STATE OF FLORIDA DIVISION OF ADMINISTRATIVE HEARINGS

VITAS HEALTHCARE CORPORATION OF CENTRAL FLORIDA, INC., Petitioner, vs. AGENCY FOR HEALTH CARE ADMINISTRATION AND HOSPICE OF THE PALM COAST, INC., Respondents.

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Case No. 04-3858CON

RECOMMENDED ORDER

This cause came on for formal hearing before Robert S.

Cohen, Administrative Law Judge with the Division of

Administrative Hearings, on January 31, and February 1, 3,

and 4, 2005, in Tallahassee, Florida.

APPEARANCES For Petitioner Vitas Healthcare Corporation of Central

Florida, Inc.,:

Geoffrey D. Smith, Esquire Susan C. Hauser, Esquire Blank, Meenan & Smith, P.A. 204 South Monroe Street Tallahassee, Florida 32301 For Respondent Agency for Health Care Administration:

Kenneth Gieseking, Esquire Agency for Health Care Administration Fort Knox Building, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308

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For Respondent Hospice of the Palm Coast, Inc.,:

Thomas F. Panza, Esquire Deborah S. Platz, Esquire Panzer, Maurer & Maynard, P.A. 3600 North Federal Highway, Third Floor Fort Lauderdale, Florida 33308

STATEMENT OF THE ISSUE

Whether the Certificate of Need application of Hospice of

the Palm Coast to establish a new hospice program (CON Action

No. 9798) in AHCA Hospice Service Area 11 (Miami-Dade and Monroe

Counties) should be approved.

PRELIMINARY STATEMENT

On April 9, 2004, the State of Florida, Agency for Health

Care Administration ("AHCA" or the "Agency"), published its

fixed need pool ("FNP") projections for additional hospice

programs for the 2004-first batching cycle. A FNP for one

additional hospice program was projected and published for

Hospice Service Area 11. Hospice Service Area 11 comprises

Miami-Dade and Monroe Counties and currently has six existing

hospice providers.

On April 26, 2004, Hospice of the Palm Coast, Inc. ("Palm

Coast" or the "Applicant") timely filed a Letter of Intent

("LOI") for the establishment of a new hospice program in

Hospice Service Area 11. On May 26, 2004, Palm Coast timely

filed an initial Certificate of Need ("CON") Application, and on

June 30, 2004, filed its omissions response for the

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establishment of a new hospice program in Hospice Service Area

11. That application was assigned CON Action No. 9798.

Pursuant to the Agency's State Agency Action Report

published on the AHCA website on August 27, 2004, and the

subsequent notice published in the Florida Administrative Weekly

on September 10, 2004, the Agency announced its intent to

approve Palm Coast's application for CON No. 9798 for the

establishment of an additional hospice program in Hospice

Service Area 11.

On September 30, 2004, VITAS Healthcare Corporation of

Florida ("VITAS"), an existing provider of hospice services in

the same service area, filed a Petition for a Formal

Administrative Hearing to challenge the preliminary approval of

the Palm Coast CON Application. The Agency referred the

Petition to the Division of Administrative Hearings for

assignment to an Administrative Law Judge to conduct all

proceedings required by law. The case was assigned Case

No. 04-3858CON, and Robert S. Cohen was designated as the

Administrative Law Judge to conduct the proceedings.

At the final hearing, Palm Coast called the following

witnesses: Deborah Ann Hoffpauir, an expert in hospice

operations; Kathleen Ventre, an expert in hospice nursing and

clinical affairs; Doug Cannon, an expert in health care finance;

Brenda Belger, an expert in human resources; Blanca Victoria

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Cathelinaud, an expert in hospice care and operation; Mark M.

Richardson, an expert in health care planning; Rick Knapp, an

expert in health care accounting and finance; and Robert Sarna.

Palm Coast offered and had admitted into evidence, Palm Coast

Exhibit Nos. 1 through 41, with the exception of Exhibit

Nos. 28, 33, and 36, which were not admitted. These exhibits

included the deposition testimony of Kathy Ventre,

Brenda Belger, Doug Cannon, Deborah Hoffpauir, Rick Knapp, and

Mark Richardson.

The Agency for Health Care Administration called Jeffrey N.

Gregg, Bureau Chief of the Office of Certificate of Need and

Financial Analysis. AHCA Exhibit Nos. 1 and 2 were offered and

admitted into evidence.

VITAS called the following witnesses: Deirdre Law, an

expert in hospice nursing, hospice management and operations;

Sarah McKinnon, an expert in hospice education, including the

psychosocial aspects of death and dying, and in bereavement

services; Brian Payne, an expert in hospice management and

operation with a specialization in business development for

hospice; Freddie Negron, M.D., an expert in the field of

medicine with specialization in hospice care; Patricia

Greenberg, an expert in health care planning and health care

finance with a subcomponent in hospice planning; and

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John Williamson, an audit review analyst for AHCA. VITAS

offered Exhibit Nos. 1 through 17, all of which were admitted

into evidence.

A Transcript of the Final Hearing was filed on February 28,

2005. After the hearing, Petitioner and Respondent (jointly

with AHCA) filed Proposed Findings of Fact and Conclusions of

Law on May 6, 2005.

References to statutes are to Florida Statutes (2004)

unless otherwise noted.

FINDINGS OF FACT

THE PARTIES

The Agency for Health Care Administration

1. AHCA is the single state agency responsible for

administering the Certificate of Need program, and for licensing

hospices and other programs and facilities pursuant to the

authority of the Health Facilities and Services Development Act,

Sections 408.031 - 408.045, Florida Statutes.

2. In performing these duties, AHCA determines, on a semi-

annual basis, the net numeric need for new hospice programs.

The Agency publishes such need in the Florida Administrative

Weekly.

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Hospice of the Palm Coast, Inc.

3. Hospice of the Palm Coast, Inc., is a not-for-profit

Florida corporation, developed for the purpose of establishing

hospice programs in Florida.

4. Palm Coast is a wholly-owned subsidiary of Odyssey

Healthcare Corporation (Odyssey"), a for-profit and publicly

traded corporation.

5. Odyssey is one of the largest for profit providers of

hospice service in the United States, operating 74 hospice

programs in 29 states. Odyssey has successfully implemented

start-up hospices in other states. While Odyssey currently has

no hospice operations in Florida, it is in the process of

seeking licensure and certification for a new hospice program in

Volusia County. The Volusia County program employed Odyssey's

rapid start-up model.

6. Palm Coast complies with all of Florida's not-for-

profit corporation laws and filing requirements and meets the

definition of a "corporation not for profit" contained in

Chapter 617, Florida Statutes. Palm Coast has its own Articles

of Incorporation and By-Laws; has its own audited financial

statements; and has its own managing board.

7. Palm Coast will have its own bank account into which

all of its revenues and out of which all of its expenses will be

paid. If Palm Coast has a positive cash flow from its

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operations, those funds will stay with Palm Coast to be used for

patient care and operations. Palm Coast will comply with all

Florida not-for-profit laws relating to surplus funds.

8. Odyssey has experienced compliance issues with respect

to some of its hospice programs in other states. In five of its

programs, Odyssey has exceeded Medicare "cost caps" that limit

the total number of eligible days that a hospice program may

bill the federal government for reimbursement. In addition,

several of Odyssey's programs have been found not to meet

certain Medicare "conditions of participation" due to

significant operational deficiencies. All of these "conditional

level" deficiencies have been corrected.

9. Odyssey has recently received notification from the

Department of Justice ("DOJ") of an investigation into the

manner in which it provides hospice services. As a result,

Odyssey made the required Securities and Exchange Commission

("SEC") filings to notify the public of the pending DOJ

investigation as a "significant event."

10. A class action lawsuit is also currently pending

against Odyssey by some of its shareholders and investors who

allege that the company admitted hospice patients who were not

eligible for Medicare, but that claims were submitted that they

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were so eligible for Medicare. As a result, Odyssey's financial

results were materially inflated due to its exceeding Medicare

"cost caps."

11. Recent changes have occurred at the senior management

level within Odyssey, including the resignation of its Chief

Executive Officer in late 2004, and the termination of its

Executive Vice President of Marketing in January 2005.

12. Since the announcement of the DOJ investigation and

the class action lawsuit, Odyssey's stock value has fallen from

about $19.00 a share to $13.00, a decline termed "material" by

the company's Chief Financial Officer.

VITAS Healthcare Corporation of Florida

13. VITAS Healthcare Corporation, a for-profit entity, is

the largest provider, in terms of patient days, in the United

States. It is currently in 12 states with 32 licensed programs

serving an average daily census of 9,000 nationally.

14. VITAS currently has two for-profit entities operating

in Florida: VITAS-Florida and VITAS Healthcare Corporation of

Central Florida. Collectively, these two operating entities

have five licensed for-profit hospices in Florida.

15. VITAS is the only for profit hospice provider allowed

to operate in Florida pursuant to special exemption language

contained in Section 406.602(5)-(6), Florida Statutes.

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16. VITAS currently operates hospice programs in Districts

11 (Miami-Dade and Monroe Counties), 10 (Broward County) and 9

(Palm Beach County).

17. In addition to the VITAS hospice program in District

11, five other hospice programs are currently licensed in Miami-

Dade and Monroe Counties. None of these five programs

intervened or participated in these proceedings.

18. All of VITAS' hospice programs are in full compliance

with Medicare conditions of participation, and none of its

programs have exceeded Medicare "cost caps."

19. The VITAS program has been in Miami-Dade County for 28

years, and was the first VITAS program in the country, having

been initiated by Hugh Westbrook, a Methodist Minister, and

Ester Colliflower, a nurse with an oncology background. Both

were professors at Miami-Dade Community College where they

offered courses on death and dying issues, and were early

pioneers in the hospice movement.

20. VITAS was instrumental in the development of hospice

licensure standards in Florida, and in the establishment of

federal Medicare benefits for hospice services.

21. VITAS has been a leader in hospice research and

development, and has created pain management tools and hospice

care manuals that are widely used among hospice providers around

the nation. For example, VITAS developed the Missoula-VITAS

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quality of life index, which is licensed and used by over 125

hospices nationwide. The publication "20 Common Problems in End

of Life Care" was authored by VITAS employees and is considered

a standard teaching textbook for delivery of hospice care.

HOSPICE CARE

22. Hospice care is a medically coordinated group of

services that is designed for patients who are terminally ill,

having a life expectancy of less than six months. The patient's

and family's needs are multi-dimensional and include physical,

emotional, spiritual, financial, and social care. Hospice care

includes physician-directed medical care, nursing services,

social work services, bereavement counseling, and other

ancillary services such as community education.

23. Hospice care is provided by an interdisciplinary team

of professionals, including physicians, nurses, social workers,

home health aide services, spiritual advisors (chaplain, priest,

rabbi, or other), and bereavement counselors. Palm Coast will

provide an interdisciplinary team to provide care in its program

that is reflective of the Miami-Dade community.

24. A hospice is also required, pursuant to federal and

state regulations, to involve community volunteers in the

delivery of hospice services. Volunteers may run errands,

perform non-medical duties (such as reading or entertainment) or

provide companionship to the patients and their families.

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Volunteers provide an extra level of service to the patient.

Palm Coast will hire a full-time volunteer coordinator who will

recruit volunteers for its program.

25. Hospice care is both a philosophy of care and a method

of care for terminally ill patients, their families, and loved

ones. The philosophy behind hospice care is to provide pain and

symptom management for those patients who can no longer be

cured. A patient must choose hospice in order to receive its

services when the goal is no longer to cure a disease, but to

live as pain and symptom free as possible. Treatment for pain

control is part of the regimen; treatment for cure is not.

26. Hospice is reimbursed by Medicare, Medicaid,

CHAMPUS/Tri-Care (for the military), and some commercial

insurance programs. Under the Medicare reimbursement system,

hospice programs are reimbursed based on one of four

identifiable levels of service: routine home care; in-patient

care; continuous care; and respite care.

27. Routine home care is the basic level of care, and is

provided as long as a hospice can care for a patient in a home-

like environment including a nursing home or assisted living

setting. Approximately 95 percent of the care provided by

Odyssey is routine care.

28. The next level of care is continuous care, which

provides between eight and 24 hours of nursing care per day.

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Continuous care can be provided in a routine home setting, a

nursing home, an assisted living setting, or in a hospital.

29. The third level of care is in-patient care, which a

hospice can provide in a hospital, a skilled nursing unit, or in

a freestanding hospice in-patient facility operated by a

hospice. Typically, in-patient care is required when there is a

change in the patient's condition which requires

hospitalization. It can also be provided at the start of

service to help the patient make the transition from a curative

method of care to a palliative one. If a hospice program does

not have its own in-patient facility, it will contract with a

skilled nursing facility or hospital. In such cases,

reimbursement is seen as a "pass through" because the amount the

hospice receives for providing care is then provided to the in-

patient unit of the hospital or other health care facility where

the patient is being treated for the acute episode.

30. The final level of hospice care is respite care, which

is designed for caregiver relief and is not necessarily

indicated based upon a change in the patient's condition, but

when the need arises for very temporary caregiver relief.

Medicare reimburses the four levels of hospice care at varying

rates.

31. Certain services are required by specific hospice

patients that are not necessarily covered by Medicare and/or

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private or commercial insurance. These services will be paid

for by Palm Coast as part of its commitment to patient care.

Some of these services include music therapy, pet therapy, art

therapy, and aromatherapy. In addition, more complicated and

expensive non-covered expenses, such as palliative chemotherapy

and radiation may be indicated for severe pain and symptom

control.

32. The primary reimbursement agent (approximately 90

percent) for hospice is Medicare. As a result, the government

fixes the rates to eliminate opportunities to compete on

pricing. Hospice cannot discount prices of its services, and

rarely do patients and families pay for any services. The

services are a prepaid benefit so that any competition in

hospice is most simply expressed as the number of providers in a

given market providing services on a non-economic basis. With

multiple providers in a service area, quality of care and

quantity of services rises for the patients and their families.

33. Most major metropolitan areas in the country have

several hospice providers. For example, Atlanta has 30-35

providers; Dallas has about 30 hospice programs; and Chicago has

20-30 providers. The average number of providers in a city the

size of Miami (approximately two million people) would range

from 20 to 30.

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34. The largest sources of referrals for hospice care are

hospitals, nursing homes, and assisted living facilities, and

physician groups.

PALM COAST'S APPLICATION

35. Palm Coast proposes to establish a new hospice program

to serve persons in Hospice Service Area 11, which is comprised

of Miami-Dade and Monroe Counties.

36. Palm Coast filed a timely Letter of Intent on or

before April 26, 2004, followed by a timely initial CON

application on or before May 26, 2004. Both the LOI and the CON

application were accepted by AHCA. Palm Coast filed its

omissions response, which was accepted by AHCA, on June 30,

2004.

37. The Agency's preliminary action was to approve Palm

Coast's application for CON No. 9798, for the establishment of a

hospice program in Hospice Service Area 11.

Fixed Need Pool

38. On April 9, 2004, AHCA published a notice in the

Florida Administrative Weekly indicating a numeric need for one

additional hospice program in Service Area 11.

39. In forecasting need, the Agency first forecasts the

expected number of deaths within a Service Area, in four

categories: Cancer under age 65, Cancer over age 65, Non-Cancer

under age 65, and Non-Cancer over age 65. The Agency next

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applies a statewide average (called a "conversion rate") to each

of the four categories to forecast the expected number of

hospice patients for a Service Area. The Agency takes that

number and subtracts from it the number of patients who are

currently being served by the existing hospice programs in the

Service Area to arrive at the "net need" of patients who are

expected to need hospice care in the future. If the net need

exceeds 350, then numeric need for a new hospice is

demonstrated.

40. The forecasted need for hospice patients in Service

Area 11 was 2,093 patients, which greatly exceeds the need

threshold of 350 identified in the fixed need pool rule. The

numeric need for one additional hospice program in Service Area

11 is indicated. In fact, based upon the 350 patient threshold

for numeric need, the argument could be made that, based on the

numeric need formula alone, the net need for hospice programs in

Service Area 11 is five. The hospice fixed need pool rule only

permits need for one new program to be published. Moreover, in

an attempt to give new providers sufficient time to start up

their programs, the net need will be shown as zero if any

hospice programs are less than two years old.

41. Currently, Service Area 11 has six hospice providers:

The Catholic Hospice, Douglas Gardens Hospice, Hospice Care of

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Southeast Florida, Hospice Care of South Florida, Hospice of the

Florida Keys, and VITAS Healthcare-Dade. None of these entities

challenged the fixed need pool.

42. The parties have a marked difference of opinion as to

whether a need exists for Palm Coast's proposed hospice program.

Palm Coast, through its expert, Mark Richardson, confirmed the

Agency's need determination, and also performed other needs

analyses to determine the market's overall need. He noted that

the Agency uses a statewide average, which includes areas where

the conversion ratios are much higher than the average. He

states that AHCA uses an expected average of what is occurring

statewide rather than an expected cap. His analysis of Service

Area 11, especially the unmet need of 2,093 hospice patients, is

the largest unmet need ever seen in Florida, and clearly

indicates the need for four to five new hospice programs in

Service Area 11.

43. Mr. Richardson opines that what drives the large unmet

need is the local utilization below the statewide utilization in

each of the four categories: Cancer over age 65, Cancer under

age 65, Non-cancer over age 65, and Non-Cancer under age 65.

This is unlike other service areas where potentially only one or

two of the categories show underutilization.

44. Further, according to Mr. Richardson, a look at the

continuation of historical trends reveals that significant

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growth will occur within the marketplace, which will produce

enough volume to support Palm Coast's program without adversely

affecting the existing providers' programs. The incremental

growth alone, he states, indicates the need for another hospice

program, and further demonstrates that the existing programs

will suffer no adverse affects.

45. VITAS opposes Palm Coast's analysis of numeric need by

noting that the "critical factor" in the Agency's determination

of a net numeric need for one hospice program in Service Area 11

is the use of the statewide average utilization or "penetration

rate" in the numeric need formula. VITAS contends that the use

of the local hospice utilization rate and current hospice

admissions for Service Area 11 will yield a net numeric need of

only 46 patients.

46. VITAS concludes that no numeric need for an additional

hospice exists in Service Area 11 first by noting that, while

the statewide utilization rate for hospice is 48 percent, the

Service Area 11 utilization rate is only 38 percent, a full 10

points below the statewide average.

47. VITAS offers, as proof of why the utilization rate is

so much lower in Service Area 11 than in Florida as a whole,

that Miami-Dade County is unique due to its multicultural,

particularly Hispanic, population.

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48. Palm Coast's expert, Deborah Hoffpauir, testified that

the addition of more hospice providers to an area, tends to

increase the utilization rate within the area. VITAS' expert,

Deirdre Lawe, testified that Miami-Dade County has six

providers, yet has a utilization rate far lower than the

statewide rate. Six of nine Florida Hospice Service Areas with

high utilization rates, however, have only one provider.

49. In some states, where CON regulation does not exist,

metropolitan areas may have as many as 30 hospice providers.

These areas, however, do not experience as high a penetration

rate as CON-regulated Florida.

50. The low utilization rate in Service Area 11, according

to VITAS, is explained by Miami-Dade County's 57 percent

Hispanic population. Nationally, the Hispanic population

utilizes hospice at a lower rate than the non-Hispanic

population. A study published in 2000, by the National Hospice

and Palliative Care Organization shows that Hispanics accounted

for 4.5 percent of national deaths, but accounted for only 2

percent of hospice patients. More recent data indicate that

that the hospice penetration rate for Hispanics is 26 percent at

the national level, significantly less than the penetration rate

for Miami-Dade County's Hispanics of 34 percent.

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51. The hospice penetration rate in Miami-Dade County in

2003, was 34 percent compared with 45 percent for the non-

Hispanic population.

52. Palm Coast's expert, Mark Richardson, conceded that

cultural differences can account for variation in the rates at

which a population will use a health care service. He did not

factor the high percentage of Hispanics in Miami-Dade County

into his calculations, but relied upon AHCA's fixed need pool

projection of need for one additional hospice program.

53. Patricia Greenberg, VITAS' health planning expert,

testified that the fixed need pool overstates the need for

hospice care in Miami-Dade County due to the lower utilization

rate for hospice services among the Hispanic population. To

arrive at this conclusion, she examined the differences between

the Hispanic and non-Hispanic populations to determine why the

latter utilizes hospice services at a significantly greater

rate.

54. Looking at the three adjoining southeast Florida

counties (Miami-Dade, Broward, and Palm Beach), Ms. Greenberg

found an inverse relationship between the percentage of Hispanic

deaths in the county, and the hospice penetration rate: the

higher the percentage of Hispanic deaths, the lower the hospice

penetration rate.

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55. Testimony from additional witnesses at hearing pointed

to the reasons that fewer Hispanics seek hospice care than in

the non-Hispanic population. A strong sense of family

responsibility; religious values of a largely Catholic

population; fear of authorities by illegal aliens and their

family members; and reluctance to discuss death and dying were

identified as cultural norms among the Hispanic population.

56. Ms. Greenberg, in challenging the results of the fixed

need pool calculation of need for one additional hospice

program, re-calculated the need using the Miami-Dade utilization

rate, rather than the statewide rate. This resulted in no need

for another hospice program in Service Area 11 since the

calculation results in a net number of patients to be served of

46, far below the Agency's standard of 350.

57. In arriving at her net need, however, Ms. Greenberg

erred by not utilizing the data for the same period throughout

her calculation of need. She used the 2003, number of hospital

admissions and the 2003, number of hospice deaths for Service

Area 11 in the four hospice categories to determine what the

specific Service Area 11 penetration rates for these categories

would be. She then applied this Service Area specific

penetration rate to the 2005, projected deaths. This

calculation provided Ms. Greenberg with the total number of

forecasted admissions of 7,733 (versus 9,401 projected patients

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using the statewide methodology). Then, rather than subtracting

the 2003, admissions of 7,308 (used by Ms. Greenberg to

determine the applicable penetration rate), she instead

substituted a different data set, the 2003-2004, admission

number. By using the 2003-2004, admissions rather than the 2003

admissions, the results of the calculation were flawed.

58. Had Ms. Greenberg used the 2003, admissions number in

her Service Area 11 specific need calculation, she would have

subtracted 7,308 admissions from the total number of 2005,

projected admissions of 7,733 to arrive at a projected need of

425 which, using the Agency's baseline of 350 admissions, thus

demonstrating the need for a new program. The testimony was

unclear as to why Ms. Greenberg used one incorrect set of data

to demonstrate no numeric need for an additional hospice

program, but the application of the correct data, even using her

Service Area specific (not, as sanctioned by the Agency, the

statewide methodology) shows numeric need for a new hospice

program.

Financial Feasibility and Underlying Assumptions

59. Palm Coast performed a detailed evaluation of the

proposed project on the cost of other services provided by it

and its affiliate, Odyssey HealthCare, Inc. ("Odyssey"). This

evaluation considered the magnitude of the proposed project; the

expected benefit the project will generate for Palm Coast; and

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the expected patient charge increase levels anticipated during

the first two years after the proposed project comes on line.

60. Although Palm Coast is a newly formed corporation, a

review of the financial strength of its management affiliate,

Odyssey, clearly demonstrates the financial resources necessary

to develop and operate the proposed project. With $39 million

in cash and investments, and a $31 million operating income

during fiscal year 2003, Odyssey has the resources necessary to

ensure that Palm Coast is developed as a strong community

provider, and has all the resources necessary to operate as a

full service hospice provider in both the short and long term.

61. The proposed project will provide a significant amount

of income to Palm Coast by the second year of operations, and

will accomplish this with a modest increase in patient charges

of 2 percent in the second year of operations.

62. Palm Coast intends to fund the initial capital

required of $487,125 from the proceeds of an inter-company loan

from Odyssey. Palm Coast shows a strong performance in both the

first and second year of operations.

63. The proposed project is financially feasible in both

the short and long term. The start-up costs are budgeted at

$380,000, which is $250,000 more than what is typically seen in

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other hospice applications. This additional money provides the

foundation for what Palm Coast calls a "rapid start up" of the

proposed project.

64. Under a rapid start-up, as proposed by Palm Coast, and

employed by Odyssey in other new operations around the country,

including Volusia County, Florida, the program will begin to

admit patients once licensure is achieved, but even before

Medicare certification is attained. This rapid start-up was

taken into account by Palm Coast's health care planners in

generating the patient days figures used for Palm Coast's

financial projections. A rapid start-up program will cost Palm

Coast money that it will not be able to recoup from Medicare

since it will be for services provided pre-certification.

65. Palm Coast's parent corporation, Odyssey, has agreed

to provide the funds necessary for this project. With $179.6

million in assets, $144.7 million in shareholder's equity,

$274.3 million in revenues, and $27.6 million in cash flows from

operating activities, Odyssey has the strength to provide the

necessary funding for this project. Palm Coast's application

fully complies with the requirements of Schedules 1 and 3 of the

CON application.

66. Schedule 2 sets out a complete listing of all

projected and proposed capital projects planned by Palm Coast.

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This Schedule completely and accurately depicts all capital

projects that are approved or underway.

67. Schedule 4 is not applicable to this project.

68. The utilization and patient day projections set out in

Schedule 5 are reasonable and appropriate.

69. The staffing forecasts set out in Schedule 6A reflect

the staffing necessary for the patient volume and levels of

services expected for the proposed program. The projections are

consistent with the experience of Palm Coast's management

affiliate, Odyssey's prior start-up experience, and is based

upon a reliable model used by Odyssey to staff its operations

and administration. This staffing model meets the guidelines

established by the National Hospice and Palliative Care

Organization ("NHPCO"). The salaries depicted in Schedule 6A

are reasonable and reflect salary rates commensurate with the

local area, and trended forward approximately 3 percent

annually.

70. The proposed project is financially feasible in the

long term as reflected on Schedules 7A and 8A. In developing

the financial portion of the CON application, Palm Coast's

expert health care planners began with a baseline template model

provided by Odyssey.

71. This template served as the model for the categories

of net revenues and expenses that Odyssey expected Palm Coast to

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experience at its Service Area 11 program. The model was not

used for or intended to serve as the basis for any volume

projections.

72. The projected volumes needed to project patient days

were provided by Mr. Richardson. Since projected revenues are

driven by patient days, the projected admissions for Year 1 and

Year 2 must be translated into a patient day forecast.

Accordingly, the projected admissions for Year 1 and Year 2 were

multiplied by a 70-day length of stay.

73. The 70-day length of stay is reasonable when compared

with Odyssey's national average length of stay and when

comparing it with the average length of stay in Service Area 11.

Accordingly, Palm Coast forecasted Year 1 volume of 26,320

patient days and Year 2 volume of 33,250 patient days. Mr.

Richardson than provided Year 1 and Year 2 volume forecasts to

Palm Coast's financial expert, Rick Knapp, to assign a dollar

amount to the volume to include in the CON Application financial

schedules.

74. Mr. Knapp then projected the gross and net revenues

based upon the projected volumes, and for Year 2 concluded that

the program would generate a pre-tax income of $688,000, thereby

supporting his conclusion that the project is financially

feasible.

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75. To confirm the financial feasibility of the project,

Mr. Knapp also performed reasonableness tests. First, he

determined whether the information provided by Odyssey "offended

his sensibilities." He considered the fact that Odyssey is

experienced in operating hospices, so it is reasonable to assume

that it would not start up a program it did not believe would

succeed. This is supported by the fact that Odyssey has not had

any of its 29 start-up projects fail.

76. Mr. Knapp then examined the most recent 10K filing by

Odyssey with the Securities and Exchange Commission, and noted

that the ratio of expenses to net revenues was approximately 81

percent. This compared favorably with the pro forma projections

by Palm Coast of 88 percent.

77. Mr. Knapp reviewed the budget provided by Odyssey and

found it to be a credible document. He made changes to this

document giving effect to Mr. Richardson's final projected

volume and final projected patient class mix. This became the

basis for Schedule 7A for net revenues and Schedule 8A for

projected expenses.

78. VITAS challenged Palm Coast's patient day and patient

mix projections, opining that the patient volume projections

were overstated by Palm Coast and that the patient mix

projections are unreasonable based upon VITAS' experience in

Florida and Service Area 11.

27

79. VITAS believes that the volume projections of Palm

Coast are unreasonable based upon the Odyssey model provided to

Palm Coast's health care experts and VITAS' experience. VITAS

points to a more gradual "ramp up" of patient volume than that

projected by Palm Coast. VITAS believes that Palm Coast's

projections are far too aggressive for a start-up program.

80. VITAS further points to its own national average

length of stay of approximately 50 days and the overall hospice

national length of stay of 47 days as more reasonable

projections of what Palm Coast should expect, even though Palm

Coast's national length of stay averages 75-80 days.

81. Additionally, VITAS opines that the 70-day average

length of stay proposed by Palm Coast is unreasonable in light

of its proposed patient mix which includes 9 percent of its

patient days as being in-patient, which is generally a much

shorter, acute length of stay than the other forms of hospice

care provided.

82. The level of service mix in a hospice program has a

direct impact on projected average length of stay, patient

admissions, patient days, staffing requirements, revenues, and

expenses.

83. Medicare reimbursement for the different levels of

service is significantly different. Medicare reimbursement for

in-patient days is projected to be $538.80, while reimbursements

28

for routine home care days is projected at $121.34, for

continuous care days is projected at $708.22, and for respite

care days is projected at $124.81.

84. In its CON Application, Palm Coast projects the

following level of service mix by the percentage of patient days

in each category: routine home care--89 percent; in-patient

care--9 percent; continuous care--1 percent; and respite care--1

percent.

85. At hearing, Palm Coast's witnesses conceded that the

projected level of service mix in the CON Application was a

mistake, and is not the level of service mix that is actually

expected for the proposed hospice program. The mistake occurred

when Mr. Richardson relied upon Odyssey's 10K filings showing

the level of service breakdown as a percentage of revenues, but

then used these figures to project the percentage of patient

days.

86. Mr. Knapp, the Palm Coast financial expert, who

prepared the financial pro formas, conceded that, because of the

error in level of service mix, the projection of revenues on

Schedule 7A of the CON Application is not correct, and that,

viewing this financial schedule alone, there is a material

difference between the actual expected revenues and the

projection of revenues on Schedule 7A. For example, the in-

patient component as set forth in the CON Application, accounts

29

for nearly 30 percent of projected revenues, when in reality it

is expected that only 9 percent of the revenues would come from

this source.

87. Mr. Knapp conceded that the mistake in level of

service mix also has a material impact on the projected income

and expenses shown on Schedule 8A.

88. Although the errors in service mix have a material

affect on the projections contained in Schedules 7A and 8A,

Mr. Knapp opined that, since in-patient revenues are essentially

a "pass through" since the hospice pays the money received from

Medicare directly to the in-patient facility, the effect on the

bottom line for the Palm Coast program would not only be

immaterial, but it would improve the profitability of the

proposed program.

89. Every scenario proposed by Mr. Knapp in redistributing

the service mix leads to an enhancement of Palm Coast's bottom

line for the project. The most likely redistribution of the

patient mix would be 98 percent routine home care; 1 percent

continuous care; and 1 percent respite care.

90. John Williamson, the Agency's financial reviewer for

the Palm Coast CON Application, testified that he was not aware

of the errors in service mix when he reviewed the Palm Coast

application. While he opined that he believed the service mix

errors would not have an adverse impact on the bottom line of

30

the proposed program since in-patient revenues are essentially a

pass through, he could not give a firm opinion without

personally "crunching" the new numbers.

91. Ms. Greenberg, VITAS' health planning expert,

testified that the change in service mix was critical to

understanding the proposed hospice program, and that any

material change to the service mix would have to be modeled and

reviewed to determine the feasibility of the proposed program.

Ms. Greenberg concluded that the error in service mix would

result in a significant decrease in revenues ($1.6 million) and

result in a smaller payment to Odyssey, the managing affiliate

to Palm Coast ($112,000 based upon a 7 percent management fee).

This, she states, along with the failure of Palm Coast to

accurately reflect all of its expenses in its financial pro

formas would result in a deficit to Odyssey and might, she

implies, call into question whether this is a worthwhile project

for Odyssey.

92. Ms. Greenberg further testified that Palm Coast failed

to account for various expense items in its financial pro formas

that would significantly reduce, or even eliminate, its

projected net profits of $450,167 in Year 1 and $687,560 in Year

2. Specifically, she noted that the missing expense items were:

31

federal income taxes, employee fringe benefits, property taxes,

the "unified rate" shortfall for nursing home residents,

insurance, and palliative chemotherapy and radiation.

93. Mr. Knapp conceded that the federal income taxes,

property taxes, and the unified rate shortfall were not included

in the pro formas. With respect to federal income taxes,

Mr. Knapp noted that the payment of any income taxes due would

never take a project from a profitable status to an unprofitable

status since they are paid only on the profit margin. The

property taxes not reflected on the pro formas amount to $2,000,

which Mr. Knapp deemed immaterial. The unified rate shortfall

should have been included on the pro formas, but amounts to only

1 percent of the net revenues of the project, not 2 percent as

suggested by Ms. Greenberg.

94. The other expenses that VITAS testified were omitted

by Palm Coast were "embedded" in the management fee Palm Coast

proposes to pay its affiliate Odyssey. Odyssey's Chief

Financial Officer testified that the insurance expense is

included within the management fee. Mr. Knapp testified that

the fringe benefits of 20 percent were included in the financial

schedules as well as within the management fee (9.1 percent was

reflected as payroll-related such as Medicare and FICA, the

remainder such as health insurance within the fee).

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95. Ms. Greenberg's opinion that an additional 17 percent

should be added to the fringe benefits category is not in

keeping with Odyssey's experience as a national provider of

hospice care.

96. Ms. Greenberg noted that the pro formas did not

include $107,000 for a satellite office in Monroe County. Since

the satellite office was made a condition on the CON by the

Agency, Palm Coast could not have anticipated this at the time

of its submittal of the CON Application. Although this will

have an effect on the expense side of the pro formas, Palm Coast

has the ability to fund this condition. Further, the expected

revenues of $139,000 from the satellite office will more than

offset any start-up costs.

97. Finally, Ms. Greenberg noted that Palm Coast failed to

provide for palliative chemotherapy or radiation in its pro

formas. Since the number of patients requiring such care cannot

be estimated, and since this is a non-reimbursable expense, Palm

Coast did not budget for this type of care. Palm Coast is

committed to providing this care when necessary.

98. After concluding that Palm Coast understated its

expenses and that its service mix was flawed, Ms. Greenberg

recast the Palm Coast financials in six possible scenarios.

None of the six showed financial feasibility for the proposed

hospice program. Ms. Greenberg attempted to achieve her goal of

33

demonstrating the Palm Coast project will not be financially

feasible in the short term (her analysis does not extend beyond

two years) by not accepting Palm Coasts 70-day average length of

stay projections; by not accepting Palm Coast's rapid start-up

program because it was not accounted for in the financials; that

the overstatement of the in-patient days renders the project not

financially feasible; and that the omission of significant

expense items significantly reduces or even eliminates the

projected profits in the first two years of the project.

99. Palm Coast responded to the six scenarios raised by

VITAS' expert by demonstrating that the re-cast financials have

significant calculation errors and that conservatism was built

into the financial pro formas (e.g., depreciation expenses that

were amortized in accordance with GAAP which would have a

significant positive effect on the bottom line if not amortized)

which VITAS overlooked in analyzing them; VITAS refuses to

acknowledge that the rapid start-up program was considered by

the Palm Coast Health care planners when developing the CON

Application (as evidenced by the higher number of patient days

forecasted than is typical for a hospice application); VITAS

refuses to acknowledge Odyssey's national average length of stay

data; VITAS refuses to accept the inclusion of fringe benefits

and other items in the management fee to be paid by Palm Coast

to Odyssey; and VITAS refuses to admit that the in-patient days

34

error, when corrected, can only have a positive impact on the

bottom line for Palm Coast.

Patient Care, Community Education, and Community Support

100. Palm Coast will provide each patient with a "Circle

of Care," an interdisciplinary team of Palm Coast employees,

volunteers, and the patients' physician dedicated to providing a

high level of care and assistance to patients and their

families. This interdisciplinary team specializes in end of

life care and uses experts in pain and symptom management.

101. The manager of the team is the registered nurse who

assesses the needs of the patient and family and develops a

specific plan of care with the physician. The case manager (all

are registered nurses) coordinates care with others on the team

while the patient's physician works with Palm Coast's medical

director and other team members to ensure that the symptoms are

controlled, the pain is managed, and the patient and family are

informed. In addition to the nurse case manager, the patient's

attending physician and the medical director, Palm Coast's

interdisciplinary team includes:

a) A chaplain who addresses the spiritual concerns of patients and family members within each patient's individual belief system, as well as addressing concerns of a more generalized spiritual nature; b) A home healthcare aide who is specially trained to work with the terminally ill and who will provide direct patient care;

35

c) A social worker who helps with a wide variety of psycho-social needs of patients and families ranging from financial considerations to dealing with grief and the loss of a loved one, as well as providing access to community agencies for support programs; d) Trained volunteers who provide companionship and non-medical services for the patient, respite time for the family, and support at the time of death and during bereavement; e) A bereavement coordinator who provides support groups, newsletters, and referrals to community services. The bereavement coordinator also provides pre-bereavement assessment and counseling, and can provide individual counseling as well. The bereavement coordinator provides support to family members and significant others for up to 13 months following a patient's death; f) An on-call nursing team is always available after hours and on weekends for visits and phone consultation. Other specialists, such as nutritionists and physical, speech, or occupational therapists, are part of Odyssey's care services, and are added to a patient's team as needed.

102. Palm Coast's team will continue to care for the

family even after the patient's death. Palm Coast will have a

variety of options to help families through their difficult

time, including the following: one-on-one counseling; grief

support groups; written correspondence related to bereavement,

loss, and grief; written materials, articles, and resources;

bereavement letters; memorial services; holiday bereavement

programs; and referral to community agencies as needed.

36

103. These bereavement services begin with the initial

assessment of the patient into the program, even though most do

not occur until after the patient's death.

104. A significant component of Palm Coast's proposed

hospice program will be its ability to provide community

education and outreach to a culturally diverse market like

Miami-Dade County. Palm Coast, through its affiliation with

Odyssey, will bring a wealth of experience in working in

culturally diverse markets with different ethnic groups.

105. Palm Coast currently offers services in numerous

locales in culturally diverse areas. Of specific relevance to

the large Hispanic population of Miami-Dade County, Odyssey has

significant experience in working in Hispanic areas. For

example, Odyssey provides services in El Paso, Texas, a 90

percent Hispanic area, and employs staff, 100 percent of whom

are bi-lingual, to serve this group. Additionally, Odyssey has

programs in other parts of Texas, such as San Antonio, Conroy,

Brownsville, and Houston, that have large Hispanic populations.

106. In order to assure that appropriate services are

provided in culturally sensitive areas, Odyssey identifies and

hires staff that is fluent in the culture's first language,

understands the particular culture, and is familiar with the

geographic location. Odyssey has dedicated interdisciplinary

37

teams that are comprised of Hispanic medical directors, home

health aides, social workers, Catholic priests, ministers, and

nurses.

107. Palm Coast will have access to all of Odyssey's

resources that have been developed for use in culturally diverse

areas, like Miami-Dade, through its management agreement with

Odyssey. While the Miami-Dade Hispanic community is

predominantly Cuban, not Mexican as in Texas, the techniques and

methods developed by Odyssey for entrance into a culturally

diverse community are the same, and Palm Coast will employ those

techniques in Service Area 11.

108. Referrals are most important to the success of a

hospice program. The major sources of referrals for hospice

patients are physician groups, nursing homes, assisted living

facilities, and hospitals. Prior to submitting its CON

Application, Odyssey sent staff to Miami-Dade County to speak

with local area health care providers and to solicit letters of

support. Although they visited physician groups, nursing homes,

assisted living facilities ("ALFs"), and hospitals, Odyssey was

unable to secure any letters of support from those

organizations. Odyssey did receive four letters of support from

Medicaid independent support coordinators which were submitted

with its CON Application.

38

109. VITAS is well entrenched in the local health care

community. VITAS has contracts with nearly every hospital

provider in Miami-Dade County, and has established hospital in-

patient units at four hospitals, including at Hialeah Hospital,

located in the midst of the Cuban-American community. Two

additional in-patient units are expected to open in the near

future, including one at Kendall Regional, considered to be a

largely Hispanic hospital. In addition to its contracts with

hospitals, VITAS is well-established with contacts among the

local physician community, receiving referrals from specialists

in numerous areas. VITAS has contracts with over 90 percent of

the nursing homes in the county and with multiple ALFs in the

community.

110. In addition to VITAS' established relationships in

the health care provider community, the other hospice providers,

while significantly smaller than VITAS, are well-established.

Recently, the Miami Jewish Home and Hospital also established a

hospice program in Service Area 11. Many of these other hospice

providers in Service Area 11 cater to specific patient

populations and referrals such as the Catholic and Jewish

communities and individual nursing homes. While it is likely

that each of the existing programs can serve more patients than

39

they currently do, none of these other providers participated in

the hearing or provided testimony as to why their numbers of

patients are not greater.

111. Palm Coast is not the only provider who engages in

extensive community education and outreach in those communities

it serves. VITAS has invested great resources to develop strong

and successful community education resources. Such materials

include separate sets of educational materials targeted to

hospitals, physician groups, nursing homes, ALFs, and to

patients and their families. These materials are available in

English, Spanish, Creole, and other languages. One set of

multi-lingual materials is known as "WINKS," an acronym for

"What I Need to Know," which describes the problems encountered

by health care professionals or patient families in working with

a dying patient, as well as appropriate responses to common

problems.

112. Brian Payne, VITAS' General Manager for the Miami-

Dade program, testified about the dedication of 10 full-time

community outreach representatives who target hospital discharge

planners, physician groups, nursing homes, ALFs, and other

community groups for education and outreach programs.

113. VITAS has also partnered with local educational

institutions, including Miami-Dade Community College, and the

two statutory teaching hospitals (Jackson Memorial and Mount

40

Sinai) to ensure adequate education of the health care

professional community. VITAS has also developed a specific

program on hospice benefits that is incorporated as a required

part of the licensure process for applicants seeking licensure

as an administrator of an ALF.

114. In addition to VITAS, other hospices reach out to the

community and participate in community education. Although none

of these programs testified or offered evidence at hearing, it

is fair to assume that they do not provide community education

or outreach on a scale approaching VITAS', what Odyssey has done

in other communities, or what Palm Coast proposes here.

115. VITAS does not believe that the addition of Palm

Coast will have a significant positive impact on community

education and outreach concerning hospice services.

116. Palm Coast believes that the more education that can

be brought to an area about hospice, the greater the penetration

rate of hospice patients will be.

CONFORMANCE WITH DISTRICT HEALTH PLAN PREFERENCES

117. Palm Coast's application conforms with the applicable

district health plan. The District 11 Allocation Factors Report

contains generic preferences relevant to certificates of need

for all types of services, including hospice services, and also

contains specific preferences related to hospice services.

41

118. Palm Coast has recruitment and retention programs in

place to develop staff. Recruitment efforts focus on the one-

to-one nursing that hospice offers, the role of the nurse as the

case manager, and the education benefits Palm Coast will offer

through its management agreement with Odyssey. Additionally,

Palm Coast will offer incentives to staff to attain the next

level of professional development within their careers.

119. Palm Coast will reflect the cultural diversity of the

area in its staff and will also provide staff with access to

translators 24 hours a day, seven days a week.

120. Upon admission, Palm Coast's patients will be

assessed as to their needs and the resources available to them

with regard to disasters or emergency. A plan for such

contingencies will be contained in the patient's admissions

documents and covers fire safety, home care safety, and symptom

control.

121. When a Palm Coast patient is admitted, staff will

assist in the completion of forms and will document the

patient's understanding of his or her rights and

responsibilities.

122. Palm Coast has the ability to admit patients 24 hours

a day, seven days a week, and will ensure that patients are

admitted as soon as possible. Palm Coast (or Odyssey) sent

representatives to meet with local providers, including

42

facilities staff and Medicaid-independent support coordinators

to identify the local characteristics of Service Area 11. These

support coordinators provide advocacy services by helping

patients find needed services. These support coordinators

indicated that service has not always been timely received and

they supported the Palm Coast application.

123. While it is true that Palm Coast did not submit a

large number of letters of support from the community for its

proposed hospice program, since this is a case where numeric

need had been demonstrated, letters of support are not as

important as in a no need or not normal circumstances case.

124. Palm Coast intends to implement a community education

plan utilizing three or more dedicated community education

representatives who will establish referral sources and educate

medical providers regarding hospice care. VITAS admits that it

is not the only hospice provider in the area and that there is

nothing to prevent any of the area's health care providers from

contracting with Palm Coast. The determining factor in

establishing a relationship with a referral source is the

ability to provide quality of care.

125. Clergy are included in the interdisciplinary team

that will be in place at Palm Coast. These staff will

participate in a specific program that encompasses classical and

43

contemporary theories on death, including: Grief; Myths about

Grief and Mourning; the Kubler-Ross Stages; and Myths, Death,

and Dying.

126. Palm Coast, through its affiliation with Odyssey,

will provide educational services to the medical community

regarding the benefits of hospice care, especially to those

patients with a non-cancer diagnosis since many people believe

that hospice is only for cancer sufferers. Palm Coast will also

utilize the hospice case studies developed by Odyssey for the

physician audience in order to inform/educate referral sources

concerning the indicators of hospice appropriateness for

specific non-traditional hospice patients' diagnoses. Another

tool that Palm Coast will utilize is a "Slim Jim," a quick

reference guide with clinical information to educate physicians

on when hospice may be appropriate.

127. Palm Coast, through its affiliation with Odyssey,

will have access to the extensive educational materials and

protocols that Odyssey has developed for each disease process.

Conceptually, these materials are similar to those developed and

used by VITAS.

128. The information and techniques acquired and applied

from different locations around the country allow Odyssey and

its affiliates, including Palm Coast, to continuously improve.

44

These improved techniques and protocols, much like those brought

to the area by VITAS, will permeate the system and will cause

competitors to improve.

129. As a start-up program, Odyssey will provide Palm

Coast with a designated clinical team that will provide all the

resources and support necessary to initiate the program. This

team will provide education and training to the new office to

ensure that everything is set up on a clinical basis and that

all of the necessary pieces are in place.

130. Palm Coast's affiliate, Odyssey, has a comprehensive

volunteer program that will be implemented at this location.

All volunteers will receive special training and will be under a

staff member who is responsible for the volunteer program. Palm

Coast intends to maintain a volunteer program that, at a

minimum, equals 5 percent of the total patient care hours of all

paid hospice employees and contract staff.

CONFORMANCE WITH AGENCY RULE CRITERIA

131. The application submitted by Palm Coast conforms with

the preferences set forth in Florida Administrative Code Rule

59C-1.0355(4)(e). Palm Coast evidences a commitment to serve

populations with unmet needs and has established the existence

of such populations in Service Area 11. This conforms with

Preference 1.

45

132. Palm Coast's application conforms with Preference 2

in that it proposes to provide the in-patient component of its

proposed hospice program through contractual arrangements with

existing health care facilities.

133. Palm Coast's application conforms with Preference 3

since it has demonstrated a commitment to serve patients who do

not have primary caregivers at home, the homeless, and patients

with AIDS.

134. Palm Coast's application conforms with Preference 5

since it will provide services not covered by private insurance,

Medicaid, or Medicare. These services include pet, music,

massage and aroma therapies, dialysis, palliative radiation, and

palliative chemotherapy treatments. Palm Coast will provide 2

percent charity care, in addition to serving all patients who

present for care, regardless of their ability to pay.

Accordingly, Palm Coast's application conforms with Florida

Administrative Code Rule 59C-1.3055(5), and the District 11

Health Plan Criteria.

135. Palm Coast's application conforms with Florida

Administrative Code Rule 59C-1.0355(6), since its proposal

contains a detailed program description including staffing and

use of volunteers, expected sources of patient referrals, and

46

projected number of admissions, by payer type, for the first two

years of operation. The sources of patient referrals are

reasonable and appropriate.

136. The projected utilization for the proposed hospice

program, including the number of admissions and payer mix, is

reasonable and achievable utilizing Odyssey's rapid startup

program. The Palm Coast start-up is reasonable based upon

Odyssey's experience in start-up and operation of hospice

programs around the country.

137. Based upon the reasonableness of the utilization

projections, the projected increase in admissions for Service

Area 11, and Odyssey's experience in other start-up and ongoing

hospice programs, Palm Coast should achieve a 5 percent market

share by the second year of operations.

138. The increase in overall utilization will, in part, be

a result of the education and outreach efforts of Palm Coast.

Palm Coast's projections are reasonable based upon the national

experience, much of which has been in areas with large Hispanic

populations, of Odyssey. Much as VITAS has experienced

substantial growth over the years based upon its outstanding

education and outreach, as well as its excellent standard of

care, a sophisticated provider like Palm Coast, working with its

management affiliate Odyssey should increase the market

47

penetration of hospice services in Service Area 11. High level

competition between providers such as VITAS and Palm Coast will

increase utilization for both providers of hospice services.

CONFORMANCE WITH APPLICABLE STATUTORY CRITERIA

139. Palm Coast's application conforms with Section

408.035(1),(2), and (7), Florida Statutes. Need for an

additional hospice program is evidenced by the availability,

accessibility, and extent of utilization of like and existing

health care facilities and health services in the service area,

as well as the published need for one additional hospice program

in Service Area 11.

140. Palm Coast, through its affiliation with Odyssey,

will have the necessary resources to fill current service gaps

in Service Area 11. In each area where it currently provides

service, Odyssey has implemented a community education plan

specific to the needs of the area, including those areas with

culturally diverse populations.

141. Palm Coast will implement an appropriate program for

the community in Service Area 11. While, clearly, VITAS does an

excellent job in the community it serves, its own witnesses

admitted that more can be done. Even with the 72 percent market

share commanded by VITAS, the published fixed need pool projects

2,093 un-served patients. What was left unexplained at hearing

is why the other five hospice providers have not picked up the

48

excess of patients. Perhaps it is because these other providers

have not devoted as many resources to education and outreach as

has VITAS. Perhaps these other providers are seeking to serve

only a specialized population of patients. The evidence at

hearing did not provide answers to these questions. Further,

while VITAS makes a compelling case for why market penetration

is suppressed in the Hispanic population, they offered no

specific data or studies to prove that the Hispanic (or in this

case Cuban-American) population, given the proper education,

will not better utilize hospice programs. Odyssey has proven

its ability to respond to the needs of the Hispanic community in

other parts of the country with large concentrations of Hispanic

persons. It is clear that Palm Coast has the resources

available and is committed to devoting them to Service Area 11.

Palm Coast appears poised to achieve a strong share of the new

admissions projected by the Agency.

142. Palm Coast's application conforms with Section

408.035(3) and (12), Florida Statutes. Although Palm Coast does

not have a licensure history in Florida, its parent corporation,

Odyssey, has a history of providing quality hospice care and is

a member of the National Hospice and Palliative Care

Organization. At the time Palm Coast filed this application,

Odyssey had 69 Medicare certified hospice programs in 29 states.

49

143. Palm Coast, through its management contract with

Odyssey, intends to adhere to all of Odyssey's policies and

procedures, including policies related to access to care,

admissions, and patient/family rights, patient services,

infection control, and continuous quality improvement.

144. Section 408.035(5), Florida Statutes, does not apply

since the proposed program will not be located in a research or

teaching hospital. The establishment of the program, however,

will enhance the clinical needs of health professional training

programs due to Odyssey's numerous educational affiliations.

145. Palm Coast's application conforms with Section

408.035(6), Florida Statutes. Palm Coast, through its

affiliation with Odyssey, will have the tools to effectively

recruit and retain the necessary staff for this program.

Odyssey has effective recruitment and retention policies that

have allowed it to successfully staff and operate its 69

Medicare-certified hospice programs in 29 states, serving an

average of 7,300 patients a day.

146. Odyssey uses all the traditional methods of

recruiting staff, such as newsprint and website postings, as

well as working with headhunters and providing referral bonuses.

The company's transfer policy and internal posting program

provides the opportunity for employees to transfer to other

Odyssey locations. Odyssey offers competitive pay and benefits,

50

as well as flexible work schedules. It also provides bonuses

for its employees who receive certifications from NHPCO.

Accordingly, Odyssey and Palm Coast do not anticipate facing

recruitment and retention problems since they have faced similar

issues in other areas with diverse cultural populations.

147. Palm Coast's application conforms with Section

408.035(9), Florida Statutes, as the project will foster

competition and promote quality care and cost effectiveness.

Patients are better served when multiple providers exist in a

market. Odyssey has operated in similar sized markets with 20-

30 hospice providers, and has achieved strong average lengths of

stay, quality of care, and financial performance.

148. A new hospice in the service area does not provide

price competition because the rates are primarily fixed by

Medicare and Medicaid. The addition of new programs, therefore,

allows the providers to compete based upon the types and quality

of services they provide. This "non-price" competition raises

the bar on the services provided by programs in the service

area.

149. A new competitor organization offers physicians and

patients a choice. This is especially true for hospice, because

hospice utilization is strongly related to awareness and

education. Competition creates an environment in which hospices

must do more to educate the community. New disease process

51

protocols, admissions within three hours of initial contact, and

other benefits will occur when a new competitor enters the

market. New incremental patients will utilize the service

because of increased awareness in the benefits of hospice.

150. Palm Coast's application conforms with Section

408.035(11), Florida Statutes. Although Palm Coast does not

have a licensure history in Florida, its parent corporation,

Odyssey, has a history of providing care to all patients without

regard to gender, origin, race, creed, sexual orientation,

disability, age, place of residence, or ability to pay.

Odyssey's policies and procedures, which will be the basis for

Palm Coast's policies and procedures, confirm this.

IMPACT ON EXISTING PROVIDERS

151. VITAS suggests that the establishment of a new

hospice program in Service Area 11 would have an impact on

existing providers of hospice services. If Palm Coast's

utilization projections are to be believed, opines VITAS,

existing providers will experience a substantial adverse impact.

152. The nature of the impact to VITAS, it argues, will be

twofold. First, VITAS will experience even greater problems in

the recruitment and retention of professional staff than it

currently experiences. VITAS currently has difficulty in

recruiting a sufficient number of nurses who are both bilingual

and willing to work in hospice care. Further, VITAS has lost

52

staff in the past when Odyssey has entered a market where they

are providing services. In such cases, VITAS has lost staff to

Odyssey, which has had a negative impact on VITAS, because it

had paid to recruit and train these employees.

153. VITAS further claims that it will lose market share

if Palm Coast's projections of patient days in its pro formas

are accurate. VITAS bases its loss of market share on an

allocation of 72 percent of Palm Coast's projected patient days

coming directly from VITAS. This would equate to a loss of $1.5

million (on revenues of $18,851,604). VITAS' analysis does not

take into account the underserved market of 2,093 patients

identified by the Agency in its unchallenged fixed need pool

methodology. This does not even take into account VITAS' own

expert's acknowledgment that at least 425 patients remain

underserved based on her calculation of need.

154. VITAS claims that it will be substantially and

adversely affected by the addition of the Palm Coast program in

terms of both lost revenues and inability to recruit and retain

staff, yet VITAS has experienced large growth during the past

four years and projects a "rosy" future as described by the

Miami program's General Manager and by VITAS' parent company

Chemed.

155. None of the five other hospice providers in Service

Area 11 intervened in the proceeding, appeared at hearing, or

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offered evidence of any adverse impact the approval of Palm

Coast as a new provider might have on them. VITAS was unable to

provide much evidence, other than the fact that some of these

providers have experienced low utilization, to demonstrate any

adverse impact by the entry of Palm Coast into the Service Area

11 market.

HOSPICE MUST BE NOT-FOR-PROFIT CORPORATION

156. Odyssey is a for-profit company, publicly traded on

the NASDAQ. Palm Coast is a wholly-owned subsidiary of Odyssey.

157. Palm Coast is registered as a corporation not-for-

profit pursuant to Chapter 617, Florida Statutes.

158. Under generally accepted accounting principles

("GAAP"), which apply to health care companies as well as other

companies, the income of a wholly-owned subsidiary is reflected

as the income of the parent. Here, the income of Palm Coast is

the income of Odyssey, according to GAAP.

CONCLUSIONS OF LAW

159. The Division of Administrative Hearings has

jurisdiction over the subject matter of and the parties to this

proceeding. §§ 120.569, 120.57(1), and 408.039(5), Fla. Stat.

160. As the applicant, Palm Coast has the burden of

establishing the need for a new hospice program in Service Area

11. Boca Raton Artificial Kidney Center, Inc., v. Dept. of

Health and Rehabilitative Services, 475 So. 2d 260 (Fla. 1st DCA

54

1985). The award of a CON must be based on a balanced

consideration of all applicable statutory and rule criteria.

Humana, Inc. v. Dept. of Health and Rehabilitative Services, 469

So. 2d 889 (Fla. 1st DCA 1985), citing Dept. of Health and

Rehabilitative Services v. Johnson & Johnson Home Health Care,

Inc., 447 So. 2d 361, 363 (Fla. 1st DCA 1984). The appropriate

weight accorded each individual criterion contained in the

statute regarding CON applications is not fixed, but depends on

the facts and circumstances of each case. Collier Medical

Center, Inc. v. Dept. of Health and Rehabilitative Services, 462

So. 2d 83 (Fla. 1st DCA 1985).

161. The CON review criteria set forth in Sections

408.035(1), (2), (3), (5), (6), (7), (8), (9), and (11), Florida

Statutes, are applicable to this project. The review criteria

set forth in Sections 408.035(4), (10), and (12), Florida

Statutes, are not applicable.

162. The rule criteria and requirements contained in

Florida Administrative Code Rules 59C-1.030 and 59C-1.0355, are

applicable to this project. The criteria contained in Florida

Administrative Code Rule 59C-1.0355(7), (8), (9), and (10), are

either not applicable or are not relevant to consideration of

this application.

163. The CON submission and process requirements set forth

in Sections 408.039(2)(a), (c), and (3)(a), Florida Statutes,

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and Florida Administrative Code Rule 59C-1.008, are applicable.

The parties stipulated that Palm Coast's Letter of Intent and

CON Application met the Agency's rules regarding minimum content

and timely submission requirements.

164. AHCA published a fixed need pool determination

indicating the need for an additional hospice program in Service

Area 11. Section 408.043(2), Florida Statutes states that

"[t]he formula on which the certificate of need is based shall

discourage regional monopolies and promote competition." That

formula, or need methodology, is implemented by Florida

Administrative Code Rule 59C-1.0355, which sets out, in

paragraph (4), the "Criteria for Determination of Need for a New

Hospice Program," and in (4)(a), the methodology for determining

the numeric need for an additional hospice program. The need

methodology for hospice compares the existing number of patients

electing a hospice service planning area with the number that

would elect hospice care based upon statewide use rates for

hospice service. If the result of the comparison "gap" is 350

hospice admissions or greater, the formula establishes a need

for an additional hospice program. When the methodology was run

for Service Area 11, the "gap" was 2,093 admissions, therefore

demonstrating a clear numeric need for an additional hospice

program in Service Area 11. Existence of a numeric need

pursuant to the rule creates a rebuttable presumption of need

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for an additional hospice program in Service Area 11. See

Martin Memorial Medical Center, Inc. v. Agency for Health Care

Administration, 17 F.A.L.R. 1631-32 (1995).

165. The "Notice of Hospice Program Fixed Need Pool" was

published in the Florida Administrative Weekly on April 9, 2004

(Vol. 30, No. 15). The notice provides any person the

opportunity to advise the Agency of any errors or to petition

for a hearing pursuant to Section 120.57, Florida Statutes, if

the person has been substantially affected by the Notice of

Fixed Need Pool. Failure to so request a hearing within 30 days

of the publication constitutes a waiver of the right to

challenge the fixed need pool. VITAS did not challenge the

April 9, 2004, publication of the fixed need pool. Therefore,

VITAS has waived its right to challenge the net need number and

must accept and overcome the fact that a numeric need for an

additional hospice program exists in Service Area 11.

166. While a fixed need pool establishes a presumption of

need, it serves only as the starting point of an analysis of

need. Columbia Hospital Corporation of South Broward d/b/a

Westside Regional Medical Center v. Agency for Health Care

Administration, DOAH Case Nos. 94-1020 and 94-1021 (AHCA 1996).

Situations exist where a proposal for a new provider should be

denied where the actual circumstances in the community do not

demonstrate a true need for additional service providers, even

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though the numeric need methodology indicates need. Id. For

example, in Columbia Hospital Corporation of South Broward d/b/a

Westside Regional Medical Center, DOAH Case No. 94-4801 (AHCA

1997), two competing applications for open heart surgery

programs were both denied, even though a fixed need pool was

published indicating the need for an additional open heart

surgery provider in Broward County. In that case, the CON

Applications were denied for two main reasons: a) the four

existing providers demonstrated that they would be substantially

adversely affected by the opening of a new program either

financially or through a reduction in quality of care; and b)

the applicants were unable to demonstrate that their proposals

would be financially feasible in the long term, since they could

not prove they would generate sufficient procedures to maintain

quality programs.

167. Palm Coast demonstrated the need for an additional

program in Service Area 11 pursuant to the applicable statutory

and rule criteria. With the significant increase in hospice

patients projected, the need exists numerically for an

additional program. Moreover, the evidence proved that VITAS

operates a thriving hospice program that continues to grow

despite the addition of new hospice providers that have entered

the market. The evidence did not explain why the other hospice

providers in Service Area 11 have been unable to match VITAS'

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success. A logical conclusion is that none of the other hospice

providers engage in the full-scale marketing, community

education and outreach on as sophisticated a level as that

performed by VITAS. The reasons for this are purely speculative

since no explanatory evidence was produced, but these other

providers may be targeting a specific population and are not

interested in extensive community outreach; or they may not have

the resources to engage in the type of education and outreach

performed by VITAS. The evidence does show that Palm Coast is

the type of provider that appears poised to operate in the same

manner as VITAS: networking extensively in the community in an

attempt to break down some of the barriers that VITAS believes

have suppressed utilization in the Hispanic community. VITAS

had made great inroads into increasing this utilization, and a

provider like Palm Coast appears ready to continue in that

regard.

168. Palm Coast's application conforms with the applicable

district health plan and with Sections 408.035(1) and

408.037(1), Florida Statutes, and Florida Administrative Code

Rule 59C-1.0355(5). Further, Palm Coast's application conforms

with the Agency preferences set forth in Florida Administrative

Code Rule 59C-1.0355. Finally, the Palm Coast application

conforms with the applicable statutory review criteria contained

in Section 408.035, Florida Statutes.

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169. Odyssey has a history of providing quality care in

its hospice programs. Accordingly, Palm Coast, through its

management affiliation with Odyssey, has the ability to provide

quality hospice care as proposed in its application. Odyssey

has a history of providing care to Medicaid recipients and the

medically indigent; Palm Coast will likewise provide such care.

Palm Coast will also provide non-reimbursable services such as

palliative chemotherapy and radiation therapy to those patients

who require such services.

170. Palm Coast, through its management affiliation with

Odyssey, has the necessary resources for project accomplishment

and operation, and will be able to recruit and retain the

necessary clinical and administrative staff necessary for the

implementation and operation of its hospice program.

171. Palm Coast's project is financially feasible in the

short term and the long term.

172. Palm Coast's proposed hospice program will foster

competition with other hospice programs in Service Area 11.

173. Palm Coast, through its affiliation with Odyssey,

will have the necessary recruitment and retention programs in

place to develop staff. Palm Coast's staff will reflect the

cultural diversity of its patient population.

174. Palm Coast, through its affiliation with Odyssey,

will provide educational services for the community and will

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implement a community education plan that utilizes at least

three community education representatives.

175. Similar to Odyssey's volunteer program, Palm Coast

will implement a comprehensive program for its volunteers.

176. While the applicant must prove its entitlement to the

CON, an existing provider who challenges the Agency's

preliminary approval of a CON must demonstrate that it has

standing. Section 408.039(5)(c), Florida Statutes, sets forth

the test for standing:

Existing health care facilities may initiate or intervene in an administrative hearing upon a showing that an established program will be substantially affected by the issuance of any certificate of need . . . to a competing proposed facility or program within the same district.

177. VITAS seeks to have standing conferred upon it on two

bases: a) that the significant nursing shortage, especially in

South Florida and for bilingual nurses, will be exacerbated by

the entry of a large provider like Palm Coast into the market;

and b) that VITAS projects that it will lose $1.5 million on

revenues of over $18 million once Palm Coast claims its market

share. Prior decisions have supported VITAS' positions that the

challenger need not demonstrate that its program will be

financially imperiled to establish significant impact for

standing, St. Mary's Hospital, Inc. v. Agency for Health Care

Administration, 17 F.A.L.R. 457, 458 (AHCA 1995); and that

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impact through competition for staff among hospice providers may

confer standing, Hospice by the Sea, Inc. v. Agency for Health

Administration, DOAH Case No. 00-3222 (AHCA 2001)(other case

numbers omitted).

178. While VITAS has pointed out what has generally become

common knowledge--the shortage of nurses in Florida (and the

country as a whole)--it has failed to demonstrate just how

severe the impact of Palm Coast's entry into the market would be

on its ability to recruit and retain nurses. VITAS spoke of the

cost of recruiting and training nurses and other staff, yet did

not quantify the cost. VITAS testified to the "struggle" to

find Spanish-speaking nurses, but made no claims that it would

not be able to recruit such nurses and maintain its programs in

the future. Clearly, all providers must compete for staff, and

those who provide the better working environment, salary, and

benefit packages will have an easier job of recruiting and

retaining employees than those who provide less. VITAS did not

prove that its ability to recruit and retain staff would suffer

a substantial adverse impact if Palm Coast's application is

approved. Therefore, VITAS has not proved it has standing to

challenge the Palm Coast application on these grounds.

179. VITAS' expert testified that the company would lose

$1.5 million by virtue of Palm Coast's coming online as a

hospice provider in Service Area 11. While in dollar terms

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taken in a vacuum, this sounds like a great deal of money, it

represents about 8 percent of VITAS' projected revenues in a

one-year period. This analysis, admittedly, does not take into

account any increase in utilization that VITAS expects to

experience. It is merely a simple calculation of what would

happen in a vacuum if Palm Coast takes a portion of VITAS

patients and the associated revenues. Since both the fixed need

pool and VITAS' own expert calculate an additional 2,093 or 425

hospice patients, depending on whether the Agency's or

Ms. Greenberg's projection is accepted, any analysis of

financial impact must take into account the additional patients

expected to utilize hospice. With a 72 percent current market

share, VITAS can expect to garner a large share of these new

patients which will significantly reduce, if not completely

eliminate, any perceived adverse financial impact. Since VITAS

did not consider the increase in hospice patients in determining

the adverse financial impact of Palm Coast entering the market,

it has failed to prove its standing as an existing provider who

has suffered an adverse financial impact.

180. VITAS also challenged the Palm Coast CON Application

as flawed due to an improper amendment to the application. The

nature of the claimed amendment was the error pointed out at

hearing in the patient mix used by Palm Coast's expert in

developing the financial pro formas. Palm Coast's expert

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incorrectly inserted the figure nine percent as the number of

in-patient days when that figure actually represented the

percentage of in-patient revenues. In the context of hospice,

in-patient "revenues" are almost a misnomer since in-patient

care is merely a pass through of reimbursement (primarily

Medicare) to the hospital or other in-patient facility in the

same amount as received by the hospice. The insertion of the

wrong in-patient number actually made the pro formas appear less

financially feasible than they would have been with the

appropriate number inserted. The staffing and expense numbers

were not changed as a result of the singular error in the

percentage of in-patient days, since the model employed by Palm

Coast to prepare the application used expense numbers based on

100 percent routine care. Since the impact of using the nine

percent in-patient days figure is de minimus, it is not an

improper amendment to Palm Coast's CON Application pursuant to

Florida Administrative Code Rule 59C-1.010(3)(b).

181. The final issue raised by VITAS in opposition to Palm

Coast's CON Application is whether the applicant is not a not

for-profit corporation by virtue of its being a wholly-owned

subsidiary of Odyssey. Section 400.601(3), Florida Statutes,

provides as follows:

"Hospice" means a centrally administered corporation not for profit, as defined in chapter 617, providing a continuum of

64

palliative and supportive care for the terminally ill patient and his or her family.

Section 617.0141(5), Florida Statutes, defines a "corporation

not for profit" as "a corporation no part of the income or

profit of which is distributable to its members, directors, or

officers." VITAS did not demonstrate at hearing that any income

or profits of Palm Coast would be distributed to the members,

directors or officers of Palm Coast, the Florida corporation

not-for-profit. Further, VITAS did not demonstrate that Palm

Coast would in any way violate Chapter 617, Florida Statutes,

which is the relevant corporations law, for purposes of hospice

licensure pursuant to Sections 400.6005 - 400.611, Florida

Statutes. Palm Coast has demonstrated that it meets the

definition of a corporation not-for-profit so as to qualify its

application for approval.

182. Palm Coast has demonstrated a need for its proposed

hospice program. Palm Coast's program will enhance the delivery

of hospice services to the underserved community in Service Area

11. On balance, Palm Coast's CON Application satisfies all

applicable statutory and rule criteria.

RECOMMENDATION

Based upon the Findings of Fact and Conclusions of Law,

it is

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RECOMMENDED that the application of Hospice of the Palm

Coast, Inc., for CON No. 9798, be APPROVED.

DONE AND ENTERED this 14th day of June, 2005, in

Tallahassee, Leon County, Florida.

S ROBERT S. COHEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 14th day of June, 2005.

COPIES FURNISHED: Kenneth W. Gieseking, Esquire Agency for Health Care Administration Fort Knox Building, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308 Geoffrey D. Smith, Esquire Blank, Meenan & Smith, P.A. 204 South Monroe Street Tallahassee, Florida 32302-3068 Thomas E. Panza, Esquire Deborah S. Platz, Esquire Panza, Maurer & Maynard, P.A. Bank of America Building, 3rd Floor 3600 North Federal Highway Fort Lauderdale, Florida 33308-6225

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Richard Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308 William Roberts, Acting General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Alan Levine, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.