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STATE AGENCY ACTION REPORT

CON APPLICATION FOR CERTIFICATE OF NEED

A. PROJECT IDENTIFICATION

1. Applicant/CON Action Number:

The Nemours Foundation/CON #9953 4600 Touchton Road East Building 200, Suite 2500 Jacksonville, Florida 32246 Authorized Representative: David J. Bailey, M.D.

(904) 232-4236

2. Service District/Subdistrict

District 7/Subdistrict 2

B. PUBLIC HEARING

A public hearing was not held or requested regarding the establishment of an 82-bed class II children’s hospital in District 7, Orange County. The applicant submitted three binders1 containing approximately 1,000 letters of support for the proposed hospital. Letters were submitted by relatives of former patients, area health care providers, children’s health community organizations, community leaders and Nemours staff. The content of the letters ranged from one sentence expressing general support for the hospital project to detailed stories of a patient’s involvement with the Nemours Foundation in Florida and/or Delaware. A small percentage of letters indicated having to travel to Gainesville, Jacksonville or Miami for specialized care and/or waiting for a hospital bed at existing facilities. It is noted that the applicant expects to provide services from its proposed Orlando area location to children in Escambia County and other areas with further driving distances than those described in these letters of support.

1 Volumes III, IV and V were each three inches wide, with volumes IV and V containing approximately half of their volume in blank form letter requests.

CON Action Number: 9953

Fourteen letters of opposition were received regarding the establishment of the three proposed projects: class II children’s hospital, Level II NICU and Level III NICU. Nine of the 14 letters were provided by administrative and clinical staff with Orlando Regional Healthcare, including the women’s and children’s component of Orlando Regional Healthcare, Arnold Palmer Hospital and Winnie Palmer Hospital. The remaining five letters were submitted by the President of Health Central, the Executive Vice President of Health First, the President of Halifax Community Health System and two area physicians. These letters were similar in content and provided the following objections to the projects: impact on Arnold Palmer Hospital; increased health care costs; decrease in health care quality due to reduced volumes; strain on limited staffing resources; duplication of services; pediatric subspecialty care is largely outpatient and Nemours needs no CON approval to expand its outpatient center; the proposed hospital would not provide obstetric or perinatology services, necessitating a separation of mothers from babies; a “stand alone NICU” would require that all patients be transferred in from outlying hospitals, hospitals that already operate NICU units; the target population of the Nemours project is limited; Nemours’ physicians have privileges at area hospitals, already preserving the continuity of care for those patients. Included in this count of 14 letters is the letter submitted by Karl W. Hodges, VP of Business Development for Orlando Regional Healthcare, who included an update to a study2 that was provided in opposition to Nemours’ previous submission of these three projects, as well as a memorandum regarding the potential impact of a new pediatric hospital in central Florida. The update quotes from the State Agency Action Report issued for the prior Nemours submission and re-states the conclusions from the initial study, which included the following: negative impact on existing providers; insufficient volume exists to support a high quality program; strain on limited staffing resources. An additional letter was provided by the Regional Vice President of Florida Hospital, indicating that Florida Hospital did not have the opportunity to review the most recent submission by Nemours before the omissions deadline of October 18, 2006, but that Florida Hospital hopes Nemours has addressed the deficiencies identified during the review of their previous application. The letter specifically indicates that the latest application should establish need for the proposed clinical services, a commitment to providing services that are not already available, a comparison of the services available in Central Florida to those available in Boston, Cincinnati and Chicago, and further distinction of the

2 The study, “Examination of the Competitiveness and the Levels and Changes in Patient Health Care Revenues and Expenditures Across Florida’s Regional Acute Care Health Markets” by Tim Lynch, PhD, President of Econometrics Consultants, Inc., was commissioned by Arnold Palmer and Orlando Regional Health Care.

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proposed care. The letter is referencing “top tier” children’s hospitals that are located in those cities: For 2006, Children’s Hospital, Boston is the second ranked children’s hospital in the nation; Children’s Hospital Medical Center – Ohio in Cincinnati is the eighth ranked children’s hospital in the nation; Children’s Memorial Hospital – Chicago is the tenth ranked children’s hospital in the nation. It is noted that none of the hospitals operated by the Orlando Regional Healthcare System, Adventist doing business as Florida Hospital, Health Central nor the Nemours-operated Alfred I duPont Hospital in Wilmington, Delaware are among hospitals considered “top tier” in the nation3. It is further noted that, while some of the top tier hospitals admit expectant mothers, like third ranked Johns Hopkins Hospital in Baltimore, fourth ranked Rainbow Babies and Children’s Hospital, Cleveland and sixth ranked New York Presbyterian, the three mentioned by the Regional President of Florida Hospital do not. In each facility’s 2004 fiscal year, all showed zero births according to U.S. News and World Report’s website, and U.S. News & World Report’s listing of services offered by each does not include obstetrical care.

C. PROJECT SUMMARY

The Nemours Foundation (CON #9953) is applying to establish an 82-bed class II children’s hospital4 in District 7, Subdistrict 2, Orange County. The applicant currently operates a children’s hospital in Wilmington, Delaware and four major children’s specialty outpatient centers. One of the outpatient centers is located in Wilmington, Delaware, and the other three are in the Florida cities of Jacksonville, Orlando and Pensacola. The applicant has submitted two additional applications for this batch to develop a five-bed Level II NICU (CON #9939) and an eight-bed Level III NICU (CON #9952) all at the same proposed Orlando area location. The applicant agreed to condition an approval of the project to the following 21 provisions : 1. At least 50 percent of total patient days will be Medicaid/Medicaid

HMO or patients qualifying for charity care.

3 http://www.usnews.com/usnews/health/best-hospitals/rankings/specreppedi.htm 4 The facility would be a 95-bed facility consisting of 82 acute care beds (CON #9953), five Level II NICU beds (CON #9939) and eight Level III NICU beds (CON #9952).

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http://www.usnews.com/usnews/health/best-hospitals/rankings/specreppedi.htm


2. It will limit the annual amounts it collects from the Medicaid program for hospital-based inpatient services in each fiscal year to the lesser of either the inpatient per diem rate that would be assigned to its hospital by the Florida Medicaid program, or the average of the Medicaid assigned rates to All Children’s Hospital and Miami Children’s Hospital. It will limit the annual amounts it collects from the Medicaid program for hospital-based outpatient services in each fiscal year to the lesser of either the outpatient per visit rate that would be assigned to its hospital by the Florida Medicaid program, or the average of the Medicaid assigned rates to All Children’s Hospital and Miami Children’s Hospital.

3. Two special programs would be established: a. An advisory board with child advocacy organizations; and, b. A special relationship with Medicaid to improve access to

subspecialty care5. 4. At least 50 full-time equivalent sub-specialist physicians will be

added on the campus of Nemours’ Orlando Children’s Hospital (NOCH) within five years of opening.

5. The hospital will use computerized physician order entry. 6. There will be one seamless electronic medical record with

coordination of care between the inpatient and outpatient environments.

7. Patient centered rooms with video/audio screens will be available for patients and providers, including: a. Electronic health records; and b. Connection to the internet for patient and family’s use.

8. Surgeons and surgical teams will be trained and certified in minimally invasive techniques.

9. A data warehouse for risk adjustment, long-term analysis and best practice determinations will be created.

10. The hospital will include a simulation laboratory to assist providers with cognitive and procedural skills.

11. An evidence-based clinical practice infrastructure would be created. 12. The internet would be used (kidshealth.org) to provide health

education to children. 13. The hospital will use the PEDI-QS, the National Pediatric Quality

Assurance System adopted by JCAHO to improve care and cooperate with national organizations.

14. The hospital will be completely wired and set up for monitored rooms to allow for surveillance and assistance in coordination of care.

5 As noted earlier, subspecialty care is largely done on an outpatient basis.

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15. Necessary resources and funding will be provided for: a. A community outreach program; b. Building strategic alliances in the five-county region; c. Developing an educational program for child health promotion

among minorities; and d. Involving youth in advocacy and peer to peer health promotion.

16. The applicant proposes to secure funding for seven sub-specialty programs.

17. A minimum of $3 million annually will be provided to clinical outcomes/clinical research.

18. Space dedicated to clinical research will be created. 19. A program to transport patients in need of specialized services from

other hospitals to NOCH will be provided. 20. A pediatric subspecialty physician group would be employed in the

Orlando market. 21. The applicant will subsidize any shortfalls in revenues over

expenses. The total project cost is estimated at $246,122,279 and involves $161,306,600 in construction costs and 362,480 gross square feet (GSF) of new construction.

D. REVIEW PROCEDURE

The evaluation process is structured by the certificate of need review criteria found in Section 408.035, Florida Statutes and rules of the State of Florida, Chapters 59C-1 and 59C-2, Florida Administrative Code. These criteria form the basis for the goals of the review process. The goals represent desirable outcomes to be attained by successful applicants who demonstrate an overall compliance with the criteria. Analysis of an applicant's capability to undertake the proposed project successfully is conducted by evaluating the responses and data provided in the application and independent information gathered by the reviewer.

Applications are analyzed to identify strengths and weaknesses in each proposal. If more than one application is submitted for the same type of project in the same district (subdistrict), applications are comparatively reviewed to determine which applicant(s) best meet the review criteria.

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Rule 59C-1.010(3)(b), Florida Administrative Code, prohibits any amendments once an application has been deemed complete. The burden of proof to entitlement of a certificate rests with the applicant. As such, the applicant is responsible for the representations in the application. This is attested to as part of the application in the Certification of the Applicant.

As part of the fact-finding, the consultant Karen Weaver Webb analyzed the application with consultation from the financial analyst John Williamson, who reviewed the financial data, and architect Scott Waltz, who evaluated the architecturals and the schematic drawings.

E. CONFORMITY OF PROJECT WITH REVIEW CRITERIA

The following indicate the level of conformity of the proposed project with the review criteria and application content requirements found in Sections 408.035 and 408.037, and applicable rules of the State of Florida, Chapters 59C-1 and 59C-2, Florida Administrative Code.

1. Fixed Need Pool

a. Does the project proposed respond to need as published by a fixed

need pool? Or does the project proposed seek beds or services in excess of the fixed need pool? Ch. 59C-1.008(2), Florida Administrative Code.

The bed need methodology for acute care beds pursuant to 59C-1.038 was repealed effective April 2005. As a result, the Agency for Health Care Administration no longer publishes numeric need for acute care beds. Existing hospitals may add acute care beds by notifying the Agency for Health Care Administration provided they are not located in an area defined under section 408.036(1) of the Florida Statutes as a “low-growth” area. The applicant proposes its Class II hospital service area will encompass the north and central regions of Florida including Districts 1 through 4 and District 7, a large triangular area between Orlando, Jacksonville and Pensacola. This proposal is predicated upon arguments of special circumstance as detailed below.

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The age 17 and under population in the applicant’s defined service area is expected to grow by 7.13 percent between 2007 and 2012, compared to 6.45 percent statewide growth for the same age group. The population estimates by district compared to the state as a whole are shown in the table below:

Service Area Population Growth (17 and under) 2007 2008 2010 2012 Growth District 1 162,776 164,760 169,046 173,298 6.46% District 2 155,037 156,262 157,996 160,787 3.71% District 3 304,999 310,257 319,056 329,148 7.92% District 4 448,934 454,876 463,321 475,165 5.84% District 7 568,299 579,363 597,842 618,553 8.84% Total 1,640,045 1,665,518 1,707,261 1,756,951 7.13% State 4,180,056 4,240,132 4,336,964 4,449,818 6.45%

Source: AHCA Population Estimates, September 2006 District 7 will experience the fastest population growth of the indicated areas for children (17 and under), growing by 8.84 percent during the five-year period. Of the five districts in the defined service area, Districts 7, 3 and 1 are projected to grow by a larger percentage than the state population of those 17 and under. Districts 4 and 2 are projected to grow by a smaller percentage than the state, with District 2 projected for 3.71 percent growth in five years. As discussed below, there are class II children’s hospitals located in AHCA Districts 5, 6 and 11, which, like the applicant’s hospital in Delaware, are not considered “top tier.” District 8 is comprised of 25.84 percent elderly, compared to 16.92 percent for the state. However, it is noted that the age 17 and under population in District 8 is projected to increase by 11.23 percent between 2007 and 2012. (Refer to discussion on page 16 of this report regarding population growth by district, age 17 and under). AHCA District 9 is located adjacent to District 7. The applicant does not discuss why it proposes to serve an area as far from Orlando as the Florida panhandle but not the district adjacent to its proposed location, with an expected 7.06 percent pediatric growth between 2007 and 2012. Nonetheless, with its location in District 7, it would likely serve some percentage of the District 9 population if this project were approved. As the map below illustrates, the applicant is proposing to locate near the center of the state. As stated earlier, the applicant anticipates serving children in the top portion of the state:

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AHCA Districts

Source: AHCA files altered to illustrate applicant’s proposed service area and approximate proposed location.

Pediatric services can be performed in any general Class I acute care hospital. The Agency does not keep an inventory or publish utilization statistics for pediatric beds. The Agency does keep an inventory and publishes utilization statistics for acute care beds, which may be designated by a hospital for pediatric use without state review. There were 47,892 licensed beds in Florida during calendar year (CY) 2005 with an average utilization of 59.17 percent. An additional 3,160 acute care beds were CON approved statewide as of the Agency’s most recent publication on July 28, 2006. Utilization in acute care beds in Florida has averaged below 60 percent for over five years.

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As noted and illustrated above, the applicant does not propose to serve children located in the areas in which there are already children’s hospitals. However, with its location near the center of the state being closer to All Children’s Hospital in District 5 than to much of the area it proposes to serve, the applicant could serve children in District 5 and 6. There would be no prohibition against this. There are currently three hospitals in the state that are designated children’s hospitals and licensed as Class II pediatric hospitals: All Children’s Hospital located in Pinellas County, Miami Children’s Hospital located in Miami-Dade County and Shriner’s Hospital for Children located in Hillsborough County. The following table illustrates the utilization at these three facilities for the past five years:

Utilization at Class II Hospitals 2001-2005 District Facility 2001 2002 2003 2004 2005

5 All Children's Hospital 55.87% 62.59% 68.66% 69.65% 75.30% 6 Shriner's Hospital for Children 28.94% 34.32% 36.42% 24.30% 23.29% 11 Miami Children's Hospital 57.29% 60.10% 62.42% 62.45% 65.03%

Source: Florida Hospital Bed Need Projections & Service Utilization by District for indicated years; Health Council of West Central Florida6

The following table illustrates the discharges by district of patient origin for All Children’s Hospital and Miami Children’s Hospital during 2005:

Total Discharges by District of Patient Origin

CY 2005 for Selected Facilities District All Children's Hospital Miami Children's Hospital

1 24 0.27% 11 0.08% 2 14 0.16% 17 0.13% 3 517 5.76% 22 0.17% 4 19 0.21% 41 0.31% 5 4,569 50.88% 31 0.23% 6 2,276 25.35% 39 0.29% 7 87 0.97% 49 0.37% 8 1,242 13.83% 301 2.27% 9 40 0.45% 578 4.35%

10 < 7 < 0.08% 779 5.86% 11 < 7 < 0.08% 11,040 83.11%

Outside Florida 183 2.04% 376 2.83% Grand Total 8,980 100.00% 13,284 100.00%

Source: Florida Center for Health Information and Policy Analysis (FCHIPA), formerly the State Center for Health Statistics.

As seen in the table above, discharges from All Children’s Hospital largely consist of patients from Districts 5, 6 and 8. Discharges from Miami Children’s Hospital are largely from District 11. The use of tertiary care services at Florida’s Class II children’s hospitals has not always exceeded the same pediatric tertiary care services at

6 Shriner’s Hospital does not report utilization to AHCA. Utilization figures were obtained for this report from the Health Council of West Central Florida, Inc.

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Class I hospitals. For example, there were 215 pediatric open heart surgeries performed during CY 2005 at the Class II All Children’s Hospital in Pinellas County, compared to 336 pediatric open heart surgeries at Class I St. Joseph’s Hospital in adjacent Hillsborough County. Pediatric bone marrow transplants performed at Shands Hospital at the University of Florida, a Class I provider of pediatric services, totaled 37 during CY 2005, while Miami Children’s Hospital and All Children’s Hospitals, two Class II pediatric hospitals authorized to provide this service, performed 17 and 26 respectively. Pediatric kidney transplants performed at Shands totaled 23 for this period and All Children’s, the only Class II pediatric hospital authorized to perform kidney transplants, performed three. During the previous year 2004, there were 168 pediatric open heart surgeries performed at the Class II All Children’s Hospital, compared to 324 pediatric open heart surgeries at Class I St. Joseph’s Hospital. Pediatric bone marrow transplants performed at Shands Hospital at the University of Florida totaled 21 during CY 2004, while Miami Children’s Hospital and All Children’s Hospitals performed 16 and nine respectively. Pediatric kidney transplants performed at Shands totaled 22 during 2004, and All Children’s, the only Class II pediatric hospital authorized to perform kidney transplants, performed one. Because Class I hospitals performed a greater number of children’s tertiary services in recent years than did Class II hospitals, it is likely that Class I hospitals in the proposed service area represent an option of care for child patients seeking non-tertiary services. The utilization of Class I hospitals (all ages) is provided in the table below by district for CY 2005:

Acute Care Utilization by District CY 2005 District Beds Occupancy District 1 1,873 49.45% District 2 1,639 47.83% District 3 3,680 67.36% District 4 4,357 66.34% District 5 4,398 51.73% District 6 5,737 60.09% District 7 4,824 69.93% District 8 4,001 51.32% District 9 4,482 64.27% District 10 5,082 54.77% District 11 7,819 57.05% STATE TOTAL 47,892 59.06%

Source: Florida Hospital Bed Need Projections and Service Utilization by District, Published July 2006

Considering the available capacity suggested by the table above, it is not clear that existing facilities within the proposed service area cannot accommodate children requiring inpatient care. It should again be noted that acute care beds may be added outside of certificate of need review at

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any hospital in Florida (except for those located in counties that meet the statutory definition of “low-growth”) through a simple notification to AHCA. The average utilization rate within the applicant’s proposed service area remained approximately stable during the last five years, as illustrated in the table below:

Acute Care Utilization for Districts in Proposed Service Area CYs 2001-2005

District 2001 2002 2003 2004 2005 District 1 53.26% 53.94% 52.62% 50.03% 49.45% District 2 49.63% 48.45% 49.45% 48.37% 47.83% District 3 69.60% 68.90% 67.79% 67.30% 67.36% District 4 60.33% 60.77% 63.30% 65.40% 66.34% District 7 64.11% 69.52% 68.46% 68.49% 69.93%

Source: Florida Hospital Bed Need Projections and Service Utilization by District, for calendar years indicated. The applicant does not argue that existing hospitals cannot accommodate the expected growth in needed children’s services. The applicant has stated that it believes it will build what will become a “top tier” hospital, and therefore will offer something unique and beneficial to Floridians, with the benefits outweighing any negative impact on existing providers. Existing hospitals in Florida, both class I and II, are not top tier. Should Nemours accomplish its goal (even though its hospital in Wilmington, Delaware is not considered a top tier hospital when compared with other children’s specialty and general acute care hospitals in the U.S.), the proposed facility would likely be a resource for the entire state, not just the top portion of the state, and therefore impact on existing Florida facilities is likely to be more significant than is described below. Analysis below is limited to the applicant’s stated planned service area. Providing evidence that it has the tools and ability to achieve its goal of becoming a top tier hospital is the responsibility of the applicant. It is also the applicant’s responsibility to show that what it is proposing is needed and that need is so great or will be of such benefit that it will outweigh the negative impact that it will clearly have on local hospitals, as illustrated below, and impact that it may have on existing children’s hospitals not in its proposed service area. The following table illustrates discharges at all facilities in the proposed service area for children under 18 during calendar year 2005:

Inpatient Pediatric Utilization in the Proposed Service Area - CY 2005 – All DRGs

Pediatric Discharges Total Discharges Pediatric Discharges as

Percent of Total Discharges District 1 15,526 91,103 17.04% District 2 13,480 76,657 17.58% District 3 26,317 207,697 12.67%

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District 4 33,532 239,888 13.98% District 7 53,149 314,834 16.88% Service Area 142,004 930,179 15.27%

Source: Florida Center for Health Information and Policy Analysis (FCHIPA), formerly the State Center for Health Statistics. Within the applicant’s proposed service area, inpatient pediatric utilization as a percentage of total acute care patient days in hospitals was 15.27 percent in 2005. The following table shows hospitals within the applicant’s proposed service area with over 500 pediatric (17 and under) discharges during calendar year 2005:

CY 2005 Discharges of Pediatric Patients From Hospitals* in Districts 1, 2, 3, 4 & 7 All DRGs

District County Hospital Discharges 1 Escambia Baptist Hospital 2,250 1 Escambia Sacred Heart Hospital 8,078 1 Escambia West Florida Hospital 545 1 Okaloosa Ft. Walton Beach Medical Center 2,875 1 Okaloosa North Okaloosa Medical Center 1,216 2 Bay Bay Medical Behavioral Health Center 557 2 Bay Bay Medical Center 1,191 2 Bay Gulf Coast Medical Center 3,145 2 Leon Capital Regional Medical Center 1,066 2 Leon Tallahassee Memorial Hospital 6,832 3 Alachua North Florida Regional Medical Center 2,475 3 Alachua Shands Hospital - AGH 1,254 3 Alachua Shands Hospital - University Of Florida 8,030 3 Alachua Shands Hospital- Vista 537 3 Citrus Citrus Memorial Hospital 931 3 Columbia Shands At Lake Shore 1,251 3 Hernando Spring Hill Regional Hospital 2,150 3 Lake Florida Hospital-Waterman 1,329 3 Lake Leesburg Regional Medical Center 2,020 3 Lake South Lake Hospital 723 3 Marion Munroe Regional Medical Center 3,137 3 Marion Ocala Regional Medical Center 689 3 Putnam Putnam Community Medical Center 817 4 Clay Orange Park Medical Center 2,046 4 Duval Baptist Medical Center 8,989 4 Duval Baptist Medical Center - Beaches 940 4 Duval Baptist Medical Center - South 940 4 Duval Memorial Hospital Jacksonville 2,840 4 Duval Shands Jacksonville Medical Center 4,387 4 Duval St. Luke's Hospital 1,224 4 Duval St. Vincent's Medical Center 2,412 4 Nassau Baptist Medical Center - Nassau 503 4 Saint John's Flagler Hospital 1,205 4 Volusia Florida Hospital Deland 1,372 4 Volusia Florida Hospital Ormond Memorial 1,327 4 Volusia Halifax Medical Center 3,793 4 Volusia Halifax Psychiatric Center - North 1,122 7 Brevard Cape Canaveral Hospital 955 7 Brevard Holmes Regional Medical Center 3,789 7 Brevard Parrish Medical Center 1,184 7 Brevard Wuesthoff Medical Center - Melbourne 1,024

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District County Hospital Discharges 7 Brevard Wuesthoff Medical Center - Rockledge 1,252 7 Orange Arnold Palmer Hospital 18,539 7 Orange Florida Hospital - East Orlando 1,305 7 Orange Florida Hospital 9,590 7 Orange Health Central 1,536 7 Orange Orlando Regional Lucerne Hospital 753 7 Orange Winter Park Memorial Hospital 3,041 7 Osceola Central Florida Regional Hospital 1,248 7 Osceola Florida Hospital - Altamonte 1,333 7 Osceola Florida Hospital-Celebration Health 1,329 7 Osceola Osceola Regional Medical Center 3,236 7 Osceola Orlando Regional South Seminole Hospital 2,634 Facilities with fewer than 500 pediatric discharges 3,058 TOTAL 142,004

Source: Florida Center for Health Information and Policy Analysis (FCHIPA), formerly the State Center for Health Statistics. * Does not include hospitals with fewer than 500 pediatric discharges. During calendar year 2005, there were 142,004 discharges of children under 18 from the proposed service area. The table above indicates that children are being served by at least five existing Class I acute care facilities per district of the proposed service area. Additionally, in District 7, the physical location of the proposed facility, the greatest number of pediatric discharges was from Arnold Palmer Hospital, with 35.15 percent of District 7 pediatric discharges, and with 13.06 percent of pediatric discharges when also factoring in Districts 1, 2, 3 and 4. Considering the volume of pediatric discharges from District 7 (the proposed location) compared with the other districts in the proposed service area, it appears that the applicant has chosen to locate its proposed facility in the area most likely to represent a duplication of services. While the applicant contends that a Class I hospital does not provide children’s services as seamlessly and efficiently as its proposed Class II hospital, the applicant does not contend that pediatric patients must leave these districts to access the services that a Class II hospital would provide. Additionally, as mentioned earlier, the applicant expects its proposed Orlando facility to become a top tier hospital, believes that goal must be weighed in this application and appears to believe that seeking to become a specialty hospital is one way to distinguish itself, giving it a greater advantage over Class I hospitals that might also hope to achieve that goal. For example, as just noted, the applicant contends that it can provide children’s services more seamlessly and efficiently than a Class I hospital, apparently ignoring that a lack of obstetrics care separates mother and baby immediately after birth if Level II or III neonatal services are required. Neither Johns Hopkins, ranked number two in the nation in 2006 for providing children’s services, nor New York Presbyterian, ranked number six in 2006 are children’s specialty hospitals. As not all top tier children’s hospitals are specialty children’s

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hospitals, becoming one is not demonstration of potential to become a top tier hospital. It further does not distinguish Nemours from Arnold Palmer Children’s Hospital, for example, as having greater potential to become a top tier hospital. The applicant has suggested in correspondence to the agency that if Arnold Palmer had the potential to become a top tier hospital, it would have already done so. However, the same can be said for Nemours, as its existing children’s hospital in Delaware is not considered a top tier hospital. As indicated in the acute care utilization table earlier in this section, available capacity at existing facilities together with the ability to add beds outside of CON review suggest that health care access for the population growth projected will likely be accommodated outside the applicant’s proposal. Therefore, it appears that the central point of the applicant’s need argument is not that this population is/will be without care or that barriers exist to care, but that the consolidation of services in one location would be more efficient for patients and would likely reduce medical errors, since members of the treating staff would have equal access to the patient’s record as part of the proposed Electronic Medical Record (EMR) system. While this contention might reinforce an applicant’s need argument in an area that did not already provide pediatric services, it is not clear that these contributions would outweigh the likely effects of introducing an additional provider into an underutilized area that does offer these services, effects such as aggravated staffing shortages, compromised ability to maintain innovative programs and/or quality standards, operational inefficiencies and duplication of services. Further, the applicant states that at the time of submission for the previous CON application #9917, the Nemours Children’s Clinic Orlando employed 55.85 FTE physicians, but that an existing provider in the area strategically began hiring away Nemours’ physicians in an effort to weaken the applicant’s proposal. The applicant states that its physician staff was reduced to 27.6 FTE, but that it is actively recruiting physicians to those practice positions that were lost. This revelation from the applicant suggests that staffing recruitment may already be an issue in this service area, and the introduction of an additional facility may strain staffing resources further. In other words, if the applicant is unable to maintain necessary physician staff at its existing clinic, it is not clear that the applicant could recruit and retain the necessary physician staff at the proposed hospital. The applicant states that this physician recruitment from its clinic by this existing provider began subsequent to Nemours announcing its plans to develop the proposed

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facility in 20057. The applicant indicates that “currently,” which is presumably the submission of this latest CON application 9953 (omissions deadline of October 18, 2006)8, the Nemours physician staff numbers approximately half the full-time equivalents of the Nemours physician staff in 2005. Therefore, it appears that the applicant has not yet recruited replacements for the positions lost during the prior calendar year. Because the applicant does not provide indication that these positions were deliberately not filled immediately, it appears the applicant has experienced difficulty recruiting replacement physicians. If true, then this inability to recruit physicians contradicts the applicant’s statements regarding its proposed recruitment and retention of pediatric subspecialty physicians. Need is not demonstrated for the proposed project. Additionally, as discussed in more detail in below9, the applicant did not clearly distinguish this project from services currently available in the area, other than to state it would build a Class II children’s hospital and that there is no Class II children’s hospital in the applicant’s proposed service area. However, there are two Class II children’s hospitals that serve pediatric patients throughout Florida: one is nearly adjacent to the applicant’s proposed location and the other is in Miami. As discussed earlier, neither boasted high utilization during the most recent reporting period.

b. If no Agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria:

7 Page 146 of volume I of the CON application indicates that the period prior to this recruitment of physicians away from Nemours ended June 30, 2005. 8 Therefore, it appears that more than twelve months elapsed without replacement of the lost physician FTEs. 9 Particularly as related to electronic medical records and other medical treatment trends

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• Population demographics and dynamics; • Availability, utilization and quality of like services in the district,

subdistrict or both; • Medical treatment trends; and • Market conditions. Population demographics and dynamics The applicant states that northern and central Florida will grow by approximately 200,000 children within the next 10 years, and that Florida’s pediatric population will increase by more than two million by the year 2030. As discussed in section E.1.a. above, District 7 will experience the fastest population growth of the indicated areas for children (17 and under), growing by 8.84 percent during the five-year period of 2007 through 2012. Of the five districts in the defined service area, Districts 7, 3 and 1 are projected to grow by a larger percentage than the state population of those 17 and under. Districts 4 and 2 are projected to grow by a smaller percentage than the state, with District 2 projected for 3.71 percent growth in five years. The following table illustrates projected growth for the 17 and under population for each district:

17 and Under Population Projected Growth 2007-2012 By District District 1 6.46% District 2 3.71% District 3 7.92% District 4 5.84% District 5 1.85% District 6 7.33% District 7 8.84% District 8 11.23% District 9 7.06% District 10 5.69% District 11 3.81% State 6.45%

Source: AHCA Population Estimates, September 2006 As seen above, the district projected to experience the greatest growth of the 17 and under population from 2007-2012, District 8, is not included in the applicant’s proposed service area. Therefore, because the proposed facility could serve patients from any location, it is likely that the proposed project, if approved, would treat patients from District 8. Five-year population projections were used because a five-year or less planning horizon is generally considered the standard because of the rapidly changing health care environment. Projections beyond five years are highly speculative and not typically accepted as reasonable for health planning purposes.

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While Agency data indicate likely growth in the 17 and under population for all of Florida, the available capacity at existing Class I acute care facilities combined with the tertiary pediatric services available at those Class I hospitals suggest that an additional facility to serve the growing 17 and under population is not likely necessary. Additionally, although the applicant believes the Class II hospital proposal distinguishes it from existing Class I hospitals and that it is inappropriate to consider Class I hospital acute care utilization in this review, as noted earlier, the applicant has not distinguished its services in demonstrated ways from those currently available in existing Class I hospitals. It is noted here that Class II utilization statewide also does not indicate need and because the applicant proposes to locate in an area that is centrally located to all Floridians (even though it has not included patients from adjacent counties in its need analysis, yet proposes to serve patients much further away), there is nothing to prohibit the proposed facility from serving patients closer to its physical location. The average utilization rate at existing Class I facilities within the applicant’s proposed service area remained approximately stable during the last five years. Existing facilities may add acute care beds10 outside of certificate of need review through notification to AHCA, which will assist these existing facilities in accommodating the projected growth. Considering this, need is not demonstrated for the project based on population demographics or dynamics in the proposed service area encompassing Districts 1, 2, 3, 4 and 7. Availability, utilization and quality of like services in the district, subdistrict or both; As discussed in section E.1.a. above, the applicant has not presented an argument that service area residents currently must leave the five districts to access pediatric services, and in fact acknowledges the network of pediatric care available. The applicant characterizes this network as a ‘patchwork of services’ and presents its proposal as a streamlined, centralized location for these services. The applicant attributes its description of existing providers as ‘patchwork’ to what it states is a health care delivery model where hospitals and physicians operate independently and maintain information systems that are not integrated. The applicant concludes from this that because it will offer a variety of pediatric subspecialty services in one location with an EMR integrated between outpatient and inpatient services, that its proposal is a streamlined health care model. It should be noted that a clinical representative at Orlando Regional indicated via telephone that the EMR employed by Orlando Regional is integrated between outpatient and

10 Unless the facility is located in a county meeting the statutory definition of “low-growth.”

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inpatient services. Further, it is again noted that because they are a children’s hospital and will not provide obstetric services, any neonates admitted to the proposed facility would be transferred from the admitting hospital and separated from his or her mother. This interruption of care and the separation from the patient’s family together conflict with the applicant’s contention that its proposal is more streamlined than existing providers. Availability of services is not an area of need for Districts 1, 2, 3, 4 and 7. As discussed in section E.1.a. above, utilization of existing services has remained approximately stable in recent years, and with the ability of facilities not located in low-growth counties to increase beds outside of CON review, it is not clear that the forecasted population growth will exceed the ability of existing providers to accommodate that growth except perhaps in statutorily defined low-growth counties11. The applicant presents its proposal as a streamlined, centralized location for the services currently utilized at existing facilities, and therefore, the applicant contends need for its project beyond stagnant utilization percentages. Utilization of services does not demonstrate need in Districts 1, 2, 3, 4 and 7. The applicant contends that an improved quality of services would be available with the proposed project for the proposed area due to the centralization of services at one site and through implementation of an EMR system that is stated to be more comprehensive than typically proposed by new facilities. The centralization of services is equated by the applicant to an increase in accessibility (or convenience), since the need to transfer or refer patients to other locations would be eliminated. However, the transfer or referral of patients would not be entirely eliminated. As a children’s specialty hospital, the applicant cannot admit expectant mothers. As noted at the beginning of this review, the applicant has filed two other concurrent applications, both to be located within this proposed Class II children’s hospital: one to establish a Level II NICU; and the other to establish a Level III NICU. Therefore, it expects neonates to be transferred from area hospitals to its NICU, and because it cannot admit the mother, neonates admitted to the Nemours facility would be separated from their mothers if this proposal were approved.

11 As of this writing, Escambia County in AHCA District 1 is the only statutorily defined “low-growth” county.

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The applicant did not provide an example of when existing providers have transferred or referred pediatric patients elsewhere. The applicant does provide a hypothetical scenario of what might occur at a facility without an electronic medical environment versus what might happen to that same patient if treated by the proposed facility: In this scenario, the patient is taken to the emergency room of a non-Nemours facility, and because of an asthma diagnosis, a chest radiograph is taken. The radiograph is then read as ‘normal’ by the emergency room physician, not a radiologist, and after observation, the patient is admitted and treated with medication, oxygen therapy and steroids. The patient receives instruction on asthma, and is discharged after five days with prescriptions and instructions to follow up with his primary care physician. Later, this hypothetical patient relapses and returns to “a local Emergency Room” (the applicant does not specify whether this emergency room should be understood as the same emergency room or if this is intended to represent a different emergency room) where a brief history is taken on the patient, but because the parent cannot fully remember all the patient’s medications, the process must be repeated. The applicant contrasts this scenario with one where the patient is taken to the Nemours emergency room where she is “immediately” triaged, an encounter is initiated in the EMR, a “rapid” history is obtained and the patient is given an asthma diagnosis. The patient is then treated with unspecified “evidence-based protocol” and her primary care physician is “automatically” notified. A radiograph is taken and “immediately” read by a Nemours radiologist, who finds that the patient has pneumonia. The patient begins intravenous antibiotic treatment and is admitted, where she would be observed, stabilized and would receive education along with her family. The family would meet with the Nemours Care Coordination Team where the care plan involving medication, oxygen therapy, steroids and ongoing education for the patient, family and patient’s school would be discussed. The Nemours staff is able to adjust the patient’s oxygen, diet and medications based upon changes “automatically” trended in the EMR. A Nemours infectious disease team reviews the EMR and switches the patient from intravenous to oral antibiotic therapy. The patient and family view the patient’s electronic medical record and care plan on a large screen in the patient’s room. The patient’s medications are administered and recorded using bar-coding and radiofrequency safety checks. Internet access and two-way videoconferencing are available to the patient and family for contacting family, friends and work, which allows the parents to establish work plans with their employer and allows those who could not visit the patient to “visit” via videoconference. The patient resumes schoolwork via video link with her school. The Care Coordination Team uses the

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videoconferencing abilities to scan the patient’s home and suggests changes related to asthma safety. The parents could follow all the patient’s diagnostic testing and care via the internet when not in the patient’s hospital room. After three days, the family, primary care physician, ancillary services and Care Coordination Team are coordinated for the patient’s discharge. The patient’s home pharmacy is notified of the patient’s prescriptions, which were waiting at the patient’s home. For two days following the patient’s discharge, the Care Coordination Team evaluates the patient at planned times. Pulmonary function testing is continued at home and school, and an emergency care plan is prepared with the parents and school. The patient’s primary care physician is updated with lab and test results, evaluations and any updates of the online record or overall plan. “At first indication” of asthma recurrence, the EMR alerts staff to begin rescue therapy. The school nurse and the patient’s primary care physician continue to update the EMR as the patient progresses. It should be noted that these scenarios are hypothetical and the applicant has not indicated that these scenarios resemble any actual events from the proposed service area or from the applicant’s service area in Delaware. Further, due to the idealistic nature of the above comparison, it cannot be determined whether the extent of care described in the second example is realistic, whether this extent of care involving countless clinical personnel is likely to be provided consistently (especially considering the applicant’s indication that it is already experiencing physician recruitment difficulties in this proposed area) or that this extent of care could be provided to each patient once the proposed facility reaches volume capacity. Due to the hypothetical nature of the applicant’s description, an adequate comparison cannot be made of the applicant’s proposed care with the care of existing providers. Discussion of accessibility is provided under section E.3.a. below. Medical treatment trends The applicant states that its application is in response to a challenge issued by the Institute of Medicine for the health care industry to move away from the historically “fragmented model of care to one that is fully integrated across all service settings.”12 The existing pediatric care network, including Children’s Medical Services (CMS) is stated to be a partial solution, ‘patchwork’ and disjointed, since the providers within the network are not ‘integrated’. By definition a network is interconnected, and therefore, the applicant’s use of the term ‘integrated’ must be interpreted to mean consolidated at a single site. As discussed

12 CON application 9953, page 30.

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previously in this section E.1., the proposed services are currently available in Districts 1, 2, 3, 4 and 7, but would, according to the applicant, be more convenient and efficient if centralized at one location. While this contention might reinforce an applicant’s need argument in an area that did not already provide pediatric services, it is not clear that these contributions would outweigh the likely effects of introducing an additional provider into an underutilized area that does offer these services, effects such as aggravated staffing shortages, compromised ability to maintain innovative programs and/or quality standards, operational inefficiencies and duplication of services. It is noted that the proposed project could result in a greater apportionment of the Nemours Foundation’s subsidies to the state of Florida; however, applications for new hospitals typically represent increases in fund expenditures in Florida, and consideration of such has not been included in need evaluations. Additionally, as pointed out numerous times in this report, the applicant’s children-only focus includes newborns with complications, and so admission to Nemours would require discharge and transfer from other hospitals. This statement is not meant to discount the place of specialty hospitals within the health care system, but instead to indicate that the applicant’s argument that existing care is “patchwork” due to matters such as transfers, and that the proposed facility would replace a “patchwork” system with an integrated one, is not fully supported. The applicant’s proposal will not eliminate transfer of children from one hospital to another. It is not clear that having an “integrated” system, as Nemours defines and presents in its application, outweighs need for the system that is currently in place to keep a neonate with his or her mother whenever possible. According to letters of opposition, the continuance of services that are currently in place to keep neonates with their mothers, within the Orlando Regional Healthcare System for example, would be in jeopardy should this application be approved. The applicant states that a “true EMR” is not in use by any of the current providers, and cites a study13 wherein approximately 10 percent of EMR systems were described to be fully operational and are “capable of multiple functions such as order- and prescription-entry and decision support.”14 While proposing EMR systems for new hospitals is effectively standard and EMRs are no longer considered an innovation in a new hospital facility, the applicant contends its system would be superior to the systems currently employed in the service area. Without specific

13 Health Information Technology in the United States: The Information Base for Progress, Robert Wood Johnson Foundation, MGH Institute for Health Policy, George Washington University School of Public Health and Health Services, The Health Law Information Project, 2006. Included with Appendix F of the CON application. 14 CON application 9953, page 90.

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itemized analysis comparing the applicant’s proposed system to those of all existing providers in the area, this contention cannot be adequately evaluated. Market conditions The applicant states it would focus on complex pediatric diseases, which would complement the services offered by other pediatric hospitals and units. Market growth is stated to be sufficient to allow the applicant to achieve its projected utilization without a significant adverse impact on existing providers. Nemours Children’s Clinic – Orlando physicians are stated to have a ‘substantial number’ of patients that will “serve as the starting point”15 for the proposed facility16. As previously discussed, utilization of existing services has remained approximately stable in recent years, and combined with the ability of facilities not located in low-growth counties to add beds without CON review, it is not clear that forecasted population growth will exceed existing providers’ abilities to serve said growth. Additionally, the provider with the greatest pediatric discharge count of all facilities in the five district service area is Arnold Palmer Hospital, located in Orange County, District 7, the applicant’s proposed location. District 7 appears to be the portion of the applicant’s proposed service area that would most likely result in duplication of services if the applicant’s proposal were executed. It is acknowledged that the services offered at Nemours would be more “integrated” in some respects, but would be less integrated in others. For example, Nemours would refer its own outpatients to its inpatient setting if they needed inpatient care, but would be separating mothers from neonates when utilizing either of its two companion applications for NICU services being reviewed under CON numbers 9939 and 9952. The applicant additionally contends that District 7 is subject to a “duopoly of ORHS and Florida Hospital, in both pediatrics and adult services,”17 and states that need exists for a competitive alternative in the market. Considering the utilization of services at existing facilities and the ability to add beds outside of CON review, as well as other factors such as the widely accepted existence of clinical staffing shortages, it is not clear that the applicant’s expectations of competitive results outweigh the likely results of aggravated staffing shortages, compromised ability to maintain innovative programs and/or quality standards, operational inefficiencies and duplication of services. Further, the

15 CON application 9953, page 30. 16 The applicant has outpatient clinics in the area and it is presumed from this statement that if inpatient services are needed, the applicant is currently referring those outpatients to existing hospitals for admissions. With this project, it would admit these outpatients needing inpatient services to its hospital. 17 CON application 9953, page 30.

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applicant states that at the time of submission for the previous CON application #9917, the Nemours Children’s Clinic Orlando employed 55.85 FTE physicians, but that an existing provider in the area strategically began hiring away Nemours’ physicians in an effort to weaken the applicant’s proposal. The applicant states that its physician staff was reduced to 27.6 FTE, but that it is actively recruiting physicians to those practice positions that were lost. This revelation from the applicant suggests that staffing recruitment may already be an issue in this service area, and the introduction of an additional facility may strain staffing resources further. In other words, if the applicant is unable to maintain necessary physician staff at its existing clinic, it is not clear that the applicant could recruit and retain the necessary physician staff at the proposed hospital. As indicated earlier, the applicant places the timing of this recruitment from their staff as beginning after June 30, 2005, yet replacements had not been recruited as of the application submission (omissions date October 18, 2006). Market conditions in the proposed areas do not suggest need for the proposed project. As noted above, need for the project was not demonstrated.

2. Agency Rule Criteria

The Agency does not currently have adopted preferences or rule criteria relating to acute care beds. The acute care rule was repealed as a result of statutory changes made on July 1, 2004. The rule repeal was effective April 21, 2005.

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. 408.035(2), 408.035(7), Florida Statutes. As discussed in section E.1.a. above, the applicant has not presented an argument that service area residents currently must leave the five districts to access pediatric services, and in fact acknowledges the network of pediatric care available. The applicant characterizes this network as a ‘patchwork of services’ and presents its proposal as a streamlined, centralized location for these services. The applicant contends need for subspecialists in District 7, specifically indicating the need for pediatric rheumatologists, allergists/immunologists and dermatologists. Arnold Palmer Hospital, located in District 7, is an

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existing provider of both pediatric allergy and dermatology services. The applicant states that pediatric rheumatology “is a service that has never been provided in Orlando. The closest Rheumatologist is in Gainesville”18; however, a cursory check of the American College of Rheumatology website indicates at least two rheumatologists operating in Orlando with disciplines in pediatric rheumatology. Further, the applicant divulges complications with physician retention at its existing Orlando clinic, which it attributes to competition with an existing provider. The physician staff of the clinic is indicated by the applicant to have remained at half its former number for at least 12 months, and had not been restored as of the application submission. It is not clear that the answer to area physician shortages is to establish an additional facility to further dilute limited physician resources. Availability of services is not an area of need for Districts 1, 2, 3, 4 and 7. As discussed in section E.1.a. above, utilization of existing services has remained approximately stable in recent years, and with the ability of facilities not located in low-growth counties to increase beds outside of CON review, it is not clear that the forecasted population growth will exceed the ability of existing providers to accommodate that growth. The applicant presents its proposal as a streamlined, centralized location for the services currently utilized at existing facilities, and therefore, the applicant contends need for its project beyond stagnant utilization percentages. Utilization of services does not demonstrate need in Districts 1, 2, 3, 4 and 7, nor does the applicant’s contention that it will provide streamlined, centralized services. Not all services would be centralized so that hospital to hospital transport of children is entirely avoided. Although the establishment of a children’s hospital may centralize some services, such as allowing Nemours to provide services to outpatients it currently serves within its own inpatient setting, it would also mean that a baby with complications delivered at an area hospital requires intensive care to be rendered at Nemours would have to be discharged from the admitting hospital, transported and transferred to


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Nemours, since because it would be a children’s hospital, the proposed facility could not admit expectant mothers. It appears that the project Nemours proposes could be described as ‘patchwork’, much as it has described the existing system. The applicant contends that an improved quality of services would be available for the service area with the proposed project due to the centralization of services at one site, as well as through implementation of an EMR system that is stated to be more comprehensive than typically proposed by new facilities. The centralization of services is equated by the applicant to an increase in accessibility (or convenience), since the need to transfer or refer patients to other locations would be eliminated19. The applicant states that accessibility to care would be improved for the proposed service area financially, programmatically and geographically: Financially, due to the applicant’s proposed condition of providing at least 50 percent of patient days to patients covered by Medicaid, Medicaid HMOs or patients qualifying for charity care; programmatically because of the concentration of children’s services at one site; and geographically due to a proposed statewide transportation system. Regarding the project’s potential impact on financial access, pediatric (17 and under) patient days by payer category for hospitals with NICU units in District 7 are shown in the table below for CY 2005:

Percent Pediatric Patient Days by Payer Category for Calendar Year 2005

Facility Medicaid/

Medicaid HMO Charity Total Arnold Palmer Hospital 53.87% 1.57% 55.44% Florida Hospital 47.69% 3.01% 50.70% Holmes Regional Medical 41.97% 1.86% 43.83% Osceola Regional Medical 48.38% 1.59% 49.97% Winter Park Memorial Hospital 38.94% 5.64% 44.58% Wuesthoff Medical-Rockledge 51.98% 0.00% 51.98%

Source: Florida Center for Health Information and Policy Analysis (FCHIPA), formerly the State Center for Health Statistics. The applicant’s proposed condition of 50 percent combined Medicaid, Medicaid HMO and charity care is approximately equal to the provision by facilities in District 7 that currently operate a NICU unit. A provision

19 As noted earlier, this is not an accurate statement. Under the proposed system, children would continue to be discharged from other hospitals and transported to its facility.

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of 50 percent combined Medicaid and charity care by the proposed facility would place the proposed facility just behind Arnold Palmer Hospital in terms of total Medicaid and charity provisions. Therefore, it does not appear that approval of the proposed project would increase access for Medicaid and charity patients in this area, since the existing providers with like services are providing similar levels of Medicaid and charity care as are being proposed by the applicant. The following table indicates the Medicaid/Medicaid HMO and charity provisions for patients 17 and under for the existing Class II children’s hospitals in Florida20:


Facility Medicaid/ Medicaid

HMO Charity Total All Children’s Hospital 51.07% 0.99% 52.06% Miami Children’s Hospital 50.54% 0.00% 50.54%

Source: Florida Center for Health Information and Policy Analysis (FCHIPA), formerly the State Center for Health Statistics. As seen in the table above, the condition proposed by the applicant is approximately equal to the provisions of existing Class II hospitals in the state. It is therefore not clear that the applicant’s proposal offers increased financial access for these groups. Regarding the project’s potential impact on programmatic access, the applicant states that no like or similar services are available in the proposed service area, and that all of the existing pediatric providers are part of larger adult systems that lack a singular focus on children. The applicant states that the greatest difference between the care Nemours would provide with the proposed project and the care currently provided by existing facilities in the area is in the systemic approach, or continuity of care, that would be implemented by the concentration of children’s services at one site.21 The applicant provides discussion on the efficiency of integrating services at one site and notes that quality improvement would result from the project, since transfer to another facility would not be required and the patient’s information would be accessible in each department of the facility through the Electronic Medical Record (EMR) system. The applicant takes issue with the Agency’s previous finding in the State Agency Action Report for CON #9917 that the network of

20 Shriner’s Hospital does not report this information to AHCA. 21 The applicant’s proposal would not eliminate transfer of children from one hospital to another. It is not clear that having an “integrated” system (as defined and presented by the applicant) outweighs need for the system that is currently in place to keep a neonate with his or her mother whenever possible. According to letters of opposition, the continuance of services that are currently in place to keep neonates with their mothers, within the Orlando Regional Healthcare System for example, would be in jeopardy should this application be approved.

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providers with Children’s Medical Services (CMS)22 currently provides the care the applicant is proposing for this service area, and states that CMS23 and existing providers offer a ‘patchwork of services’ that require medically complex patients to “independently schedule appointments with numerous different sub-specialists in different offices and locations throughout the county at random times due to the convenience and availability of the doctor”24; however, it is likely that a medically complex patient seeking care at the proposed facility would be required to schedule appointments at times chosen for the convenience and availability of the doctors, and therefore it appears the applicant contends that its proposal is superior to the existing children’s care network due to the concentration of services at one site. The applicant further states that a “true EMR” is not in use by any of the current providers, and cites a study25 wherein approximately 10 percent of EMR systems were described to be fully operational and are “capable of multiple functions such as order- and prescription-entry and decision support.”26 While proposing EMR systems for new hospitals is effectively standard and EMRs are no longer considered an innovation in a new hospital facility, the applicant contends its system would be superior to the systems currently employed in the service area. Without specific itemized analysis comparing the applicant’s proposed system to those of all existing providers in the area, this contention cannot be adequately evaluated. Further, the applicant divulges complications with physician retention at its existing Orlando clinic, which it attributes to competition with an existing provider. The applicant indicates that this reduction in its physician staff began more than 12 months prior to the submission of

22 Source: http://www.doh.state.fl.us/cms/l 23 As stated in the State Agency Action Report for CON #9917, CMS is a program of the Florida Department of Health (DOH) which provides services through an integrated statewide system that includes local, regional and tertiary care facilities and providers. CMS patients are children under age 21 with special health care needs, whose serious or chronic physical, developmental, behavioral or emotional conditions require extensive preventive and maintenance care beyond that required by typically healthy children. CMS provides a comprehensive continuum of medical and supporting services to medically and financially eligible children and high-risk pregnant women. The continuum of care includes prevention and early intervention programs, primary care, medical and therapeutic specialty care and long-term care. 24 CON Application #9953, page 35. 25 Health Information Technology in the United States: The Information Base for Progress, Robert Wood Johnson Foundation, MGH Institute for Health Policy, George Washington University School of Public Health and Health Services, The Health Law Information Project, 2006. Included with Appendix F of the CON application. 26 CON application 9953, page 90.

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CON application 9953 and replacement physicians had not yet been recruited (omissions deadline is more than fifteen months after the date indicated by the applicant as the beginning of the reduction). It is not clear that the answer to area physician shortages is to establish an additional facility to further dilute limited physician resources. Regarding the project’s potential impact on geographic access, the applicant states that it “will have in place a transportation system that will bring patients in need of care from across Florida.”27 The applicant provides little description of its proposed transportation system, except to state that it would be similar to that employed by the Alfred I. duPont Hospital for Children in Wilmington, Delaware. The applicant does not provide a mileage limitation on transporting patients from the outer points of the service area, as was the case with the applicant’s previous submission in CON #9917, where the transportation capability was stated to encompass a distance of 150 miles28. The applicant does not include in its discussion the transportation furnished by the Florida Medicaid program for its recipients, which is noteworthy considering the 49 percent Medicaid mix the applicant projects for its first and second year of operations. Additionally, examination of the service area indicates that the proposed services are available at existing facilities, and population growth projections do not appear to have the potential to overflow the stagnant utilization at facilities with the ability to add beds outside of CON review. It is not demonstrated that geographic barriers exist in the service area. Need for the project is not evidenced by the availability, quality of care, efficiency, accessibility and extent of utilization of existing health care facilities and health services in the applicant's service area.

b. Does the applicant have a history of and demonstrate the ability to provide quality care? ss. 408.035(3), 408.035(12), Florida Statutes.

The applicant does not own or operate any hospitals in Florida. The applicant discusses its conformity with JCAHO standards and states that it was a key developer of the National Pediatric Quality System adopted by JCAHO to identify standardized performance measures for pediatric acute care settings, as other widely accepted performance measures are focused on adults and are stated to be not applicable to health care for children. The applicant addresses its quality model, and states that “Nemours is not hesitant to invest in technology to foster

27 CON application 9953, page 90. 28 CON application 9917, page 42.

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communication and care as long as that care is excellent.”29 Quality points itemized by the applicant include an integrated electronic health record, remote home monitoring, which allows access to and from a provider from outside the facility, a “Simulation Laboratory” to assist providers with procedural and cognitive skills, as well as the utilization of kidshealth.org as a teaching tool for patients and parents. The applicant provides much discussion throughout the application on the importance of ‘best practices’ and evidence based medicine, as well as its plans to establish the proposed facility as a ‘top tier’ children’s hospital. The applicant states that it collects and monitors patient satisfaction data for quantifying and implementing improvement strategies, and that in 2004, 97 percent of returned surveys indicated the care received at Alfred I. duPont Hospital was ‘very good’ or ‘the very best’. Quality and safety initiatives described by the applicant include: the Pedi-QS national pediatric quality system adopted by JCAHO as a care improvement measurement; the Nemours Clinical Management Program, which is described as a data management system; Nemours Biomedical Research; and the implementation of the EMR. It is again noted that the applicant has indicated that this project would provide a “top tier” children’s hospital to Floridians. Should the project be approved, a “top tier” children’s hospital would be the expectation of this state. However, the applicant has not provided anything in the application to demonstrate that it has the ability to become a top tier provider. Although the applicant has agreed to a number of conditions, but did not include among them anything relative to becoming a leader in any field within a defined number of years so that the facility would be recognized among the top 26 children’s hospitals in the nation. The fact that its existing hospital in Delaware was not listed as a top tier children’s hospital by U.S. News and World Reports (in its 2006 release of surveys conducted from 2004-2006) suggests that it may not be able to achieve this status30. Available evidence indicates the applicant has the ability to provide quality care; however, the ability to provide quality care is not equivalent to need for an additional hospital in an area with stagnant utilization and the ability to add beds outside of CON review.

29 CON application 9953, page 151. 30 http://www.usnews.com/usnews/health/best-hospitals/rankings/specreppedi.htm

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http://www.usnews.com/usnews/health/best-hospitals/rankings/specreppedi.htm


c. What resources, including health manpower, management personnel, and funds for capital and operating expenditures, are available for project accomplishment and operation? ss. 408.037(6), Florida Statutes.

The audited financial statements of The Nemours Foundation for the periods ending December 31, 2004 and 2005 were analyzed for the purpose of evaluating the applicant’s ability to provide the operational funding and the development and start-up costs necessary to implement the project as proposed. (See table).

The Nemours Foundation 12/31/2005 12/31/2004 Cash and Current Investment $ 119,348,401 $ 96,033,336 Total Current Assets $ 242,200,639 $ 219,340,010 Assets Restricted for Capital Projects $ - $ - Total Assets $ 1,113,073,951 $ 953,430,456 Current Liabilities $ 110,097,266 $ 104,834,493 Total Liabilities $ 282,629,217 $ 171,413,633 Net Assets $ 830,444,734 $ 782,016,823 Total Revenues $ 546,371,671 $ 495,876,842 Interest Expense $ 540,638 $ Income from Operations $ 23,047,851 $ 30,135,298 Increase in Unrestricted Net Assets $ 22,304,711 $ 24,375,798 Cash Flow from Operations $ 68,901,565 $ 40,646,864 Working Capital $ 132,103,373 $ 114,505,517 Current Ratio (CA/CL) 2.2 2.1 Long-Term Debt to Equity (TL-CL/TE) 0.2 0.1 Operating Cash Flow (CFO/CL) 0.6 0.4 Net Assets to Total Assets (NA/TA) 74.6% 82.0% Operating Margin (NPO/TR) 4.2% 6.1% Total Margin (NI/TR) 4.1% 4.9% Return on Assets (NI/TA) 2.0% 2.6% Operating Cash Flow to Assets (CFO/TA) 6.2% 4.3% The Nemours Foundation was formed in 1936 pursuant to the last will and testament of Alfred I. duPont for the primary purpose of providing for the care and treatment of crippled children, but not of the incurables, and for the care of the elderly, particularly couples. Nemours operates a children’s hospital and specialty clinic in Delaware and three specialty children’s clinics in Florida. Short-Term Position: The applicant’s current ratio of 2.2 indicates current assets are 220 percent of current liabilities, an average position. The ratio of cash flows to current liabilities of .06 is also an average position. The working capital (current assets less current liabilities) of $132.1 million is a measure of excess liquidity that could be used to fund capital projects. Overall, the applicant has an average short-term position.

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Long-Term Position: The ratio of long-term debt to net equity of 0.2 indicates long-term debt is only 20 percent of equity. Long-term debt consists of reserves for professional and patient care liabilities and $91.5 million in bond funds for construction projects. Nemours uses a self insurance trust fund to insure for possible professional and patient care losses. The ratio of cash flow to assets of 6.2 percent is below average, but an acceptable position. The most recent year had net income of $23.0 million, which results in an operating margin of 4.2 percent. The applicant is not typical of Florida hospitals in that they receive a significant level of funding from the Alfred I. duPont Testamentary Trust fund, $111.6 million in 2005. As a result, they have a good long-term position. Capital Requirements: Schedule 2 indicates the applicant has capital projects totaling $439.8 million, including maturities of long term debt through 2007 of $1.9 million. Available Capital: Funding for this project will be come from a $128.0 million equity contribution and $130.0 million from the proceeds of long-term tax-exempt bonds. A letter provided by the applicant from Bank of America Securities which stated they believed Nemours is likely to obtain financing for these projects. The applicant had $119.3 million in cash and $68.9 million in operating cash flows. Staffing: Schedule 6A of the CON application does not provide an itemized staff breakdown as indicated in that schedule’s format, but instead provides an FTE itemization by facility department. For the hospital project by the end of year two (12/31/2011), “patient services” (including unknown staff functions) include 77.4 FTEs, “therapy services” include 22.0 FTEs, “respiratory services” include 21.6 FTEs, “emergency services” include 27.0 FTEs, “surgical services” include 24.0 FTEs and “ancillary services” include 37.3 FTEs. The applicant states that at the time of submission for the previous CON application #9917, the Nemours Children’s Clinic Orlando employed 55.85 FTE physicians, but that an existing provider in the area strategically began hiring away Nemours’ physicians beginning after June 30, 2005 in an effort to weaken the applicant’s proposal. The applicant states that its physician staff was reduced to 27.6 FTE, but

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that it is actively recruiting physicians to those practice positions that were lost. The applicant does not indicate that these lost positions were replaced before submission of this CON application 9953 (omissions deadline of October 18, 2006). This revelation from the applicant suggests that staffing recruitment may already be an issue in this service area, and the introduction of an additional facility may strain staffing resources further. In other words, if the applicant is unable to maintain necessary physician staff at its existing clinic, it is not clear that the applicant could recruit and retain the necessary physician staff at the proposed hospital. The applicant states that it offers a generous benefits program, fully paid malpractice insurance, 10 days per year of continuing education, annual funding of $3,500 per physician per year for professional dues and memberships, with travel expenses paid to continuing educational programs and/or research presentations. The applicant states that its recruitment campaign will rest on its existing clinical networks and affiliations with medical schools and other associations. The applicant contends need for pediatric subspecialties in the service area, and states that subspecialists are attracted to environments that provide them with a hospital for admission of patients with complex conditions, subspecialty clinics for ambulatory care and opportunities for research and teaching. The applicant contends that by establishing this type of hospital, the desired subspecialists would be attracted to District 7. The applicant lists pediatric rheumatology, allergy/immunology and dermatology as priority areas for recruitment, but as discussed in section E.3.a. above, these specialties are not absent from the service area. Retention efforts are described to include the following: sign on bonus program; employee referral bonus program; relocation assistance for those relocating to the greater Orlando area; premium pay for hard to fill subspecialty positions; compensation for certification attained by nurses and nursing managers; educational financial assistance to pursue higher level nursing degrees; and, internships for nursing subspecialty practice and research. Conclusion: Funding for CON numbers 9939, 9952 and 9953 is likely to be available as needed.

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d. What is the immediate and long-term financial feasibility of the

proposal? ss. 408.035(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 goes 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 14. Per diem rates are projected to increase by an average of 3.9 percent per year. Gross revenues, net revenues and costs were obtained from Schedules 7 and 8 in the financial portion of the application. These were compared to the control group as a calculated amount per adjusted patient day. 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. Projected net revenue per adjusted patient day (NRAPD) of $2,824 in year one and $2,925 in year two are between the control group median and highest values of $2,755 and $3,928 in year one and $2,844 and $4,055 in year two. With net revenues falling between the control group median and highest values, the facility is expected to consume health care resources in proportion to the services provided. (See table).

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CON #9953 2011 YEAR 2 VALUES ADJUSTED The Nemours Foundation YEAR 2 ACTIVITY FOR INFLATION 2004 Data Peer Group 14 ACTIVITY PER DAY Highest Median Lowest ROUTINE SERVICES 32,638,630 1,498 1,430 193 19 INPATIENT AMBULATORY 1,645,420 0 96 23 0 INPATIENT ANCILLARY SERVICES 88,788,197 4,076 4,666 1,505 84 OUTPATIENT SERVICES 50,335,854 2,311 6,368 3,119 2,140 OTHER OPERATING REVENUE - 0 0 0 0 TOTAL REVENUE 173,408,101 7,961 9,397 7,187 4,855 DEDUCTIONS FROM REVENUE 109,695,439 5,036 * * * NET REVENUES 63,712,662 2,925 4,055 2,844 1,696 EXPENSES ROUTINE 12,023,371 552 636 143 57 ANCILLARY 23,342,429 1,072 1,026 912 542 AMBULATORY 136 OVERHEAD 42,004,649 1,928 2,102 1,389 955 OTHER 0 TOTAL EXPENSES 80,331,678 3,688 3,849 2,790 1,734 OPERATING INCOME (16,619,016) -763 149 126 -18 -26.1% PATIENT DAYS 15,460 VALUES NOT ADJUSTED ADJUSTED PATIENT DAYS 21,783 FOR INFLATION TOTAL BED DAYS AVAILABLE 29,930 ADJ. FACTOR 0.7 TOTAL NUMBER OF BEDS 82 PERCENT OCCUPANCY 51.7% 74.7% 61.3% 3.8% PAYER TYPE PATIENT DAYS % TOTAL MEDICARE - 0.0% 39.0% 23.3% 0.4% COMMERCIAL 833 5.4% MEDICAID 5,103 33.0% 50.6% 9.0% 4.1% SELF-PAY 944 6.1% HMO/PPO 8,315 53.8% 47.1% 41.4% 36.2% OTHER 265 1.7%

TOTAL 15,460 100.0% Cost per adjusted patient day (CAPD) of $3,878 in year one is above the group highest value of $3,728. This is not considered unusual as the occupancy level drives revenue and it is projected to only be 43.3 percent during the first year of operation. Fixed costs must be absorbed by the revenue generated by relatively few patient days. CAPD of $3,688 in year two is between the control group median and highest values for that year of $2,790 and $3,849. It is likely that there would be a further decline in CAPD as utilization increases. With projected cost in year two between the median and highest value in the control group, the year two cost appear feasible. (See table above).

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The year two projected operating loss is $16.6 million, which computes to an operating margin per adjusted patient day of a negative $763. This is below the lowest value of a negative $18. Peer Group 14 data is derived from mature hospitals; this application is for a new acute care hospital and economies of scale will be realized as the projected occupancy rate increases. The applicant indicated that the Nemours Foundation will fund losses. Assuming the applicant will be able to meet its projected occupancy and payer mix assumptions, financial feasibility of CON numbers 9939, 9952 and 9953 appears likely.

e. Will the proposed project foster competition to promote quality and cost-effectiveness? ss.408.035(9), Florida Statutes. Competition to promote quality and cost-effectiveness is generally driven by the best combination of high quality and fair price. 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 competition would be limited to third-party payers that negotiate price for services, namely managed care organizations. The applicant is projecting that approximately 54 percent of its patient days are expected to come from managed care organizations. The highest level of managed care in the comparative group was 47.1 percent. The opportunity exists for price-based competition among approximately 54 percent of the applicants’ projected patient days for the hospital project. If realized, price-based competition could have a positive impact on quality and cost-effectiveness, if extenuating circumstances in the proposed service area are excluded from consideration. Staffing shortages, low utilization, the ability to add beds outside of CON review for facilities in this service area and the likelihood of duplication of services (and the resulting effects of duplication on quality and efficiency) with this proposal together indicate that the isolated economic model typically applied to evaluate likely effects of a proposal on competition cannot be applied in this instance.

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The applicant additionally contends that District 7 is subject to a “duopoly of ORHS and Florida Hospital, in both pediatrics and adult services,”31 and states that need exists for a competitive alternative in the market. Considering the utilization of services at existing facilities and the ability to add beds outside of CON review, as well as other factors such as the widely accepted existence of clinical staffing shortages, it is not clear that the applicant’s expectations of competitive results outweigh the likely results of aggravated staffing shortages, compromised ability to maintain innovative programs and/or quality standards, operational inefficiencies and duplication of services.

f. Are the proposed costs and methods of construction reasonable? Do

they comply with statutory and rule requirements? ss. 408.035(10), Florida Statutes; Ch 59A-3 or 59A-4 Florida Administrative Code.

The application is for a new 82-bed acute care hospital dedicated to children’s health care. This will be a new facility located in Orlando on Vineland Road in Orange County. The site is a 28-acre planned development site that will include, in addition to the hospital building, an outpatient building, medical office building, parking structure, and central energy plant for the hospital. The applicant proposes to construct a new 82-bed acute care hospital consisting of 381,232 GSF. The central energy plant is planned to be detached from the hospital and located adjacent to the medical office building. The room complement will be made up of all private rooms and have a bed configuration of 72 medical/surgical beds, 10 PICU beds, five Level II NICU beds and eight Level III NICU beds. The NICU and PICU rooms are located on the fifth floor, vertically above the surgical suite, which is located on the third floor. The requirement to provide at least 10 percent of the bedrooms to be handicapped accessible has not been clearly indicated on the plans, but will not be a problem because all of the rooms are much larger than required. This is an eight-story building with a basement. The patient tower comprises the top four floors of the facility. The functions of the proposed hospital are to be located in this eight-story facility of non-combustible construction that will be fully sprinklered and are defined as follows:


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• Basement Level – The basement level contains some clinical support spaces such as the laboratory, pathology and pharmacy. Materials management and bulk storage are also located here but the loading dock is located remotely from the building and is connected by a service tunnel. This tunnel also connects the central energy plant to the hospital and it is assumed that the major utilities serving this building will be brought through this tunnel too. The IT function of the facility and the food preparation area are also located in this basement. The food preparation area including kitchen, receiving, storage and dietary offices serves the dining area located on the second floor. It is unclear how this food will be supplied to the dining area on the second floor because the three service elevators also serving the surgical suite are remotely located from the dining area.

• There are four elevators that are shown to serve the kitchen directly

below the dining area and food court, but these elevators are the public elevators. It is unclear why these elevators terminate directly in the kitchen and food preparation area of the building.

• First floor – The first floor contains a multi-story main entrance lobby,

with four public elevators and covered drop-off area. Located on the opposite side of the facility is the ambulance and pedestrian entry to the emergency department so these functions are clearly separated. There is a waiting area for the emergency department and several trauma rooms. The emergency department is also located adjacent to the radiological department for fast and convenient access. There is also a gift shop and a Kids’ Health Exploratorium adjacent to the main lobby. Adjacent to outpatient radiology is a waiting area with an outside garden.

• The central energy plant is attached to this schematic plan near the

loading dock.

• Second Floor – The second floor opens in part to the lower lobby and waiting spaces and contains the dining area, food court and a large tiered auditorium. The egress from this assembly space may pose some life safety problems and there is an extended dead-end corridor at the dining area and elevator lobby. However, this can be redesigned at the schematic review stage. This floor also contains the administrative functions of the facility with teaching and class rooms.

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• Third Floor – The third floor is dedicated to surgical services and contains six operating rooms, central sterile, recovery, offices and family waiting areas. Some of this area has not yet been well defined so there are some circulation problems on part of the floor that can be resolved at the schematic stage review.

• Fourth Floor – The fourth floor is reduced in size from the lower floors

and contains services for speech and physical therapies. There is also a roof top garden on this level for meditation therapy.

• Fifth Floor – The fifth floor begins the patient rooms and contains the

NICU and PICU beds. It is vertically connected to the surgical suite below with the patient/staff elevators. The NICU is composed of all private rooms and appears to be well designed. Each room has direct visual control by the nurse who is taking care of the infants in those rooms. The PICU is also well designed to be functional and pleasing for both family and staff. There is a large family waiting area with family sleep room and family kitchen so that the families feel welcomed into the space. The public and staff areas are clearly separated and the circulation well thought out on this floor.

• Sixth Floor - Eighth Floor- These floors contain the medical/surgical

beds of 24 beds each and are each designed in a typical race track design with 12 beds in each half of the floor. The rooms are sized large enough to have family areas within the rooms to encourage families to become involved in the healing process. There is a large family lounge with play and activity areas, as well as a school class room. These floors seem to work well and to encourage family centered care and a healing environment.

The applicant states the construction will conform to all current applicable building codes, including the National Fire Protection Association codes and the requirements of the Florida Building Code. There are some problems associated with the vertical egress from the building and some circulation code problems in the building but these will be able to be resolved within the program of the building as designed. The application asserts the site is not within the 100-year flood plain or the category 3 surge inundation areas and has taken into consideration the hurricane requirements. The construction cost per square foot and per patient bed is much higher than other applicants recently reviewed and may have to do with the construction of a parking structure and the remote central energy plant.

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Another factor may be the facilities plan for LEED (Leadership in Energy and Environmental Design) certification, which often results in higher initial costs. These higher costs are offset by reduced lifecycle costs, which usually lead to an overall savings over the life of the building. The plans submitted with this application were very 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 in-depth 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. 408.035(11), Florida Statutes. Nemours is the sole District 7 applicant for a children’s hospital in this batching cycle and does not currently operate any hospitals in Florida. The applicant’s estimates of utilization by payer class are contained in Schedule 7A for the hospital project, excluding the associated NICU projections:

Payer Mix Projections for Year 2 of Proposed Hospital

Payer Percent of Total Medicaid 33% Medicaid HMO 16% Self Pay 6% All Commercial Insurance 5% Other Managed Care 38% Other Payers 2%

Source: CON Application 9953, Schedule 7A. Pediatric (17 and under) patient days by payer category for hospitals with NICU units in District 7 are shown in the table below for CY 2005:


Facility Medicaid/

Medicaid HMO Charity Total Arnold Palmer Hospital 53.87% 1.57% 55.44% Florida Hospital 47.69% 3.01% 50.70% Holmes Regional Medical 41.97% 1.86% 43.83% Osceola Regional Medical 48.38% 1.59% 49.97% Winter Park Memorial Hospital 38.94% 5.64% 44.58% Wuesthoff Medical-Rockledge 51.98% 0.00% 51.98%

Source: Florida Center for Health Information and Policy Analysis (FCHIPA), formerly the State Center for Health Statistics. The applicant’s proposed payer mix for Medicaid, Medicaid HMO and charity care is approximately equal to the provision by facilities in

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District 7 that currently operate a NICU unit. The applicant’s proposed condition of 50 percent combined Medicaid and charity care would place the proposed facility just under Arnold Palmer Hospital in terms of total Medicaid and charity provisions. Therefore, it does not appear that approval of the proposed project would increase access for Medicaid and charity patients in this area, since the existing providers with like services are providing similar levels of Medicaid and charity care as are being proposed by the applicant. The following table indicates the Medicaid/Medicaid HMO and charity provisions for patients 17 and under for the existing Class II children’s hospitals in Florida32:


Facility Medicaid/ Medicaid

HMO Charity Total All Children’s Hospital 51.07% 0.99% 52.06% Miami Children’s Hospital 50.54% 0.00% 50.54%

Source: Florida Center for Health Information and Policy Analysis (FCHIPA), formerly the State Center for Health Statistics. As seen in the table above, the condition proposed by the applicant is approximately equal to the provisions of existing Class II hospitals in the state. It is therefore not clear that the applicant’s proposal offers increased financial access for these groups. The applicant has additionally conditioned approval of the project to limiting the annual amounts it collects from the Medicaid program for hospital-based inpatient services in each fiscal year to the lesser of either the inpatient per diem rate that would be assigned to its hospital by the Florida Medicaid program, or the average of the Medicaid assigned rates to All Children’s Hospital and Miami Children’s Hospital. The applicant proposes a similar condition with regards to hospital-based outpatient services. Medicaid assigns individual inpatient per diem rates to each hospital, and as such, the proposed facility, if approved, would have a Medicaid assigned per diem rate independent of the rates for All Children’s Hospital and Miami Children’s Hospital. Payment for outpatient hospital visits is based on billable revenue codes and not on per visit rates. The applicant’s proposed conditions regarding Medicaid reimbursement are therefore unclear, and despite a similar finding in the State Agency Action Report for CON #9917, the applicant has not provided additional explanation. The applicant includes a copy of its financial assistance program in appendix O of volume II of the CON application, and states that it provides access to pediatric patients regardless of their financial status.

32 Shriner’s Hospital, the third Class II hospital in Florida, does not report this information to AHCA.

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The applicant states that it has historically subsidized shortfalls in operations of its clinics to ensure the physicians and services would remain available, and that since 1980 these subsidies have totaled $561 million, with $147 million of this dedicated to the Orlando clinic.

F. SUMMARY

The Nemours Foundation (CON #9953) is applying to establish an 82-bed class II children’s hospital in District 7. The applicant currently operates a children’s hospital in Wilmington, Delaware and four major children’s specialty outpatient centers. One of the outpatient centers is located in Wilmington, Delaware, and the other three are in the Florida cities of Jacksonville, Orlando and Pensacola. The applicant has submitted two additional applications for this batch to develop a five-bed Level II NICU (CON #9939) and an eight-bed Level III NICU (CON #9952) all at the same proposed location. The applicant agreed to condition an approval of the project to the following 21 provisions: 1. At least 50 percent of total patient days will be Medicaid/Medicaid

HMO or patients qualifying for charity care. 2. It will limit the annual amounts it collects from the Medicaid program

for hospital-based inpatient services in each fiscal year to the lesser of either the inpatient per diem rate that would be assigned to its hospital by the Florida Medicaid program, or the average of the Medicaid assigned rates to All Children’s Hospital and Miami Children’s Hospital. It will limit the annual amounts it collects from the Medicaid program for hospital-based outpatient services in each fiscal year to the lesser of either the outpatient per visit rate that would be assigned to its hospital by the Florida Medicaid program, or the average of the Medicaid assigned rates to All Children’s Hospital and Miami Children’s Hospital.

3. Two special programs would be established: a. An advisory board with child advocacy organizations; and, b. A special relationship with Medicaid to improve access to subspecialty care.

4. At least 50 full-time equivalent sub-specialist physicians will be added on the campus of Nemours’ Orlando Children’s Hospital (NOCH) within five years of opening.

5. The hospital will use computerized physician order entry. 6. There will be one seamless electronic medical record with coordination

of care between the inpatient and outpatient environments. 7. Patient centered rooms with video/audio screens will be available for

patients and providers, including:

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a. Electronic health records; and b. Connection to the internet for patient and family’s use.

8. Surgeons and surgical teams will be trained and certified in minimally invasive techniques.

9. A data warehouse for risk adjustment, long-term analysis and best practice determinations will be created.

10. The hospital will include a simulation laboratory to assist providers with cognitive and procedural skills.

11. An evidence-based clinical practice infrastructure would be created. 12. The internet would be used (kidshealth.org) to provide health

education to children. 13. The hospital will use the PEDI-QS, the National Pediatric Quality

Assurance System adopted by JCAHO to improve care and cooperate with national organizations.

14. The hospital will be completely wired and set up for monitored rooms to allow for surveillance and assistance in coordination of care.

15. Necessary resources and funding will be provided for: a. A community outreach program; b. Building alliances in the five-county region; c. Developing an educational program for child health promotion among minorities; and d. Involving youth in advocacy and peer to peer health promotion.

16. The applicant proposes to secure funding for seven sub-specialty programs.

17. A minimum of $3 million annually will be provided to clinical outcomes/clinical research.

18. Space dedicated to clinical research will be created. 19. A program to transport patients in need of specialized services from

other hospitals to NOCH will be provided. 20. A pediatric subspecialty physician group would be employed in the

Orlando market. 21. The applicant will subsidize any shortfalls in revenues over expenses.

The total project cost is estimated at $246,122,279 and involves $161,306,600 in construction costs and 362,480 gross square feet (GSF) of new construction.

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Need: The central point of the applicant’s need argument appears to be that its proposal presents a more efficient option of services already available in the area. Consolidation of existing services in one location is a primary point of the applicant’s efficiency contention, as is the applicant’s proposed use of an electronic medical record system. While these assertions might reinforce an applicant’s need argument in a service area that did not already provide pediatric services, it is not clear that these contributions would outweigh the likely effects of introducing an additional provider into an underutilized area that already offers these services, effects such as aggravated staffing shortages, compromised ability to maintain innovative programs and/or quality standards, operational inefficiencies and duplication of services. The applicant acknowledges recent difficulties staffing its existing Orlando clinic. Additionally, the proposal is not as efficient, centralized or “integrated” as the applicant contends. Transport of children would continue to be a necessity should this project be approved. As a children’s hospital, the applicant cannot admit expectant mothers. The applicant has two companion applications to establish NICU services within the proposed new hospital, and therefore expects that children born with complications would be discharged from admitting hospitals and transported to Nemours. Under the current system, Orlando Regional, Florida Hospital, and Shands (along with a number of other existing hospitals within the applicant’s proposed service areas), admit expectant mothers and offer services to newborns with complications. It is not clear that the applicant’s definition and understanding of “integrated” efficient services, which would separate a mother from her newborn if the baby has complications, is an improvement over a system that supports mother and newborn remaining together. This is not meant to suggest there is no place for children’s hospitals in the health care system, it is meant to illustrate why one of the applicant’s primary contentions that its project would improve the current delivery of services is flawed. During calendar year 2005, children were served by at least five existing Class I acute care facilities per district of the proposed service area, Districts 1, 2, 3, 4 and 7. Population growth rates projected for the five districts of the service area average to approximately equal the growth rate projected for the state. Stagnant utilization patterns at these Class I facilities, combined with the ability of these facilities (except for those

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located in “low growth” counties) to add beds without CON review indicate that existing capacity is sufficient to accommodate the modest population growth forecast for the proposed service area. Tertiary pediatric services provided by Class I hospitals outpaced tertiary pediatric services provided by Class II hospitals in recent years. Quality of Care: The applicant does not own or operate any hospitals in Florida. Quality points itemized by the applicant include an integrated electronic health record, remote home monitoring, a simulation laboratory for providers and the utilization of a teaching website. Available evidence indicates the applicant has the ability to provide quality care. The applicant has made representations that approving its project will bring a “top tier” children’s hospital to Florida. It is noted that nothing in the application strongly supports this claim. It is further noted that the Nemours-operated Alfred I. duPont Hospital in Wilmington, Delaware was not named as one of the 26 top children’s hospitals in the nation in 2006. Had it been, that naming would have supported the applicant’s claims. Medicaid/Charity Care: The applicant’s proposed payer mix for Medicaid, Medicaid HMO and charity care is approximately equal to the provision by facilities in District 7 that currently operate a NICU unit, as well as the provisions of existing Class II hospitals in the state. The applicant’s proposal would not likely offer increased financial access for Medicaid or charity patients. Financial/Cost: The applicant has an average short-term position and a good long-term position. Funding is likely to be available as needed. Financial feasibility is possible should the applicant’s assumptions regarding utilization be realized.

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Architectural: The food preparation area in the basement is located near three service elevators which open to the second floor at an area remotely located from the dining area. These elevators also serve the surgical suite. Public elevators terminate directly in the kitchen and food preparation area of the building. The egress from the assembly space on the second floor may pose life safety problems. There is an extended dead-end corridor on the second floor. The applicant states the construction will conform to all current applicable building codes. There are some problems associated with the vertical egress from the building and some circulation code problems in the building, but these could be resolved within the building as designed. The applicant states the site is not within the 100-year flood plain or the category 3 surge inundation areas and has taken into consideration the hurricane requirements. The construction cost per square foot and per patient bed is much higher than other applicants recently reviewed and may have to do with the construction of a parking structure and the remote central energy plant. Another factor may be the facilities plan for LEED certification, which often results in higher initial costs.

G. RECOMMENDATION

Deny CON #9953.

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AUTHORIZATION FOR AGENCY ACTION

Authorized representatives of the Agency for Health Care Administration adopted the recommendation contained herein and released the State Agency Action Report.

DATE: Karen Rivera Health Services and Facilities Consultant Supervisor Certificate of Need Jeffrey N. Gregg

Chief, Bureau of Health Facility Regulation

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