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STATE AGENCY ACTION REPORT

ON APPLICATION FOR CERTIFICATE OF NEED

A. PROJECT IDENTIFICATION

1. Applicant/CON Action Number

Kindred Hospitals East, LLC./CON #10200 680 South Fourth Street

Louisville, Kentucky 40202 Authorized Representative: Mr. Bud Wurdock

(502) 596-7718

2. Service District District 6 (Hardee, Highlands, Hillsborough, Manatee and Polk Counties)

B. PUBLIC HEARING

A public hearing was not held or requested regarding the establishment

of the proposed long-term acute care hospital within a hospital in District 6, Polk County.

Kindred Hospitals East, LLC submits 15 unduplicated letters of support for the project all signed and dated during August 21—October 1, 2013 (CON application #10200, Volume 1, Tab 1).

State Senator Kelli Stargel, District 15, writes “The Heart of Florida

Regional Medical Center is by far one of the most important facilities in our community and having Kindred Hospitals East, LLC partner with them to offer long-term acute care services will be a tremendous addition

to the health care services being offered in our community. It is imperative that they are given the support necessary to expand their

service delivery model. Their services are critical to our residents, and having a facility that can provide the acute long-term care requires is an absolute necessity”.

State Senator Denise Grimsley, District 21, writes that “Kindred Hospital’s commitment to the residents of Florida has been strong and I

applaud their willingness to invest their resources in Polk County”. She also states “This growing area, and in particular its senior population,

will benefit from having these important services”.

CON Action Number: 10200

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Three state representatives: Representative Neil Combee, District 39,

Representative Seth McKeel, District 40, and Representative John Wood, District 41, submitted letters stating that a long-term acute care hospital

is needed in Polk County. Representative Combee states that an LTCH “in Polk County will enhance our health care services, and offer patients and their families continuity of care and easy access to this important

resource”. Representative McKeel emphasizes that “the growing numbers of elderly patients in the community will benefit from the availability of such specialized care”. Representative Wood states that “the long-term

acute care hospital will initiate a level of care that does not currently exist in the east part of Polk County”.

Elaine Thompson, PhD, President and CEO, Lakeland Regional Health Systems, states that “the long-term acute care hospital will initiate a

level of care that does not currently exist in the Lakeland area and will be of great benefit to our hospital, our patients, and our community”.

Dr. Michael Boyer, D.O., Assistant Medical Director, Emergency Department Heart of Florida Regional Medical Center, reiterates the need

for LTCH services in Polk County, stating “the location of a long-term acute care facility in Polk County is essential towards decreasing the morbidity and mortality of the patients we serve”.

Four doctors practicing in Polk County submitted nearly identical letters

supporting the project: Manuel G. Jain, M.D., Aftab Khan, M.D. and Jacobo Noel Lama, M.D. and Ambica Soni, M.D. Reasons cited for support include the lack of currently available LTC services in this area

and the hardship outmigration places on patients and families. C. Jake Lambert, Jr. M.D., a doctor practicing in Polk County who

specializes in wound care, writes that due to the lack of long-term care services in Polk County “referral to facilities that are over an hour away

has resulted in all sorts of conflicts and problems…unfortunately, the ultimate outcome of these patients ends up in other physicians hands”. He contends that “some transfers have resulted in increased morbidity

and mortality due to what I perceive as loss of continuity of care”. Documentation of adverse outcomes was not provided and Dr. Lambert

states “I have worked with Kindred extensively with the patients that have gone to their facility and believe that Kindred has the concern and vision that long-term care patients need for successful outcomes and

recovery”. He indicates that he “would likely obtain privileges at (the) local (LTCH) facility and thus improve patient continuity of care.”

Lindsay John, M.D., Central Florida Infectious Diseases, LLC, detailed the need for a LTC facility in Polk County. Dr. John writes “Polk County

health care needs are served by the area’s five main hospitals situated in


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the cities of Lakeland, Bartow, Lake Wales, Winter Haven and Davenport. These hospitals are quite busy and all of them provide specialty services

and have busy ICUs that handle a variety of very complicated cases.” Dr. John describes the complications that arise from the lack of LTC

services in Polk County, and his positive relationship with Kindred as further evidence of project support.

Vipul Shah states that as Managing Partner of Advanced Care Hospitalists, PL, he is “all too familiar with scores of long-stay patients who would have benefited from (LTCH) care…if one were available in the

Haines City area. However, these patients rarely go to existing (LTCHs)…because of distance, reluctance to change physicians, or

medical instability that would make the transport too difficult”. H. Paul Senft, President, Haines City Economic Development Council,

states there is need for a long-term care facility in his area, where “Families and patients refuse the transfer due to geography and

transportation difficulties. Issues raised have included reluctance to change physicians, patient medical instability and facility distance for family to visit the patient. Due to unavailability of a facility in Haines

City, northeast Polk County area, the ultimate outcome of these patients resulted in increased morbidity and mortality due to the fact that the long-term care needed by the patients was not available”.

C. PROJECT SUMMARY

Kindred Hospitals East, LLC (CON #10200) proposes to establish a 29-bed long-term care hospital (LTCH) within a hospital in District 6.

The facility will be located within Heart of Florida Regional Medical Center, a 193-bed acute care hospital in Davenport in Polk County. The applicant’s parent company, Kindred Healthcare, Inc., is one of the

largest providers of post-acute health services in the United States with annual revenues of over $6 billion and approximately 72,000 employees in 46 states. Kindred Healthcare, Inc. operates 10 licensed long-term

care hospitals in Florida with a total of 747 licensed beds.

The proposed project involves 19,734 GSF of renovation. Total construction costs are estimated to be $4,299,038 with total project

costs of $9,217,403.

The applicant proposes to condition the project to the provision of a combined two percent of total patient days dedicated to Medicaid and charity care patients.


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D. REVIEW PROCEDURE

The evaluation process is structured by the certificate of need review criteria found in section 408.035, Florida Statutes. These criteria form

the basis for the goals of the review process. The goals represent desirable outcomes to be attained by successful applicants who demonstrate an overall compliance with the criteria. Analysis of an

applicant's capability to undertake the proposed project successfully is conducted by assessing the responses provided in the application, and independent information gathered by the reviewer.

Applications are analyzed to identify strengths and weaknesses in each

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

Chapter 59C-1.010(2)(b), Florida Administrative Code, allows no

application amendment information subsequent to the application being deemed complete. The burden of proof to entitlement of a certificate rests with the applicant. As such, the applicant is responsible for the

representations in the application. This is attested to as part of the application in the Certification of the Applicant.

As part of the fact-finding the consultant, Jessica Hand, analyzed the application in its entirety with consultation from financial analyst Felton

Bradley, Bureau of Central Services, who evaluated the financial data and Said Baniahmad of the Office of Plans and Construction, who reviewed the application for conformance with the architectural criteria.

E. CONFORMITY OF PROJECT WITH REVIEW CRITERIA

The following indicate the level of conformity of the proposed project with

the criteria and application content requirements found in Florida Statutes, sections 408.035, and 408.037 and applicable rules of the State of Florida, Chapter 59C-1 and 59C-2, and Florida Administrative

Code.

1. Fixed Need Pool

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

need pool? Ch. 59C-1.008, Florida Administrative Code.

Need is not published by the Agency for LTCH beds. It is the applicant’s

responsibility to demonstrate need.


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An LTCH is defined as a hospital licensed under Chapter 395, Florida Statutes, which meets the requirements of Title 42, subpart B, paragraph

412.23(e), Code of Federal Regulations (CFR); the provider must have an agreement under 42 CFR Part 489 and the facility must have an average

Medicare inpatient length of stay of greater than 25 days. In addition to meeting the condition of participation applicable to acute

care hospitals, as of 20071, LTCHs are now required to:

Have a patient review process that screens patients both before

admission and regularly throughout their stay to ensure appropriateness of admission and continued stay, although the law

does not specify the patient criteria to be used to determine appropriateness.

Have active physician involvement with patients during their treatment, with physician on-site availability on a daily basis to review

patient progress and consulting physicians on call and capable of being at the patient’s side within a period of time determined by the Secretary.

Have interdisciplinary treatment teams of health care professionals, including physicians, to prepare and carry out individualized

treatment plans for each patient.

MedPAC is a commission that makes recommendations to Congress and the Secretary of the federal Department of Health and Human Services (DHHS) regarding reimbursement for long-term hospital services.

Medicare is the primary payer for LTCH services—in 2011, Medicare spent $5.4 billion on care furnished in an estimated 424 LTCHs nationwide.2 Under the current reimbursement system, Medicare

reimburses LTCHs prospective per discharge rates based primarily on the patient’s diagnosis and the facility’s wage index.

MedPAC indicates that nationwide most chronically critically ill (CCI) patients are treated in acute care hospitals but a growing number are

treated in LTCHs. CCI patients are patients with clinically complex problems, such as multiple acute or chronic conditions, which need

hospital-level care for relatively extended periods. The highest single LTCH diagnostic related group [DRG] was respiratory system diagnosis with ventilator support for 96 or more hours in fiscal year 2011.

According to MedPAC, over the past decade, there has been marked growth in the number and the share of critically ill patients transferred

from acute care hospitals to LTCHs. However, some areas have no LTCHs, underscoring the fact that medically complex patients can be

1 As part of the Medicare, Medicaid and SCHIP Extension Act of 2007. 2 According to the MedPAC Report to the Congress: Medicare Payment Policy, March 2013.


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treated in other settings. The commission indicates that patients who can be appropriately treated in settings of lower acuity should not be

admitted to LTCHs—because the cost of care in LTCHs is so high. However, it was noted by MedPAC that LTCH care may have value for

very sick patients. While research has shown that Medicare pays more for patients using LTCHs than for similar patients in other settings, payment differences were not statistically significant when LTCH care

was targeted to the most severely ill patients. The commission has long held that payment for the same set of services

should be the same regardless of the treatment setting where services are provided to ensure beneficiaries receive appropriate high-quality care in

the least costly setting consistent with the patient’s clinical condition. The MedPAC report concludes that the commission is investigating ways to rationalize Medicare’s payments for CCI beneficiaries.

The commission cites its analysis of claims from 2010 found that in

markets where LTCHs are used most frequently, the average LTCH case mix was lower than in markets where LTCHs are used less often. In 2010, about 47 percent of acute care hospital discharges to LTCH cases

were patients who spent three or fewer days in the acute care hospital intensive care or cardiac care unit before discharge. MedPAC states that this raises concerns about the extent to which LTCH care is provided

unnecessarily.

MedPAC determined in its 2013 review, that Medicare accounts for about two-thirds of LTCH discharges. The commission determined that

between 2005 and 2008, growth in cost per case outpaced that for payments. Payments per case climbed 5.5 percent, more than twice as

much as the growth in costs between 2008 and 2009. This was due in part to congressional actions that halted or rolled back the implementation of CMS regulations designed to address overpayments to

LTCHs. Payment growth slowed to 1.6 percent between 2009 and 2011, while growth in costs increased less than one percent per year. In 2011, the Medicare margin for LTCHs was 6.9 percent and it is estimated that

LTCHs’ aggregate Medicare margin will be 5.9 percent in 2013. After its study, the commission concluded that LTCHs could accommodate the

cost of caring for Medicare beneficiaries in 2014 without an update to the payment rate.

Unlike most other health care facilities, LTCHs do not submit quality data to the Centers for Medicare and Medicaid Services (CMS). In the

absence of this data, MedPAC uses unadjusted aggregate trends in rates


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of in-facility mortality, mortality within 30 days of discharge and readmissions from LTCHs to acute care hospitals. It should be noted

that the Patient Protection and Affordable Care Act of 2010 mandates that CMS implement a pay-for-reporting program for LTCHs by 2014.

MedPAC considers a pay-for-reporting program to be a first step toward pay for performance.

The commission has recommended that CMS develop patient and facility criteria that could be used to define LTCHs and ensure that patients admitted to such facilities were medically complex and had a good

chance of improvement. On October 1, 2013, CMS intends to begin pay for reporting for three measures—urinary catheter-associated urinary

tract infections, central line catheter-associated bloodstream infections, and new or worsened pressure ulcers—and has begun collecting the necessary data from LTCHs. CMS will begin collecting data on two other

measures—the share of patients assessed for and appropriately given influenza vaccine and influenza vaccination coverage among health care

personnel on January 1, 2013 with pay for reporting on these measures beginning on October 1, 2015. The commission states that these quality measures are already in use in acute care hospitals and post-acute care.

However, additional measures need to be developed for the conditions that are commonly treated in LTCHs. CMS has stated that future measures could include rates of other health care-acquired infections,

such as ventilator-associated pneumonia and surgical site infections; avoidable adverse events, such as rehospitalizations, injuries secondary

to polypharmacy, and air embolism, and nursing care injuries.

There have been several provisions related to long-term care hospitals

passed from 2007-20103 and have been implemented. These include: A moratorium on new LTCHs and new beds in existing facilities,

which began on December 29, 2007 and ended on December 28, 2012.

The Secretary of the Department of Health and Human Services is prohibited from applying the 25 percent rule to freestanding LTCHs before cost-reporting periods beginning on July 1, 2012.4 Effective

October 1, 2013, implementation of the 25 percent rule for hospitals within hospitals and satellites, limits the proportion of Medicare

patients who can be admitted from a hospital within a hospital or a satellite’s host hospital during a cost-reporting period.

3 These provisions are part of the Medicare, Medicaid and SCHIP Extension Act of 2007 subsequently

amended in the American Recovery and Reinvestment Act of 2009 and the Patient Protection and

Affordable Care Act of 2010. 4 CMS established a 25 percent rule that uses payment adjustments to limit the percentage of Medicare patients who are admitted from a hospital within a hospital or satellite’s host hospital and

paid for at full LTCH payment rates.


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The Secretary implemented payment reductions for LTCH cases with the shortest lengths of stay effective December 29, 2012.

The Secretary is prohibited from applying any budget-neutrality adjustment to the current LTCH prospective payment system until

December 29, 2012. MedPAC indicates that the budget-neutrality adjustment in 2013 will decrease payments by about 3.75 percent over three years.

CMS is required to implement a pay-for-reporting program for LTCHs by 2014. The program should require LTCHs to report a specified list of quality measures—to be determined by CMS—each year in order to

receive a full update to Medicare payment rates in the ensuing year. As discussed above, CMS established a pay–for-reporting program

with data collection of three measures effective October 1, 2013. An annual update to the LTCH standard rate shall be reduced by a

quarter of a percentage point in 2010 and by half of a percentage

point in 2011. For rate years 2012-2019, any update shall be reduced by the specified productivity adjustment. Commission policy

changes include payment reductions required by the Patient Protection and Affordable Care Act of 1.1 percent in 2012 and 0.8 percent in 2013.

Despite the moratorium imposed in July 2007 on new LTCHs and new beds in existing LTCHs, the number of LTCHs filing Medicare cost

reports increased 9.3 percent (from 388 to 424 LTCHs) between 2008 and 2011—with most of the growth (23 of the 36 new LTCHs) taking

place in 2009. MedPAC found that beneficiaries’ use of services suggests that access has not been a problem since the moratorium was imposed. Controlling for the number of fee-for-service beneficiaries, the

commission found that the number of LTCH cases rose 2.8 percent between 2010 and 2011—suggesting that access to care increased during this period.

It is noted in the March 2013 MedPAC report that LTCHs are not

distributed evenly across the nation. Some areas have many LTCHs and others have none. The commission concludes that the absence of LTCHs in many areas of the country suggests that medically complex patients

can be treated appropriately in other settings—making it difficult to assess the need for LTCH care and, therefore, the adequacy of supply. In

fact, MedPAC’s analysis of LTCH claims from 2010 found that average case mix for LTCH admissions is lower in communities with the highest use of LTCHs compared with communities with the lowest use of LTCHs.

The commission states that these findings suggest that an oversupply of LTCH beds in a market may result in admissions to LTCHs of less complex cases that could appropriately be treated in less costly settings.


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Additionally, the commission questions the clustering of LTCHs in

certain markets as LTCHs are supposed to be serving unusually sick patients, a relatively rare occurrence. MedPAC states that an oversupply

of LTCH beds in a market may result in admission to LTCHs of less complex cases that could be appropriately treated in other, less costly settings. The commission also cites that there is little evidence that

patient outcomes in LTCHs are superior to those achieved in other settings.

MedPAC questions whether, now that the federal LTCH moratorium has ended, LTCH companies will act quickly to open new facilities or proceed

cautiously given the continued scrutiny of Medicare spending on LTCH care. Kindred Healthcare’s “cluster market” strategy, whereby the company operates SNFs, home health agencies, and LTCHs within a

single market in order to position itself as an integrated provider of post-acute is briefly addressed. MedPAC notes Kindred’s August 2012

purchase of IntegraCare, which provides home health and hospice care in 47 locations in Texas, indicates the intent of Kindred’s strategy is to improve the chain’s ability to control costs and limit the impact of

payment policy changes in any one industry. Kindred Hospitals East, LLC does not address Kindred’s provision of other post-acute services it provides in the service area.

The commission notes that it is important that potential patients that are

identified as medically complex should also be likely to benefit from a LTCH program, as some of the most severely ill medically complex patients are too sick for LTCH care or because their prognosis for

improvement is so poor. MedPAC states that other options may be better suited to these patient’s needs and may cost Medicare less.

Given the above, it is important that the determination of specific clinical complexity and clinical instability along with severity of conditions and

multi-morbidities of patients being served in LTCHs be identified and that the establishment of a LTCH does not represent a more costly and possibly duplicative post-acute care option. It is further important that

appropriate staff be identified and that sufficient patient volume based on need for services be demonstrated.


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b. Determination of Need.

In the absence of Agency policy regarding long-term care hospital beds and services, Chapter 59C-1.008 (2)(e), Florida Administrative

Code, provides a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule

criteria: a. Population demographics and dynamics;

b. Availability, utilization and quality of like services in the district, subdistrict or both;

c. Medical treatment trends; and d. Market conditions.

The existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict,

region or proposed service area. At present, there are 24 LTCHs with 1,398 beds licensed to operate in

the State of Florida. There are an additional 252 approved but not yet licensed LTCH beds.

The following table illustrates the distribution of approved, but not yet licensed LTCH beds in Florida.

Florida Approved-Not Yet Licensed Long-Term Care Hospital Beds

Hospital District Beds

Select Specialty Hospital Pensacola, Inc. 1 21

Select Specialty Hospital-Tallahassee Inc. 2 16

Select Specialty Hospital-Orlando (South Campus) 7 16*

Landmark Hospital of Southwest Florida, LLC (CON #10137) 8 50

Select Specialty Hospital - Lee, Inc. (CON #9715)*** 8 60

Kindred Hospital-South Florida-Coral Gables 11 5**

Select Specialty Hospital - Miami 11 24

Select Specialty Hospital - Dade, Inc. (CON #9892)*** 11 60

Total -- 252 Source: Florida Hospital Bed Need Projections & Service Utilization by District published 07/19/13.

Note: *This facility revised notification #120047 from 16 to 24 beds effective 2/28/13.

**Kindred licensed two of these beds on 9/17/13 and indicated it will not license the remaining three from notification #130007.

***Select Specialty sold these entities via 100% stock purchase to Promise Healthcare.

The average occupancy of Florida’s operational LTCHs was 66.21 percent for the CY 2012 reporting period. LTCH occupancy ranged from a low of

30.92 percent for Promise Hospital of Florida At The Villages (District 3) to a high of 96.24 percent for Select Specialty Hospital-Pensacola (District 1). The following chart shows statewide occupancy by year for

the past five years.


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Statewide LTCH Occupancy Calendar Years 2008 - 2012

Time Period Occupancy Rate Total Patient Days

CY 2008 57.79% 249,044

CY 2009 61.38% 280,727

CY 2010 62.03% 307,447

CY 2011 63.98% 320,965

CY 2012 66.21% 338,774 Source: Florida Hospital Bed Need Projections & Service Utilization by District published in July 2009-2013.

The service area for LTCH services is the district, not the county or any

one geographic section or part of a county, or even necessarily a cluster of counties. Planning District 6 is comprised of Hardee, Highlands, Hillsborough, Manatee and Polk Counties. Two facilities currently serve

this district, both located in Hillsborough County. Kindred Hospital-Bay Area-Tampa has 73 licensed LTCH beds with 53.77 percent occupancy,

and Kindred Hospital-Central Tampa has 102 licensed LTCH beds with 50.56 percent occupancy for CY 2012. District 6 had 175 licensed long-term care hospital beds during CY 2012, which averaged 51.90 percent

occupancy. Therefore, there were 84 LTCH beds available on any given day during CY 2012.

Population Demographics and Dynamics

The applicant states the service area for the proposed project includes Polk, Hardee, and Highlands Counties5, with a total population of 756,535 of whom 20.2 percent (152,897) are ages 65 and over. The

applicant submits and the reviewer confirms the following data:

Populations for 2013-2018

District 6 and Applicant’s Service Area Total Population Population Age 65+

County

7/1/2013

7/1/2018

Percent Change

7/1/2013

7/1/2018

Percent Change

Polk 627,881 694,880 10.7% 116,756 140,139 20.0%

Hardee 27,762 28,269 1.8% 3,737 4,092 9.5%

Highlands 100,892 107,509 6.6% 32,404 36,110 11.4%

Service Area Subtotal

756,535

830,658

9.8%

152,897

180,341

17.9%

Hillsborough 1,280,419 1,401,008 9.4% 161,190 192,933 19.7%

Manatee 336,432 365,171 8.5% 80,406 93,866 16.7%

District 6 Total 2,373,386 2,596,837 9.4% 394,493 467,140 18.4%

Source: CON application #10200, page 4, citing AHCA Population Estimates, February 2012 .

As shown in the preceding chart, the applicant expects total population

to increase 9.8 percent in the service area during the next five years, with a 17.9 percent increase in the population age 65 and over. District 6’s total population is expected to increase 9.4 percent, with an 18.4 percent

increase in the population age 65 and over. Kindred Hospitals East, LLC

5 District 6 includes Hillsborough and Manatee Counties as well, but the applicant specifies that these

three counties will be service area.


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indicates that 20.6 percent (152,897/756,535) of the service area’s population as of July 1, 2013, is age 65 and over. As shown above, the

service area age 65 and over population is projected to increase to 180,341 or 21.1 percent of the 830,658 total service area’s population by

July 1, 2018. Kindred contends that as a result of the increase in the senior

population, financial and capacity burdens on short-term acute care hospitals from long term care patients will increase. The applicant concludes that the three county service area’s growing senior population

and the absence of LTCH providers in the eastern portion of District 6 demonstrates there is “a substantial unmet need” for the proposed

project. Availability, Utilization and Quality of Like Services in the District

Long-Term Care Hospitals

As stated previously, two LTCHs exist in District 6, both in Hillsborough County. Kindred Hospital-Bay Area-Tampa has 73 licensed LTCH beds

with 53.77 percent occupancy, and Kindred Hospital-Central Tampa has 102 licensed LTCH beds with 50.56 percent occupancy for CY 20126. The applicant notes these facilities are geographically distant from the

cities of Lakeland (40 miles) and Winter Haven (60 miles), as well as the northern portions of Hardee and Highlands Counties. Due to the

distance, residents of the service area are often unwilling or unable to access LTCH services. The map below shows the location of the two existing District 6 LTCHs and the location of the proposed project at

Heart of Florida Medical Center:

6 The applicant states occupancy rates of 61 and 56 percent respectively for these facilities. However, the CY 2012 utilization cited by the reviewer is from the Agency Publication Florida Hospital Bed Need Projections & Service Utilization by District July 19, 2013.


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Kindred Hospitals East, LLC’s (CON application #10200) Proposed Site,

District 6 LTCHs and Other LTCHs Serving Polk, Highlands & Hardee Residents

Source: Microsoft® MapPoint® 2013

Below is the driving distance, in miles, from the proposed project to the four nearest existing LTCHs.

Kindred Hospitals East, LLC. (CON application #10200) to:

Driving Distance (in miles)

Select Specialty Hospital – Orlando (South Campus) 30.89

FL Hospital at Connerton Long Term Acute Care Hospital 66.91

Kindred Hospital – Central Tampa 60.31

Kindred Hospital – Bay Area - Tampa 66.39 Source: http://www.mapquest.com/.

Short-Term Acute Care Hospitals

The applicant states that short-term acute care hospitals are not ideal for the treatment of medically-complex patients, who often require a long

http://www.mapquest.com/


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and costly provision of care that can more affordably and effectively be provided in a LTCH. The chart below shows payment per day for

Medicare Fee for Service patients:

Source: CON application #10200, page 5.

As shown above, the highest medically complex patients experience the greatest financial savings in LTCH facilities.

Other Post-Acute Facilities

The applicant states post-acute facilities such as rehabilitation hospitals and skilled nursing facilities are not appropriate options for patients requiring long-term care. Per the applicant, comprehensive medical

rehabilitation (CMR) facilities require patients be able to tolerate 3-4 hours of therapy treatment daily, which medically fragile LTCH patients cannot withstand, and CMR patient care is managed by a physical

medicine specialist, instead of the pulmonologist, intensivist or internist required by patients in a LTCH.

Also per the applicant, skilled nursing facilities are not designed to provide the continuous monitoring required by medically unstable LTCH

patients, and are limited by Medicare to servicing patients whose continued medical improvement can be documented. The applicant

submits the following chart to compare differences between care providers.

$0.00

$500.00

$1,000.00

$1,500.00

$2,000.00

$2,500.00

$3,000.00

$3,500.00

$4,000.00

All Patients Long TermVentilatorPatients

Long TermVentilator

Patients with aTracheotomy

Short-Term CommunityHospitals

Long-Term Acute Care Hospitals


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LTCH Comparison to Rehab Hospitals and Skilled Nursing Facilities

Long-term Care Hospital

Rehab Hospital

Skilled Nursing Facility

License

Acute Hospital*

Rehabilitation Hospital

Skilled Nursing facility

Medicare Certification

Long-Term Hospital

Rehabilitation Hospital

Skilled Nursing Facility

Admitting Criteria

Meets acute criteria**

60% fall into case mix groups for rehab

Meets chronic care criteria

Length of Stay

An average stay is

approximately 25 days but may be shorter or longer depending on the patient’s needs

Typically 12-18 days

Typically: Medicare 35-40 days

HMO:10-15 days

Physician

Involvement

Daily visits by internists with multiple

medical subspecialties; consultation

Care directed by

physical medicine physician

Physician visits

weekly/monthly

Manage Critically Ill Patients

Yes, telemetry monitoring, intravenous

pressors, dialysis

No

No

Patient Characteristics

Typically after illness from respiratory

disease, stroke or infection; many

concurrent illnesses

Typically after knee, hip or back surgery or

after stroke or head injury (ortho/neuro)

Frequently requires therapy services to

increase mobility after uncomplicated ortho

surgery

Vent Weaning

Vent weaning-major focus; established

programs

Rare but vent weaning

possible in facilities with vent programs

Primarily maintenance rather than weaning

under Medicaid contracts

Respiratory Therapy 24-

hours/seven days in-house

Yes

No

No

Rehab Therapy

Approximately one hour

per patient day; range 0-3

Three hours per

patient day in at least two disciplines

Approximately 1.5 hours per patient day

in at least two disciplines

Source: CON application #10200, page 7. Note: * Rule 59A-3.252 (1)(a) F.A.C. notes the differences in Class I or general hospitals include long-term care hospitals, general acute care hospitals and rural hospitals.

** However, per Rule 59A-3.065 (34) F.A.C. the LTCH is have an average length of inpatient stay greater than 25 days for all beds.

Kindred Hospitals East, LLC states the goal of the proposed project is to

resolve or stabilize medically complex patients in order to ultimately discharge them to a lower level setting such as a skilled nursing facility,

rehabilitation hospital, or home.


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Medical Treatment Trends

The applicant states that LTCHs are an important part of the continuum of health care in the United States, with more than 500 LTCHs7 in

operation nationwide, supported by the following factors:

Federal recognition of LTCH’s via a separate certification category and

reimbursement system.

Short-term hospitals increasing need for discharge options for

medically complex long-term patients. Federal reimbursement changes make it financially unfeasible for most nursing facilities to

provide care to ventilator and other high acuity patients.

Increased awareness and understanding of long-term hospitals by

physicians, hospital discharge planners, and other medical professionals, especially a greater understanding of the benefits that long-term hospitals provide to their medically complex patients.

Kindred Hospitals East, LLC states that the proposed long-term care

hospital will meet the needs of patients in the eastern portion of District 6 by providing LTCH patients services, including:

Acute care for extended hospitalization

ICU and telemetry beds

Critical care trained nursing team

24/7 intensive respiratory care/ventilator weaning protocols

24/7 in house physician services

Daily physician rounds/multiple physician specialists

Full-service radiology

In-house pharmacy

Dialysis

Full-service laboratory and microbiology

Complex wound management/wound care specialist

Low-tolerance rehabilitation program (PT/OT/ST)

Nutrition support services

Case management/discharge planning

Social work services

Chaplain services

Surgical services

IV therapy

Pain management

Total Parenteral Nutrition (TPN) management.

7 MedPAC’s March 2013 report indicated there were 424 LTCHs used in its data analysis but some Medicare certified LTCHs may not have filed their cost report for CY 2011. The applicant’s “more than

500 LTCHs” statement cannot be verified.


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Per the applicant, medical conditions that warrant LTC hospitalization are those that require hospital services but do not heal rapidly or repair

quickly, often requiring a high level of monitoring and specialized care. The applicant discusses Kindred’s history as a provider of expert care for

the catastrophically ill, utilizing many types of therapy, interdisciplinary approach, and holistic approach to patient needs.

Intensive Care Unit Kindred Hospitals East, LLC states that LTCH patients are admitted to

the intensive care unit within the LTCH in order to provide a higher level of care required by some patients. The applicant provides examples of

patient conditions that will warrant ICU care, services that will be available at the proposed facility. Market Conditions

As previously discussed, two LTCHs currently exist in District 6 and are located in Hillsborough County, and are geographically distant from residents in Polk, Hardee and Highlands Counties, the eastern half of

District 6. The applicant cites letters from physicians in these counties as support for the need for LTCH services in this area. Finally, the applicant restates growing population trends that support need for

available LTCH services in Polk, Hardee, and Highland Counties. Bed Need Analysis

The applicant states LTCH bed need can be estimated directly based on

the acute care hospital and LTCH discharges and patient days generated by residents of a geographic area. The applicant analyzed Agency patient discharge data for all hospitals in Florida in CY 2012 in order to identify

the number of short-term acute care hospital patients and patient days which could potentially be served by the proposed LTCH project:

Long-Term Hospital Patient Criteria

The applicant details three patient characteristics that are considered when placing patients in LTCHs: diagnosis, age and length of stay.


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Diagnosis-LTCHs can treat a broad range of complex diagnoses,

however, patients assigned to diagnosis related groups (DRGs) in the major diagnostic categories below are not appropriate for LTCHs:

o 13-Female Reproductive System

o 14-Pregnancy, Childbirth and Puerperium (Postpartum) o 15-Newborns and Other Neonates

o 17-Myeloproliferative Disorders o 19-Mental Diseases and Disorders o 20-Alcohol and Substance Abuse

o 22-Burns o 23-Factors Influencing Health Status

o Organ Transplants.

Age-pediatric patients are excluded from LTCH analysis.

Length of Stay- expected length of stay for patients in short-term

acute care hospitals is measured using the national geometric

mean length of stay (GeoMean), which is calculated annually by the federal Centers for Medicare and Medicaid Services for each DRG. The applicant states analysis of the number of long-term

hospital patients and patient days is affected by the timing of referrals to an LTCH, which usually occurs after a patient’s length-of-stay in a short-term hospital has exceeded the average. Thus,

the analysis assumes that referral to the proposed Kindred Hospital will occur five days after a patient has passed their DRG-

specific expected GeoMean. The applicant states that in order to qualify for Medicare

certification as an LTCH, facilities must maintain an average length of stay of 25 days or greater for Medicare patients.

Admission criteria are used to minimize the number of patients requiring only a few days of care. Thus, the analysis assumed patients are considered appropriate for admission to an LTCH only

if they would have an LTCH length of stay of 15 days or more. In summary, for this analysis the applicant considers patients

appropriate for LTCH admission if they are:

Residents of District 6

18 years of age or older

Not assigned to one of the excluded DRGs

Have a short-term hospital length of stay that exceeds their DRG-

specific GeoMean length of stay by at least 20 days, i.e. referral period

(five days) plus LTCH minimum (15 days).


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Long-Term Care Hospital Bed Need

Planning District 6

Kindred Hospitals East, LLC applied the above analysis assumptions to District 6, stating that with 22 short-term acute care hospitals treating more than 258,000 non-OB related patients in CY 2012, there were

49,128 potential un-served long-term care hospital days provided in those facilities to residents of the planning district. The applicant indicates there were an additional 4,367 potential un-served LTCH days

produced by District 6 residents treated in short-term acute care hospitals elsewhere in Florida.

Combined, the potential un-served LTCH average daily census (ADC) is 146. Also, the applicant states that 1,407 District 6 residents received

LTCH services in CY 2012 with 42,491 LTCH days, which increases the potential ADC from 146 to 263. It is not clear that District 6 patients

who were discharged from LTCHs during CY 2012 are not also included in Kindred’s potentially un-served District 6 LTCH patient projections.

Kindred indicates that District 6 will have a 9.4 percent population increase during the next five years and when this growth is considered the potential ADC is 287. Therefore, with LTCH target occupancy at 85

percent, it is estimated that 338 LTCH beds will be needed to meet the needs of District 6 by 2018, an increase of 163 LTCH beds above the

existing 175 beds. Polk County Service Area As stated previously, the applicant identifies the service area for the proposed project is Polk, Highlands, and Hardee Counties. Currently no

LTCH beds exist in this area, with the nearest facilities located in Tampa, a drive of approximately 70 miles for residents in the northernmost

service area. Within these three counties, there are eight short-term acute care hospitals with more than 83,000 non-OB related patients annually.

The applicant applies the same analysis and assumptions to conclude

that during CY 2012 there were 12,547 potential un-served LTCH days provided in the eight short-term acute care facilities to residents of the service area, and an additional 4,987 potential un-served LTCH days

produced by service area residents treated at short-term acute care hospitals elsewhere in Florida. This results in an ADC of 48 patients.


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Also in CY 2012, 291 residents of Polk, Highlands, and Hardee (the applicant indicated Manatee, obviously in error) Counties received LTCH

services with 10,038 LTCH days, raising the ADC to 75 days. Again, it is not clear that patients that are served in an LTCH are not included in the

potential un-served patient projections. Kindred notes that the majority of the 291 service area residents

discharged from LTCHs in CY 2012, received LTCH care at its two District 6 facilities. Hospital discharge data for CY 2012, indicates that Kindred’s District 6 facilities accounted for 130 of the 233 total Polk

County LTCH resident discharges, 28 of Highlands County’s 54 total and one of the four Hardee County resident LTCH discharges. So, Kindred’s

two facilities discharged 54.64 percent (159/291) of the three county service area’s total during CY 2012. However, 132 patients or 45.36 percent of the service area patients who sought LTCH services were

treated in facilities located outside of District 6.

The applicant adjusts the ADC to reflect the anticipated 9.8 percent population increase during the next five years for the three service area counties, resulting in an ADC of 83. Adjusting for the target occupancy

of 85 percent, the applicant states 98 LTCH beds will be needed to meet the needs of Polk, Highlands, and Hardee Counties by 2018, far exceeding the 29 beds requested for this project.

As previously stated, there were 84 LTCH beds available on any given day

during CY 2012. Service area residents accounted for 10,038 LTCH patient days or a 28 patient ADC (10,038/366=27.43) in CY 2012. The applicant does demonstrate that 45.36 percent of the service area LTCH

patients were discharged from LTCHs not located in District 6. Kindred Hospitals East, LLC’s need projections do not make it clear that

patients served in existing LTCHs are not also counted in its projected potential un-served count. If existing LTCH patients are included in the

applicant’s potential un-served category, the applicant’s need projections are overstated. Kindred Hospitals East, LLC also does not address the 25 percent rule for LTCH admissions from the host hospital which could

impact projected need.

It is noted that the applicant’s need analysis cites the 9.8 percent projected population growth from July 1, 2013 to the July 1, 2018 and this is used in its projected bed need. Schedule 7 indicates that year one

of the project is CY 2015 and year two CY 2016 and Schedule 9 indicates the 29-bed facility will begin operation on February 2016. Therefore, it is not clear why the applicant chose to use July 1, 2018 population

estimates for the projected need.


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However, a reasonable capture of the LTCH patient out-migration (159 patients during CY 2012) could off-set the concern about the applicant’s

counting served patients in the potential un-served numbers, the 25 percent rule and the population projections used.

2. Agency Rule Criteria

The Agency does not currently have adopted preferences or Rule criteria relating to LTCHs.

3. Statutory Review Criteria a. Is need for the project evidenced by the availability, quality of care,

accessibility, and extent of utilization of existing health care facilities and health services in the applicant’s service area?

ss. 408.035 (1)(a) and (b), Florida Statutes. As previously stated, the applicant defines the project service area as

Polk, Hardee, and Highlands Counties in District 6. There are currently two LTCH’s in this district, both located in Hillsborough County, a distance of approximately 50-70 miles from major cities in Polk, Hardee,

and Highlands Counties.

Kindred Hospitals East, LLC states that existing skilled nursing facilities and other sub-acute providers in the service area do not have the capability to provide many of the services required by LTCH patients.

Further, when short-term acute providers care for LTCH patients, the result can be a financial burden to the provider and reduce available ICU beds needed for other patients.

Per the applicant, the proposed project will not compete with the sub-

acute and short-term acute care providers in the service area; instead, the proposed LTCH will integrate into a continuum of care promoting efficient use of area resources.

Kindred Hospitals East, LLC reviews the role LTCH’s play in Health

Reform, stating that the Affordable Care Act penalizes acute care hospitals with higher-than-expected readmissions rates, with the result that providers coordinate discharge and patient recovery plans in order

to maximize recovery potential. The applicant cites a CMS Report to Congress in support of LTCHs role

in lowering readmission rates, and states that since 2008, Kindred has reduced hospital readmissions from its LTCHs by 8.3 percent. The

applicant includes a copy of the “Kindred Healthcare 2012 Quality and


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Social Responsibility Report”, which provides some information about Kindred’s efforts to reduce hospital readmissions, in Volume 1, Tab 3 of

the application.

Kindred Hospitals East, LLC states that as the nation’s largest provider of diversified care across the full post-acute continuum, Kindred plays an active role in new health care technology implementation and policy

development.

b. Does the applicant have a history of providing quality of care? Has

the applicant demonstrated the ability to provide quality care? ss. 408.035 (1) (c), Florida Statutes.

Kindred Hospitals East, LLC states that all Kindred affiliated LTCHs are accredited by the Joint Commission, meet all conditions of participation

in Medicare, and are licensed and inspected by state regulatory authorities. The applicant also states that Kindred has operated LTCHs

in Florida for 20 years, demonstrating a long history of providing high quality long-term care hospital services throughout the state.

The applicant refers to the previously mentioned “Kindred Healthcare 2012 Quality and Social Responsibility Report”, as evidence of improving quality of care indicators, clinical outcomes, and customer satisfaction.

This document provides a brief description of Kindred Healthcare’s quality of care.

Kindred Healthcare, Inc., the parent company of Kindred Hospitals East, LLC, has 10 licensed hospitals in Florida with a total of 747 licensed

beds. Agency data obtained September 12, 2013 indicates that Kindred affiliated hospitals had 28 substantiated complaints during the previous 36 months. A single complaint can encompass multiple complaint

categories. The table below has these listed by complaint categories.

Kindred Healthcare Facilities

Substantiated Complaint Categories in the Past 36 Months Complaint Category Number Substantiated

Quality of Care/Treatment 12

Nursing Services 11

Resident/Patient/Client Assessment 6

Administration/Personnel 3

Resident/Patient/Client/Rights 3

Admission, Transfer & Discharge Rights 2

Infection Control 1

Resident/Patient/Client Abuse 1

Restraints/Seclusion General 1

Physical Environment 1

Dietary Services 1 Source: Agency for Health Care Administration complaint records.


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c. What resources, including health manpower, management personnel, and funds for capital and operating expenditures, are

available for project accomplishment and operation? ss. 408.035(1) (d), Florida Statutes.

The financial impact of the project will include the project cost of $9,217,403 and year two operating costs of $12,658,574.

The parent’s December 31, 2012, 10-K (Kindred Healthcare) was reviewed for the purpose of evaluating the applicant’s ability to provide

the capital and operational funding necessary to implement the project. The applicant indicated that its parent company, Kindred Healthcare,

Inc., would provide funding for this project. Short-Term Position

The parent’s 2012 current ratio of 1.5 is below average and indicates current assets are approximately one and a half times current liabilities,

an adequate position. The working capital (current assets less current liabilities) of $438.4 million is a measure of excess liquidity and is sufficient to cover the capital budget multiple times. The ratio of cash

flow to current liabilities of 0.3 is well below average and a weak position. Overall, the parent has a moderately weak short-term position (see Table 1).

Long-Term Position

The 2012 ratio of long-term debt to net assets of 1.6 is above average and indicates that long-term debt exceeds equity, a weak position. The ratio of cash flow to assets of 6.2 percent is below average and a weak

position. The most recent year had revenues in excess of expenses of negative $40.4 million, which resulted in a negative 0.7 percent operating margin. Overall, the parent has a weak long-term position (see Table 1).

Capital Requirements:

Schedule 2 indicates total capital projects of $11,612,355, which includes the CON subject to this review.

Available Capital: According to Schedule 3, funding for this project will be operating cash

flows from the applicant’s parent company, Kindred Healthcare, Inc. In support of its ability to fund the project, the applicant provided a letter

of financial commitment from the parent company and a copy of Kindred Healthcare, Inc.’s 10-k filing with the Securities and Exchange Commission. According to the audit, the parent has working capital

available of $438.4 million and cash flow from operations of $262.6 million. It appears that that the architectural plans for the hospital as

filed must undergo significant modifications to be acceptable. The effect


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on cost and scheduling is unknown and it is unclear if a material change in cost would impact the applicant’s decision to go forward. However,

the parent could fund a six fold increase in the capital budget through working capital alone and, therefore, would likely be able to fund this

project even if the cost increased materially.

TABLE 1

CON application #10200 Kindred Hospitals East

Kindred

Healthcare Kindred

Healthcare

12/31/12 12/31/11

Current Assets (CA) $1,273,766,000 $1,233,282,000

Cash and Current Investment $50,007,000 $41,561,000

Total Assets (TA) $4,237,946,000 $4,138,493,000

Current Liabilities (CL) $835,331,000 $848,923,000

Goodwill $1,041,266,000 $1,084,655,000

Total Liabilities (TL) $2,945,102,000 $2,817,952,000

Net Assets (NA) $1,292,844,000 $1,320,541,000

Total Revenues (TR) $6,181,291,000 $5,503,928,000

Interest Expense (Int) $107,896,000 $80,919,000

Excess of Revenues Over Expenses (ER) ($40,367,000) ($53,481,000)

Cash Flow from Operations (CFO) $262,562,000 $153,706,000

Working Capital $438,435,000 $384,359,000

FINANCIAL RATIOS

12/31/12 12/31/11

Current Ratio (CA/CL) 1.5 1.5

Cash Flow to Current Liabilities (CFO/CL) 0.3 0.2

Long-Term Debt to Net Assets (TL-CL/NA) 1.6 1.5

Times Interest Earned (ER+Int/Int) 0.6 0.3

Net Assets to Total Assets (NA/TA) 30.5% 31.9%

Operating Margin (ER/TR) -0.7% -1.0%

Return on Assets (ER/TA) -1.0% -1.3%

Operating Cash Flow to Assets (CFO/TA) 6.2% 3.7%

Staffing:

This project calls for the recruitment of 63.9 FTEs in the first year of operation, increasing to 92.0 FTEs in year two. Year one FTEs are as

follows: administration 29.6 FTEs, nursing 33.3 FTEs, ancillary services 9.3 FTEs, social services 2.0 FTEs, plant maintenance 1.0 FTE, and dietary, housekeeping and laundry will be contracted. Year two FTEs

show increases in nursing, 28.1 FTEs, and ancillary, 7.9 FTEs. The applicant provides a detailed description of senior staff member

positions, as well as a brief overview of recruitment and retention plans for new staff.


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Conclusion: Funding for this project and the entire capital budget should be available

as needed.

d. What is the immediate and long-term financial feasibility of the proposal? ss. 408.035(1) (f), Florida Statutes.

A comparison of the applicant’s estimates to the control group values provides for an objective evaluation of financial feasibility, (the likelihood that the services can be provided under the parameters and conditions

contained in Schedules 7 and 8), and efficiency, (the degree of economies achievable through the skill and management of the applicant). In

general, projections that approximate the median are the most desirable, and balance the opposing forces of feasibility and efficiency. In other words, as estimates approach the highest in the group, it is more likely

that the project is feasible, because fewer economies must be realized to achieve the desired outcome.

Conversely, as estimates approach the lowest in the group, it is less likely that the project is feasible, because a much higher level of

economies must be realized to achieve the desired outcome. These relationships hold true for a constant intensity of service through the relevant range of outcomes. As these relationships go beyond the

relevant range of outcomes, revenues and expenses may, either, go beyond what the market will tolerate, or may decrease to levels where

activities are no longer sustainable. The applicant will be compared to hospitals in the long-term acute care

group (Group 12). An intensity factor for comparative purposes of 1.3548 was calculated based on the average length of stay for all long-term care hospitals in the group. This methodology is used to adjust the

group values to reflect the intensity of the patient as measured by case mix index. Per diem rates are projected to increase by an average of 2.7

percent per year. Inflation adjustments were based on the CMS Market Basket, 2nd Quarter, 2013. Gross revenues, net revenues, and costs were obtained from Schedules 7 and 8 in the financial portion of the

application and compared to the control group as a calculated amount per adjusted patient day.

Medicare requires a six-month period (demonstration period) before a hospital is eligible for reimbursement under the LTCH PPS. This period

is required to demonstrate a minimum 25-day average length of stay.


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During the demonstration period the hospital is reimbursed at the acute care rate. Only the 2nd year of operation will be considered for

comparison with the control group because the hospital will be operating at acute care reimbursement rates during the first six months of

operations, thereby distorting net revenues when compared to the control group.

Projected net revenue per adjusted patient day (NRAPD) of $1,610 in year two is between the control group’s median and lowest values of $1,755 and $769. With net revenues between the control group’s lowest and

median values, net revenues appear to be reasonable (see Table 2).

Anticipated costs per adjusted patient day (CAPD) of $1,559 in year two is between the control group lowest and median values of $670 and $1,662. With projected cost between the lowest and median level, costs

appear reasonable (see Table 2). The applicant is projecting a decrease in CAPD between year one and year two from $2,428 to $1,559, or 55.8

percent. It should be noted that this application is for a new facility. The first year of operation has a below average occupancy rate. The low occupancy rate decreases economies of scale and as the occupancy rate

increases, CAPD would be expected to decrease. The year two projected operating income for the project of $414,834

computes to an operating margin per adjusted patient day of $51, or 3.2 percent, which is between the control group lowest and median values of

negative $228 and $67. With operating margin between the control group’s lowest and median values, operating margin appears reasonable (see Table 2).

Conclusion: Assuming the applicant will be able to obtain funding for the project, the 29-bed long-term care hospital appears to be financially

feasible.


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TABLE 2

Kindred Hospitals East CON application #10200 Dec-16 YEAR 2

VALUES ADJUSTED

2011 DATA Peer Group 12 YEAR 2 ACTIVITY

FOR INFLATION

ACTIVITY PER DAY

Highest Median Lowest

ROUTINE SERVICES 66,020,717 8,130

2,809 1,705 686

INPATIENT AMBULATORY 0 0

8 0 0

INPATIENT SURGERY 0 0

0 0 0

INPATIENT ANCILLARY SERVICES 0 0

7,439 4,275 1,305

OUTPATIENT SERVICES 0 0

9 0 0

TOTAL PATIENT SERVICES REV. 66,020,717 8,130

10,250 6,025 1,992

OTHER OPERATING REVENUE 0 0

13 3 0

TOTAL REVENUE 66,020,717 8,130

10,251 6,029 1,992

DEDUCTIONS FROM REVENUE -52,947,307 -6,520

0 0 0

NET REVENUES 13,073,409 1,610

2,220 1,755 769

EXPENSES ROUTINE 3,841,207 473

559 456 205

ANCILLARY 3,177,586 391

579 415 233

AMBULATORY 0 0

0 0 0

TOTAL PATIENT CARE COST 7,018,793 864

0 0 0

ADMIN. AND OVERHEAD 3,421,902 421

0 0 0

PROPERTY 1,272,340 157

0 0 0

TOTAL OVERHEAD EXPENSE 4,694,242 578

1,440 843 232

OTHER OPERATING EXPENSE 945,540 116

0 0 0

TOTAL EXPENSES 12,658,575 1,559

2,532 1,662 670

OPERATING INCOME 414,834 51

268 67 -228

3.2%

PATIENT DAYS 8,121 ADJUSTED PATIENT DAYS 8,121 TOTAL BED DAYS AVAILABLE 10,614

VALUES NOT ADJUSTED

ADJ. FACTOR 1.0000

FOR INFLATION

TOTAL NUMBER OF BEDS 29

Highest Median Lowest

PERCENT OCCUPANCY 76.51%

95.1% 66.3% 43.0%

PAYER TYPE PATIENT DAYS % TOTAL SELF PAY 0 0.0%

MEDICAID 81 1.0%

8.5% 1.2% 0.0%

MEDICAID HMO 0 0.0% MEDICARE 4,873 60.0%

90.8% 62.4% 47.4%

MEDICARE HMO 0 0.0% INSURANCE 3,086 38.0% HMO/PPO 0 0.0%

50.8% 32.9% 5.0%

Charity Care 81 1.0% TOTAL 8,121 100%


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e. Will the proposal foster competition to promote quality and cost-

effectiveness? ss. 408.035(1) (e) and (g), Florida Statutes.

Competition to promote quality and cost-effectiveness is driven primarily by the best combination of high quality and fair price. Competition forces entities to ultimately increase quality and reduce charges/cost in

order to remain viable in the market. The health care industry has several factors that limit the impact competition has to promote quality and cost-effectiveness. These factors include a disconnect between the

payer and the end user of health care services as well as a lack of consumer friendly quality measures and information. These factors

make it difficult to measure the impact this project will have on competition to promote quality and cost-effectiveness. However, we can measure the potential for competition to exist in a couple of areas.

Provider-Based Competition:

The applicant is applying to establish a 29-bed long-term care hospital in District 6. There are two existing long-term care hospitals in District 6 and none in Polk County to which the applicant is applying. There are a

total of 175 long-term care beds in District 6. Therefore, this project would increase the number of licensed beds by 16.6 percent. However, Kindred Healthcare, Inc. is and would remain the parent of all District 6

LTCHs.

Price-Based Competition: The impact of the price of services on consumer choice is limited to the payer type. Most consumers do not pay directly for hospital services.

Rather, they are covered by a third-party payer. The impact of price-based competition would be limited to third-party payers that negotiate price for services, namely managed care organizations. Therefore, price

competition is limited to the share of patient days that are under managed care plans. The applicant is projecting approximately 39

percent of its patient days from insurance and charity and approximately 61 percent of patient days expected to come from fixed price government payer sources (Medicare and Medicaid) (Table 2).

Conclusion: Provider-based competition will not increase as the

applicant’s parent, Kindred Healthcare, operates the two existing LTCH facilities in the district.


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f. Are the proposed costs and methods of construction reasonable? Do they comply with statutory and rule requirements? ss. 408.035(1)

(h), Florida Statutes; Ch. 59A-3, Florida Administrative Code.

The Kindred LTCH will involve 19,734 gross square feet of renovation on the first and second floors of Heart of Florida Regional Medical Center. The construction type of the existing building is not listed on the plans or

the narrative. Although not specified by the submission, it is assumed the building will be fully sprinklered to meet the minimum codes and standards.

The first floor will contain the administration and business office support

areas. The second floor will contain 23 LTCH beds and six critical care unit beds. All 23-bed LTCH patient rooms, including the six-bed CCU unit are private and as indicated on the plans exceed the minimum size

requirements of the Guidelines for Design and Construction of Health Care Facilities. Each patient room (except CCU rooms) has a private

toilet room with a lavatory and shower. It appears that more than 10 percent of the new bedrooms have been made accessible to comply with the Florida Building Code-Accessibility requirements.

The plans provide all the required support spaces, such as nurse stations, soiled utility, clean utility, nourishment room, medication room,

staff lounge/locker and toilets. All of these spaces appear to be adequately sized and positioned within the unit. There is also a

respiratory therapy room, laboratory and pharmacy located on this level. There are several support services that will be provided by the host hospital such as storage, imaging, waiting and lobby, public restrooms,

dietary services, linen services, body hold, and material delivery. Plans show one isolation room in the CCU unit. There is no indication of

an isolation room in the medical/surgical unit. A minimum of one isolation room is needed to be in compliance with the Guidelines for

Design and Construction of Health Care Facilities. In addition, a multi-purpose room is required within the unit.

The second floor patient care area must be within smoke compartments and be separated by smoke barriers as required by FBC, and NFPA 101;

but the separation as shown on the plans is by suite and one hour fire rated walls.

The narrative and plans provide a partial list of applicable codes including NFPA Life Safety Code and the Florida Building code. A

complete listing of applicable codes and dates of the codes will be required for future submissions.


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The design as presented has some deficiencies, and modifications will be needed to meet current code requirements, but the physical constraints

of the spaces should accommodate these changes.

The construction cost as submitted on Schedule 9 is incomplete. The plans submitted with this application were schematic in detail with

the expectation that they will necessarily be revised and refined during the Design Development (Preliminary) and Contract Document Stages. The architectural review of the application shall not be construed as an

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(1) (i), Florida Statutes. Kindred Hospitals East, LLC proposes to condition approval of the

proposed 29-bed long-term care hospital-within-a-hospital to the provision of a combined two percent of total patient days dedicated to Medicaid and charity patients.

The applicant’s Schedule 7 projects 1.1 percent for Medicaid and 0.9

percent charity care in year one (CY 2015), and 1.0 percent each to Medicaid and charity care in year two (CY 2016) of the project.

F. SUMMARY

Kindred Hospitals East, LLC (CON #10200) proposes to establish a 29-bed long-term care hospital within a hospital in District 6. The

facility will be located within Heart of Florida Regional Medical Center, a 193-bed acute care hospital in Davenport in Polk County.

The proposed project involves 19,734 GSF of renovation. Total

construction costs are estimated to be $4,299,038 with total project costs of $9,217,403.

The applicant proposes to condition the project to the provision of a combined two percent of total patient days dedicated to Medicaid and

charity care patients.


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After weighing and balancing all applicable review criteria, the primary issues are summarized below:

Need:

Need is not published by the Agency for LTCH beds.

District 6 had 175 licensed LTCH beds with a reported occupancy of 51.90 percent during CY 2012. Two facilities currently serve this

district, both located in Hillsborough County. Kindred Hospital-Bay Area-Tampa has 73 licensed LTCH beds with 53.77 percent occupancy, and Kindred Hospital-Central Tampa has 102 licensed LTCH beds with

50.56 percent occupancy for CY 2012.

The applicant contends that need for the project is demonstrated by the number of Polk, Highlands and Hardee County residents discharged from LTCHs during CY 2012, the projected 9.8 percent total population growth

for these counties from 2013 to 2018, no LTCH beds in the three county service area and the existence of just two LTCH providers in District 6.

Kindred Hospitals East, LLC’s bed need analysis concludes that 98 LTCH beds will be needed to meet the needs of Polk, Highlands, and Hardee

Counties by 2018, far exceeding the 29 beds requested for this project. However, Kindred’s bed need analysis does not address the 25 percent rule for LTCH admissions and it is not clear that the applicant also

includes CY 2012 LTCH patients in its potentially un-served patient estimate. However, a reasonable capture of the LTCH patient out-

migration (132 patients during CY 2012) could off-set these concerns. Service area residents accounted for 291 LTCH discharges and 10,038

LTCH patient days or a 28 patient ADC in CY 2012. Of these 291 service area LTCH patients, 132 or 45.36 percent were treated in LTCHs located outside of District 6.

Quality of Care:

Kindred Hospitals East, LLC states it has operated LTCHs in Florida for 20 years, demonstrating a long history of providing high quality long-

term care hospital services throughout the state.

Kindred Hospitals East, LLC states that the hospital will meet Kindred Healthcare Inc.’s quality standards, all Kindred hospitals are accredited by the Joint Commission and all participate in a number of quality and

patient safety initiatives.


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Kindred Healthcare Inc., has 10 licensed LTCHs in Florida with a total of

747 licensed beds. Agency data obtained September 12, 2013 indicates that Kindred affiliated hospitals had 28 substantiated complaints during

the previous 36 months. Medicaid/charity care:

Kindred Hospitals East, LLC proposes to condition the project to the provision of two percent of the 29-bed facility’s total annual patient days

to Medicaid and charity care patients.

Cost/Financial Analysis: Assuming the applicant will be able to obtain funding for the project, the

29-bed long-term care hospital appears to be financially feasible.

Funding for this project and the entire capital budget should be available as needed.

Provider-based competition will not increase as Kindred is the only licensed LTCH provider in District 6.

Architectural Analysis:

The Kindred LTCH will involve 19,734 gross square feet of renovation on the first and second floors of Heart of Florida Regional Medical Center.

The design as presented has some deficiencies, and modifications will be needed to meet current code requirements, but the physical constraints of the spaces should accommodate these changes.

The construction cost as submitted on Schedule 9 is incomplete.

G. RECOMMENDATION:

Approve CON #10200 to establish a 29-bed long-term care hospital

within a hospital in District 6. The total project cost is $9,217,403. The project involves 19,734 GSF of renovation and a total construction cost of $4,299,038.

CONDITION: A minimum of two percent of the 29-bed facility’s total annual patient days shall be provided to Medicaid and charity care

patients on a combined basis.


33

AUTHORIZATION FOR AGENCY ACTION

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

DATE:

James B. McLemore

Health Services and Facilities Consultant Supervisor Certificate of Need

Jeffrey N. Gregg Director, Florida Center for Health Information and Policy Analysis

state agency action report on application … · state agency action report on application for...

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