

the most costly post-acute care setting at about three to 12 times that of SNFs. As noted above, SNF utilization in District 11 averaged 88.88 percent for the most recent reporting period. This utilization rate is below the benchmark for SNF care set at 94 percent (Subsection 408.034 (5), Florida Statutes, as amended July 1, 2004). These comments are not proposed to suggest that extended lengths of stay in acute care beds are necessarily inappropriate or that the acute care facility should have transferred or discharged the patient sooner. It is recognized that all need methodologies discussed below identify patients in acute care, not skilled nursing or rehabilitation, beds. These data are presented to show access to post-acute care. It cannot be assumed that patients in acute care beds for lengths of time beyond Medicare s geometric mean length of stay are necessarily candidates for LTCHs, that extended stay in the acute bed is automatically an inappropriate venue of care. Even if there was a LTCH located across the street from the acute care hospital, these long-stay patients would not necessarily be appropriately discharged to that LTCH. The applicant in this CON application is responsible for demonstrating these patients could not access the most appropriate level of care for their illness and recovery. To the other end, MedPAC has identified that not all LTCH patients are medically complex/high acuity and some percentage could have appropriately been treated in a less costly manner. So that it is most likely that the patients in District 11 that were discharged to a skilled nursing or rehabilitation facility were appropriately discharged and did not need LTCH care and the fact that these facilities are below Agency benchmarks for their respective service indicates there is not an access problem, in the aggregate and for reasons separate from personal preference or individual bias. Unlike LTCH services for many other Florida districts, District 11 facilities have historically largely serviced only District 11 residents. Following is a chart illustrating patient county of origin for the District 11 LTCHs over the past five years. It is noted that Kindred is the only operator of LTCHs for the entire five-year period. 18

District 11 Discharges by Patient County of Origin 2001-2005 Year 2005 2005 2005 2004 2004 2004 2003 2003 2003 2002 2001 Facility Kindred Select Sister Emanuel Kindred Select Sister Emanuel Kindred Select Sister Emanuel Kindred Kindred District 11 11 11 11 11 11 11 11 11 11 11 Dist County Dade Dade Dade Dade Dade Dade Dade Dade Dade Dade Dade 3 Citrus 1 3 Lake 1 3 Marion 1 4 Volusia 1 5 Pinellas 1 6 Highlands 1 6 Manatee 1 7 Osceola 1 1 7 Seminole 1 8 Charlotte 3 8 Collier 1 2 8 Glades 1 8 Hendry 1 8 Lee 1 1 9 Indian River 1 Palm 9 Beach 1 1 Saint 9 Lucie 1 2 10 Broward 7 7 1 8 11 3 3 1 1 2 5 11 Dade 533 524 332 437 488 293 407 186 61 390 309 11 Monroe 2 2 3 2 5 3 1 unknown 2 2 3 6 4 1 5 5 3 1 Total 546 536 338 455 506 299 426 192 64 403 320 Source: Florida Center for Health Information and Policy Analysis As shown above, 3,989 of the 4,085, (or 97.6 percent) patients admitted to District 11 LTCHs over the past five years lived in District 11. Below are population statistics to account for growth in the district with particular focus on the growth of the elderly population. Population Estimates for District 11 Counties and Percent Change by County 65+ Percent Change County Total July 2006 Total July 2011 Percent Change Age 65+ July 2006 Age 65+ July 2011 Miami-Dade 2,471,798 2,648,693 7.16% 330,379 373,212 12.96% Monroe 83,364 84,545 1.42% 12,938 16,238 25.51% District Total 2,555,162 2,733,238 6.97% 343,317 389,450 13.44% State Total 18,422,450 20,395,880 10.71% 3,109,366 3,642,495 17.15% Source: AHCA Population Projections, published September 2006. As shown above, the overall population in District 11 is expected to increase over the next five years by 6.97 percent. The 65 and over age range is estimated to increase by 13.44 percent. Miami-Dade County is estimated to experience the faster overall growth (7.16 percent) than Monroe County (1.42 percent) over the next five years. However, the 19

fastest 65 years of age and older is projected for Monroe County (25.51 percent), as opposed to Miami-Dade County (12.96 percent). Still, the volume of elderly is overwhelmingly greater in Miami-Dade County. Discussion of each applicant s need analysis follows. Promise Healthcare of Florida XI, Inc. (CON #9947) submits six potential sites, congregated to the north and the west of Miami-Dade County, though the service area is to absorb Monroe County as well. As noted previously, the six potential sites are identified by aerial photograph in Attachment J of the application. The sites are all relatively clustered within approximately three to four miles of each other and are to the immediate west of Interstate 75 (I-75) and the immediate south of Palmetto Expressway (State Road [SR] 826). The sites can best be described as southwest of the I-75/SR 826 interchange. The applicant provides a discussion of the LTCH hospital patient setting compared to other care settings. The LTCH patient is described as meeting the necessity for acute care 7, needing medically complex care with multiple co-morbidities (five or more diagnosis identified) and having access to critical, intense medical interventions and services such as acute ventilator management and weaning, cardiac monitoring, pharmacy, diagnostic services, etc. As previously discussed, the June 2004 MedPAC Report to Congress indicates concern over the current LTCH practice of serving patient populations with lower acuity levels that could appropriately and more cost-efficiently be served in SNFs or other post-acute care settings. The applicant emphasizes that comprehensive assessment is key in most efficiently admitting a patient into the most medically appropriate setting, acknowledging that depending on any given range of severity on a number of diagnoses, a patient s needs may be adequately addressed in non-ltch settings. As previously stated, within the current Medicare reimbursement system (which although it does account for case-mix differences between patients, it does not account for differences within each case-mix category), an incentive exists to admit patients with lesser or even the least need for resources among those in the same diagnostic group. Need should be assessed to the exclusion of these lesser catastrophically ill patients. 7 It is noted that LTCHs in Florida are licensed as Class I long-term care hospital as opposed to a Class I acute care hospital. Additionally, CON rules define acute care beds as: a patient accommodation or space licensed by the agency pursuant to Chapter 395, Part I, Florida Statutes. Acute care beds exclude neonatal intensive care beds, comprehensive medical rehabilitation beds, hospital inpatient psychiatric beds, hospital inpatient substance abuse beds, beds in distinct part skilled nursing units, and beds in long-term care hospitals licensed pursuant to Chapter 395, Part I, Florida Statutes. 20

In the patient admission process, Promise states it utilizes the InterQual criteria and provides in its application an Attachment E Promise Specialty Hospital Pre-Admission Screening Document. Promise incorporates these tools in its performance improvement system to address LTCH-appropriate admissions. As noted earlier, CMS has stated its intention of developing a post-acute assessment tool meant to ensure appropriate post-acute admissions to all four of the types of post-acute care discussed earlier in this report. The applicant has not agreed to condition award of the CON upon serving only the high acuity, medically complex population with multiple co-morbidities and needing access to medical interventions and services. Promise cites distance as an obstacle to access for clients in the western portions of Miami-Dade County. Promise did not address distance issues for the residents of Monroe County or the remaining portion of Miami- Dade County. Though distance was proposed as a contributing factor to the proposal, no data-drive distance figures were offered to compare between the planned construction area and the nearest sources of licensed LTCHs. With regard to CMR or SNF care, the applicant contends that these patients are generally less medically complex. It is generally accepted and the Agency does not challenge that LTCHs are designed to serve a higher acuity patient population than other forms of post-acute care and are subsequently reimbursed for this higher level of care at a substantially higher rate. However, in discussing an additional LTCH site in District 11, it is the applicant s burden to show that this medically complex high acuity patient population that, based on population estimates and current utilization it believes will need LTCH care in the future, cannot be served in other available post-acute venues, does not have access to appropriate care and therefore a facility is needed in the area. This was not shown. The applicant states the projected population growth for District 11, with a higher average annual growth of the 65+ group is a factor that favors approval. It also points out the district s higher than state average LTCH occupancy rates and in fact, the highest such rates in the state, as further proof of need. To determine current market size the applicant analyzed the long-stay discharges from 29 stated District 11 acute care hospitals. These longstay discharges were defined by: 21

o Patients 18 years or older. o Discharge DRG consistent with the DRG s from the long-term care hospitals. o Average length of stay (ALOS) used was the geometric mean length of stay (GLOS) for the particular DRG plus 15 days. A listing of DRGs was provided in Attachment L of the application. Promise identified 5,569 discharges meeting the criteria and concludes many of these cases occupied an intensive care bed. This resulted in an ALOS of 35.3 days. According to the applicant the long-term patients should be identified early and transferred to a more appropriate longterm care hospital. The applicant notes these long-stay patients filled an average of 539 beds in 2005. As noted earlier, despite claims that proposals are for medically complex high acuity patients needing and not receiving the most appropriate level of care, no co-batched applicant demonstrated that a large portion of these identified patients are not currently appropriately being served in other post-acute settings after acute care discharge 8 or that a number of patients are kept in acute care beds where treatment resulted in inappropriate care or where outcomes would have improved had long-stay patients been treated in a LTCH. Promise calculated future need by multiplying the average annual growth by the 2005 long-stay discharges. The projected admissions to LTCHs for 2011 would result in 6,223 discharges. This figure was adjusted downward by 25 percent based on the expectation of revised admission criteria to be published by CMS in 2006, leading to an adjusted discharge total of 4,667. It is noted that while the applicant s consideration of the likelihood that CMS changes in LTCH reimbursement will result in a reduction in admissions to LTCHs is to the point, supported by information presented earlier, and appropriate, it is not clear from any information submitted by the applicant that the reduction could be calculated at 25 percent. Bed need was calculated by converting 2011 patient days to average daily census (ADC) and assuming an 80 percent occupancy rate 9. The estimated net LTCH bed need for District 11 for 2011 was established as 389 beds. 8 MJHHA provided evidence that a small number of patients that would have otherwise been sent to a LTCH by Jackson Memorial had a bed been available at the time, were treated in its skilled nursing facility. Appropriate care was given, however the applicant notes that reimbursement was not adequate and that it cannot sustain a large number of similar admissions to its skilled nursing facility. 9 Promise did not provide the basis for the 80 percent occupancy rate. 22