MISSISSIPPI STATE DEPARTMENT OF HEALTH
DIVISION OF HEALTH PLANNING
AND RESOURCE DEVELOPMENT
AUGUST 2007
CON REVIEW: LTACH-NIS-0607-012
GULF STATES LTAC OF JACKSON COUNTY, LLC, OCEAN SPRINGS
ESTABLISHMENT OF A 40-BED LONG-TERM ACUTE CARE HOSPITAL
CAPITAL EXPENDITURE: $11,300,000
LOCATION: OCEAN SPRINGS, JACKSON COUNTY, MISSISSIPPI
Staff Analysis
I. PROJECT SUMMARY
A. Application Information
Gulf States LTAC of Jackson County, LLC (“the applicant” or “Gulf States”)
exists as a Mississippi Limited Liability Company. The application submitted
on behalf of Gulf States contains a letter attesting the applicant’s good
standing with the Office of the Mississippi Secretary of State.
B. Project Description
Gulf States proposes to establish a freestanding 40-bed long-term acute care
hospital (LTACH) in Ocean Springs, Mississippi. The application contains a
letter from the Singing River Hospital (SRH) agreeing to lease 40 beds
presently licensed as acute care medical-surgery beds to Gulf States.
Gulf States estimates that this project will require approximately 28,000
square feet of new construction, at an estimated total project cost of
$11,300,000. Of the $11,300,000, 61.95 percent ($7,000,000) is allocated
toward building (new construction, fees, contingency reserve, capitalized
interest, and other building cost); 7.96 percent ($900,000) toward land cost
and site preparation; 26.55 percent ($3,000,000) toward equipment purchase;
and 3.54 percent ($400,000) toward project development cost. The applicant
expects to obligate capital immediately upon approval of this project with
completion scheduled for August 1, 2008.
The Division of Health Facilities Licensure and Certification has approved the
project site.
The project calls for the employment of 65.2 full-time equivalent personnel
with a first year estimated annual personnel cost of $3,001,236.
II. TYPE OF REVIEW REQUIRED
The Mississippi State Department of Health reviews applications for a certificate of
need (CON) for the establishment of a long-term acute care hospital under the
applicable statutory requirements of Section 41-7-173, 41-7-191, subparagraph
(1)(a), (b), (c), and (d)(xiv) of the Mississippi Code of 1972, Annotated, as amended,
LTACH-NIS-0607-012
Gulf States LTAC of Jackson County
Page 2 of 13
and duly adopted rules, procedures, plans, criteria, and standards of the Mississippi
State Department of Health, and 41-7-193, Mississippi Code of 1972, as amended.
In accordance with Section 41-7-197 (2) of the Mississippi Code of 1972 Annotated,
as amended, any person may request a public hearing on this project within 20 days
of publication of the staff analysis. The opportunity to request a hearing expires on
September 4, 2007.
III. CONFOMANCE WITH THE STATE HEALTH PLAN AND OTHER ADOPTED
CRITEIA AND STANDARDS
A. State Health Plan (SHP)
The Acute Care Chapter of the FY 2007 State Health Plan contains criteria
and standards which an applicant is required to meet before receiving CON
authority for the establishment of an LTACH. The applicant is in substantial
compliance with these criteria.
Policy Statements Regarding Certificate of Need Applications for
Long-Term Care Hospital Beds
SHP Policy Statement 1 – Restorative Care Admissions
The applicant affirms that all admissions to the proposed LTACH will be in
accordance with the State Health Plan. Specifically, patients admitted to Gulf
States LTACH will have one or more of the following conditions or disabilities:
neurological disorders, central nervous system disorder, cardio-pulmonary
disorders, and/or pulmonary diseases.
SHP Policy Statement 2 – Bed Licensure
The applicant affirms that the proposed LTACH will be licensed as a general
acute care facility containing 40 long-term acute care beds.
SHP Policy Statement 3 – Average Length of Stay
The applicant affirms that patients served by the proposed LTACH will have
an average length of stay of 25 days or more.
SHP Policy Statement 4 – Size of Facility
The LTACH proposed by this application includes 40 long-term acute care
beds, larger than the 20-beds minimum stipulated in the FY 2007 SHP.
SHP Policy Statement 5 – Long-Term Medical Care
The applicant affirms that the LTACH will provide chronic or long-term
medical care to patients who do not require more than three hours of
rehabilitation or comprehensive rehabilitation per day.
LTACH-NIS-0607-012
Gulf States LTAC of Jackson County
Page 3 of 13
SHP Policy Statement 6 – Transfer Agreement
The application contains transfer agreements between Gulf States and SRH
for both acute and comprehensive medical rehabilitative care.
SHP Policy Statement 7 – Need for Converted Beds
The applicant request CON authority to convert 40 acute care beds presently
licensed to Singing River Hospital into a free-standing 40-bed long-term acute
care hospital. The need for this project has been adequately demonstrated.
Certificate of Need Criteria for the Establishment
of Long-Term Care Hospitals
SHP Criterion 1 – Need
The FY 2007 State Health Plan requires a minimum of 450 clinically
appropriate restorative care admissions with an average length of stay of 25
days and a financial feasibility of the project by the third year of operation.
a. minimum of 450 clinically appropriate restorative care admissions
with an average length of stay of 25 days
The applicant used Singing River Hospital (SHR) patient discharge
history to prepare an acute-care hospital potential LTACH patient demand
analysis. The analysis was done using MedPAR FY 2005 data to
determine the number of patients who were discharged that could have
potentially benefited from LTAC services. Potential LTACH patients were
selected based on DRG assignment and length of stay criteria.
According to the applicant, Singing River Hospital discharged 9,760
Medicare patients in FY 2005; however, only 0.2 percent (23) of these
patients was discharged to an LTACH level of care. The analysis of
Singing River Hospital patient data determined that an additional seven
percent (674) could have been considered potential LTACH patients,
representing a need for approximately 47 additional LTACH beds (at 100
percent occupancy) if these patients were discharged to an LTAC hospital
or unit.
The applicant adequately demonstrated that at least a minimum of 450
clinically appropriate restorative care admissions with an average length
of stay of 25 days were available in the patients discharged from one of
the Jackson County hospitals.
b. projection of financial feasibility by the end of the third year of
operation
The applicant projects a financial income/(loss) during the first, second,
and third years of operation of ($514,212), $662,645, and $1,439,002,
LTACH-NIS-0607-012
Gulf States LTAC of Jackson County
Page 4 of 13
respectively, or a projection of financial feasibility by the end of the third
year of operation, based on a projected referral of SRH patients.
In May 2007, the Centers of Medicare and Medicaid Services (CMS)
issued policy and payment changes in the Prospective Payment System
(PPS) for LTACHs. These changes may possibly impact the
reimbursement ratio for Medicare patients that are admitted from a
referring hospital to an LTACH.
Prospective Payment System reimbursement levels for referred patients
may decrease dependent upon the referring hospital, the type and
location of the referring facility, and patient care characteristics. The
impact of the implementation of this rule change is dependent on
reimbursement of those patients admitted and its impact is unknown at
this time.
Even though the recent policy and payment changes in the Prospective
Payment System for LTACHs promulgated by the Centers for Medicare
and Medicaid Services (CMS) may impact reimbursement levels, in its
projected operating statement, the applicant demonstrated a financial
feasibility by the end of the third year of operation.
SHP Criterion 2 – Acute Care Licensure
The applicant affirms that present beds are licensed as short-term acute
care hospital beds and upon completion of this project, will be relicensed as
long-term acute care hospital beds. This project will not increase or
decrease in the acute care bed capacity within General Hospital Service Area
7 (GHSA-7).
SHP Criterion 3 – Bed Licensure Requirements
The applicant affirms that the LTACH beds will meet all regulatory and
licensure requirements for re-licensure as 40 long-term acute care hospital
beds.
SHP Criterion 4 – Indigent/Charity Care
The applicant affirms that the proposed LTACH will provide a reasonable
amount of indigent/charity care as described in Chapter I of the Mississippi
State Health Plan.
SHP Criterion 5—Reasonable Construction and Equipment Cost
Gulf States has projected a construction cost per square foot of $285.71,
based upon the formula contained in the FY 2007 State Health Plan. The
applicant maintains that this projected cost for new construction is reasonable
in comparison to similar projects approved by the Mississippi State
Department of Health within the most recent 12-month period. The applicant
cited Select Specialty Hospital-Tupelo, Inc.’s proposal to establish a 44-bed
LTACH-NIS-0607-012
Gulf States LTAC of Jackson County
Page 5 of 13
LTACH (CON REVIEW: LTACH-NIS-1206-036) with a cost per square foot
cost of $282.29.
The proposed construction cost of $285.71 per square foot compares
favorably to RSMeans Construction Cost Data which reflects a range of $164
(where 25 percent of projects have lower cost) to $300 (where 25 percent of
projects have higher cost) per square foot.
Similarly, the applicant compares the proposed equipment cost of $3,000,000
for the proposed project with Select Specialty’s estimated equipment cost of
$3,554,978 (fixed and non-fixed) as reasonable and necessary for the
establishment of a new 40-bed LTACH.
SHP Criterion 6-- Floor Area and Space Requirements
The applicant affirms that:
a. The gross square footage of the proposed project is comparable to state
and national norms for LTACHs;
b. The proposed facility will not place restraints on the LTACH; and
c. No local conditions requiring special considerations exist.
SHP Criterion 7-- Transfer Agreements
The application contains a transfer agreement with SRH as both an acute
medical center and a comprehensive medical rehabilitation facility.
B. General Review (GR) Criteria
Chapter 8 of the Mississippi Certificate of Need Review Manual, revised
November 12, 2006, addresses general criteria by which all CON applications
are reviewed. The applicable criteria are as follows:
GR Criterion 1 – State Health Plan
The proposed project complies with the Certificate of Need Criteria and
Standards for Long-Term Acute Care Hospital Beds contained in the FY 2007
State Health Plan.
GR Criterion 2 – Long Range Plan
According to the applicant, this project is in conformance with its long-range
plan to enhance the delivery of long-term acute care services to the patients
of Jackson County and the surrounding service area.
GR Criterion 3 – Availability of Alternatives
According to the applicant, Gulf States considered three alternatives to afford
the residents of Jackson County medical trade area access to LTAC services:
(1) maintain the status quo and do nothing; (2) create a hospital within a
LTACH-NIS-0607-012
Gulf States LTAC of Jackson County
Page 6 of 13
hospital LTAC system, and (3) develop a freestanding LTACH. Gulf States
rejected alternatives 1 and 2 for the reasons outlined below.
Under the first alternative, the residents of Jackson County medical trade
area are denied access to a local LTACH. Patients needing long-term acute
care would continue to receive services in settings not ideally suited to deliver
the appropriate level of care.
Under the second alternative, Gulf States could convert general acute care
beds to long-term acute care beds within an existing Jackson County
hospital. Gulf States recognized that this alternative has been successful in
the past, but has experienced that other acute care facilities are unlikely to
transfer its patients to a competing acute care facility with an in-house
LTACH.
Under the third alternative, Gulf States would establish a freestanding LTACH
in Jackson County. Gulf States determined that this alternative was
efficacious in meeting the long-term acute care needs of all the patients of
Jackson County medical trade area. This alternative affords family support
and encouragement necessary to a long term care patient’s recovery. Thus,
Gulf States determined that this was the only reasonable alternative for
Jackson County.
GR Criterion 4 -- Economic Viability
The applicant projects a loss of $514,212 during the first year of operations
and gains of $662,645 and $1,439,002 during the second and third years of
operation, respectively.
a. Proposed Charges
: The applicant projects a cost of $1,210 per day and
a proposed charge of $1,921 during the first year of operation. This
charge is established by CMS and is comparable to other LTACH
charges within the state.
b. Projected Level of Utilization
: The applicant projects inpatient days of
7,300; 9,490; and 10,950 for the first, second, and third years of
operation, respectively, or a percentage occupancy rate of 50, 65, and
75 during the same period. The applicant affirms that the projected level
is comparable to similar facilities operating within the state.
c. Financial Feasibility Study
: The application contains a letter from the
chief executive officer (CEO) of Gulf States Health Services, Inc.
attesting that he considers the proposed project to be financially viable.
GR Criteria 5 – Need for the Project
The proposed project requires the establishment of a long-term acute care
hospital in Ocean Springs, Mississippi. The need for the facility has been
adequately demonstrated.
LTACH-NIS-0607-012
Gulf States LTAC of Jackson County
Page 7 of 13
a. Underserved Populations: Gulf States avows not to discriminate against
low income persons, racial and ethnic minorities, elderly, women,
handicapped persons, or any other underserved groups in the provision
of its services.
b. Relocation of Facility
: The proposed project does not involve the
relocation of a facility. The proposal seeks to lease 40 acute care beds
from SRH. Gulf States, in turn, will convert the use of these beds from
short-term acute care to long-term acute.
Singing River Hospital, a 385-bed acute care hospital, reported an
average daily census of 108 patients during FY 2006, or 277 unused
beds; therefore, the conversion of these beds constitutes a wise use of
surplus acute care beds.
c. Projected Utilization of Like Facilities in the Area
: Only one LTACH is
licensed and operative in GHSA 7: Select Specialty Hospital-Mississippi
Gulf Coast, located in Gulfport, Mississippi. Select Specialty currently
uses only 20 of its 80 authorized beds and has yet to complete renovation
of its current facility. According to the applicant, Select Specialty does not
serve the same area as the proposed project. Select Specialty has
transfer agreements with the University Hospital and Clinics in Jackson
and Memorial Hospital in Gulfport.
An aggregate quarterly patient origin study of patients discharged from
Select Specialty during January 2006 and October 2006 reveals that 7.32
percent of Select Specialty’s patients originate from Jackson County while
70.73 percent reside in Harrison County.
County/Place of
Residence
A
labama 1 2.44
George 1 2.44
Hancock 5 12.20
Harrison 29 70.73
Jackson 3 7.32
Othe
r
12.44
Stone 1 2.44
Select Specality Hospital-Gulfport
Patient Origin Study
A
ggragate 2006
Frequency Percentage
Patients at Jackson County hospitals have a clear need for access to a
local LTACH. For this reason, Gulf States will not duplicate the services
provided by Select Specialty even when it becomes fully operational,
according to the applicant.
d. Probable Effect of Proposed Facility on Existing Facilities
: The proposed
facility will have no adverse effect on other existing or proposed LTACHs
in GHSA 7, according to the applicant.
LTACH-NIS-0607-012
Gulf States LTAC of Jackson County
Page 8 of 13
e. Letters of Support: The application contains many letters indicating
community support of the proposed project. Two letters of opposition
were received.
GR Criteria 6 – Access to Long-Term Acute Care Facility
The applicant submits that all residents of the Jackson County medical trade
area will be served by the LTACH.
a. Medically Underserved Populations
: Gulf States avows not to discriminate
against low income persons, racial and ethnic minorities, elderly, women,
handicapped persons, or any other underserved groups in the provision
of its services.
b. Federal Regulations Requiring Uncompensated Care:
Gulf States avows
no existing obligations under any federal regulations requiring provision of
uncompensated care, community service, or access by minority or
handicapped persons. According to the applicant, Gulf States fully
complies with all applicable federal and state laws, including, but not
limited to, laws and regulations governing access by minorities and
handicapped persons.
c. Unmet Needs of Medicare, Medicaid, and Medically Indigent Patients
:
Gulf States avows to treat all patients requiring LTACH services.
d. Range of Means to Provide Access
: Gulf States will be established in
Ocean Springs, one of the economic centers of the Mississippi Gulf coast.
According to the applicant, the facility will be fully equipped to provide
access to all handicapped patients.
GR Criteria 7 – Information Requirement
The applicant affirms that it will record and maintain the requested
information stated in the above criterion and make it available to the
Mississippi State Department of Health within 15 working days of request.
GR Criteria 8 – Relationship to Existing Health Care System
Select Specialty Hospital-Gulf Coast, the only long-term acute care hospital
currently in the GHSA-7, currently operates only 20 of its 80 authorized beds.
According to a letter of opposition from Select Specialty, adding additional
long-term acute care beds could impose a significant financial hardship upon
SSH-Gulf Coast and other existing long-term acute care hospitals serving
residents of GHSA-7.
GR Criteria 9 – Availability of Resources
The application contains documentation that demonstrates Gulf States’ long-
term acute care management expertise necessary to carry forward with this
project. A local financial institution has demonstrated willingness to pledge
LTACH-NIS-0607-012
Gulf States LTAC of Jackson County
Page 9 of 13
the financial resources to underwrite the establishment of this project and its
initial operating expense.
GR Criteria 10 – Relationship to Ancillary or Support Services
Gulf States avows no adverse effect on the existing ancillary or support
services.
GR Criteria 11 –Health Professional Training
Gulf States avows to continue working with area health care providers to
accommodate the clinical needs of the health professional training programs
in the area.
GR Criteria 14 – Construction Projects
The application contains schematic drawings and cost estimate signed by an
architect licensed to do business in Mississippi. Gulf States estimates that
the project will require 28,000 square feet of new construction at a cost of
$285.71 per square foot. The applicant affirms that the proposed project
includes appropriate floor area and space requirements, including favorable
gross square footage and architectural design in comparison to state and
national norms for similar projects.
GR Criteria 16 – Quality of Care
According to the applicant, one of the principals in this enterprise owns and
operates ten existing LTACHs. Nine of which are similar in size to the
proposed project and all provide excellent patient care.
LTACH-NIS-0607-012
Gulf States LTAC of Jackson County
Page 10 of 13
IV. FINANCIAL FEASIBILITY
A. Capital Expenditure Summary
The total estimated capital expenditure of $11,300,000 is prorated as follows:
COST PERCENT
1. Land Cost 900,000$
2. Site preparation and/or improvement
3. Other
SUBTOTAL 900,000
$ 7.96
1. New construction 6,000,000$
2. Renovation
3. Capital improvement
4. Fees (architectural, consultant, etc.) 400,000$
5. Contingency reserve 300,000
6. Capitalized interest 300,000
7. Other
SUBTOTAL 7,000,000$ 61.95
1. Fixed equipment 1,000,000$
2. Non-fixed equipment 2,000,000
SUBTOTAL
3,000,000$ 26.55
1. Legal and accounting fees 400,000$
2
.
Oth
e
r
400,000$
3.54
11,300,000$ 100.00
Gulf States LTAC of Jackson County, LLC
Establishment of a 40-bed Long-Term Acute Care Hospital
Capital Expenditure Estimation
SUBTOTAL
TOTAL PROJECT COST
SITE
BUILDING
EQUIPMWENT
PROJECT DEVELOPMENT
The project involves 28,000 square feet of new construction and an estimated
cost per square foot of $285.71 (See Attachment 2). RSMeans’ Building
Construction Cost Data manual suggest the unit cost per square foot of new
construction at various levels as follows: $164 (where 25 percent of projects
cost less); median, $203, and $300 (where 25 percent of projects cost more)
per square foot.
B. Method of Financing
The proposed project will be financed through a commercial loan and equity
contributions: $9,500,000 financed and $1,800,000 equity contribution.
LTACH-NIS-0607-012
Gulf States LTAC of Jackson County
Page 11 of 13
C. Effects on Operating Cost
Gulf States’ three-year projected operating statement is contained in
Attachment I of this Staff Analysis.
D. Cost to Medicaid
The cost of the project to third party payors is as follows:
Gulf States LTAC of Jackson County
40-Bed Long-Term Acute Care Hospital
First Year Operation (Net Revenue)
Payor
Medicare 86
$
12
,
045
,
000
Medicaid 0 0
Charit
y
care 1 150
,
000
Commerical 13
1,825,000
Total 100
$14
,
020
,
000
Utilization Percentage First Year Revenue
V. RECOMMENDATION OF OTHER AFFECTED AGENCIES
The Division of Medicaid takes no position on this application.
VI. CONCLUSION AND RECOMMENDATION
This project is in substantial compliance with the criteria and standards for the
establishment of a long-term acute care hospital as contained in the FY 2007
Mississippi State Health Plan; Chapter 8 of the Mississippi Certificate of Need
Review Manual, Revised 2006; and all adopted rules, procedures, and plans of the
Mississippi State Department of Health.
The Division of Health Planning and Resource Development recommends approval
of this application submitted on behalf of Gulf States LTAC of Jackson County, LLC
for the establishment of a 40-bed long-term acute care hospital in Ocean Springs,
Mississippi.
LTACH-NIS-0607-012
Gulf States LTAC of Jackson County
Page 12 of 13
Attachment I
Revenue Year 1 Year 2 Year 3
Gross Patient Revenue $14,020,000 $18,331,000 $21,105,000
Contractual Allowance
(
5
,
698
,
000
)
(
7
,
512
,
400
)
(
8
,
622
,
000
)
Total Net Revenue 8
,
322
,
000 10
,
818
,
600 12
,
483
,
000
O
p
eratin
g
Ex
p
ense
Personnel Cost
3,001,236
3,319,392
3
,
556
,
992
Su
pp
lies 251
,
850 327
,
405 377
,
775
Services 3
,
058
,
600 3
,
851
,
380 4
,
379
,
900
E
q
ui
p
ment Lease/Rental 480
,
000 480
,
000 480
,
000
De
p
recation 608
,
059 608
,
059 608
,
059
Interest 853,927 812,417 767,462
Other* 582,540
757,302 873,810
Total Expense 8,836,212 10,155,955 11,043,998
Income (loss) from Operation
($514,212)
$662,645 $1,439,002
Assumptions
Occupancy Rate (percent)
50 65 75
Patient Days 7,300 9,490 10,950
Cost (patient day) $1,210 $1,070 $1,009
Charge (patient day) $1,921 $1,932 $1,927
Tatal Available Pt. Days 14,600 14,600 14,600
Average Daily Census
20 26 30
Average Length of Stay
25 25 25
Admissions @ 25 Days Avg.
292 380 438
Establishment of a 40-Bed Lon
g
-Term Acute Care Hos
p
ital
Three Year Projected Operation Statement
Gulf States LTAC of Jackson Count
y,
LLC
* Includes travel, entertainment, legal and accounting fees, and start-up expense.
LTACH-NIS-0607-012
Gulf States LTAC of Jackson County
Page 13 of 13
Attachment 2
Computation of Construction and Renovation Cost
Total New Constructon Renovation
Cost Component
A
New Construction Cost $6,000,000 $6,000,000
B
Renovation Cost $0 $0
C
Total Fixed Equipment Cost $1,000,000 $1,000,000
Total Non-Fixed Equipment Cost $2,000,000 $2,000,000 $0
Capital Improvement $0
Land Cost $900,000 $900,000
D
Site Preparation Cost $0 $0
E
Fees (Architectural, Consultant,
etc.) $400,000
$400,000 $0
F
Contingency Reserve
$300,000
$300,000 $0
G
Capitalized Interest
$300,000
$300,000 $0
Other
$400,000
Total Proposed Capital
Expenditure $11,300,000 $10,900,000 $0
Square Footage
28,000
28,000
Allocation Percent
100.00% 0.00%
Costs Less Land, Non-Fixed
Eqt.& Cap. Improvement $8,400,000 $8,000,000 $0
Cost Per Square Foot $300.00 $285.71 #DIV/0!
