HOSPITAL TAX: YES, NO, OR MAYBE?
Analysis of the Need and the Means to Expand
An Analysis of the Need and the Means to Expand TVRH
by Henry S. Perdue
by Henry S. Perdue
In the last ten years the population of The Villages and the adjoining areas of Sumter, Lake, and Marion counties has grown rapidly. The number of hospital beds available to this population within a reasonable distance and driving time from their residences has not kept pace with the increase in population. The North Sumter County Hospital District was created by the Florida State Legislature to help finance expansion of The Villages Regional Hospital by authorizing the Board of Trustees of the Hospital District to levy an ad valorem tax of up to one mill on the dollar on all non-exempt property within the Hospital District. Such taxing authority, however, must be approved by the voters in the Hospital District in a referendum to be held not later than December 31, 2006. If the voters approve this taxing authority in a referendum on November 2, 2004, the president of TVRH has announced that work to expand TVRH from 60 beds to 240 beds will begin in early 2005 and will take about three years to complete.
While this increase represents a vast improvement in the number of beds available at TVRH, by the time this expansion is completed in 2008 the population of the service area for TVRH (The Villages and adjoining areas of Sumter, Lake, and Marion counties) will have grown significantly and 240 beds will be inadequate based on the average number of hospital beds in Florida in 1993 and in the United States in 2000 and recent national data showing that hospital usage for people 65 years of age is approximately three times greater than for people 45 to 64 years of age. The same data also show that the average age of hospital inpatients in 2002 was 52.1 years. It is urgent, therefore, for TVRH to expand well beyond 240 beds as soon as possible.
To permit TVRH to expand beyond the currently planned 240 beds, TVRH/LRMC will probably need to issue more bonds than the currently planned $100 million. This means that the tax base and revenues will need to be increased significantly beyond that currently projected for the North Sumter County Hospital District as currently defined.
Ways to increase the tax revenues available for expanding TVRH and to make the tax fairer to residents of the Hospital District and TVRH’s service area are analyzed.
In an article published in the Daily Commercial on August 7, 2004, Mr. Timothy Menton, CEO of The Villages Regional Hospital (TVRH) is quoted as saying that (if the hospital tax is approved on November 2) “the first phase of construction, a 180-bed addition, is expected to get under way in early 2005 and will take about three years to open.” While that is certainly good news because some news reports have said the initial expansion would be to a total of 180 beds, the not-so-good news is that by the time the expanded hospital(whether 180 or 240 beds) is opened it will already be inadequate for the residents of its service area. Here’s why:
On May 4, 2003, The Ocala Star/Banner published an article by Mr. Terry Upton, who was then the President of The Villages Regional Hospital (TVRH). This article said:
“The Villages' growth and the population of the
hospital's service areas have increased dramatically during the past decade. At
the end of 2002, The Villages' population was more than 33,000 residents - more
than twice the size of Leesburg. By Dec. 31, 2004, The Villages' population
will be greater than that within the city limits of Ocala. Currently, the combined population of
The Villages and adjacent communities in the tri-county area of North Lake, North
Sumter and South Marion counties is
approximately 100,000. By 2014, only 11 years from now, this same region will
have more than 200,000 residents - 80 percent of the current population of Marion County.
More than 100,000 of these residents will be located in The Villages.
”The need for more acute care hospital beds and services to serve the tri-county region is now, not later. Even when you apply a conservative analysis to the average beds-per-thousand people in Florida and the population to be served by these beds, the need becomes obvious. Currently, using this conservative approach, TVRH needs 198 acute beds. In two years, the expected growth suggests 240 beds will be needed.”
Mr. Upton’s projections of The Villages’ growth in population appear reasonably accurate. For example, the Planning Department of the City of Ocala has reported that the population count for Ocala for 2002 was 46,453 and projected a population of 47,261 for 2004. Others (Bill Koch, The Reporter, 9/2/2004) have reported that The Villages is adding 10 new houses every day and is rapidly approaching a population of 50,000. This rate of growth combined with the estimate that each new house in The Villages adds an average of 1.9 residents equates to a population growth of approximately 7,000 new residents per year and 49,000 in seven years to bring the population of The Villages to 100,000 by the end of 2011. By 2011 the population of the other components of TVRH’s service area probably will have also increased to 100,000 from an estimated 65,000 in 2003 to give a total population of 200,000.
According to The Dartmouth Atlas of Health Care: The South Atlantic States, in 1993, the national average number of hospital beds per 1000 residents of the United States was 3.3. The hospital service areas for Miami Beach and Jacksonville, FL, were reported as 4.3 and 3.4 beds per 1000 residents and, using data provided in the Atlas, the calculated average for the State of Florida was 3.4 beds per 1000 residents. In the year 2000, the Centers for Medicare and Medicaid Services (CMS) publication An Overview of the U.S. Healthcare System, 1980-2000, reports that the U.S. had 3.6 hospital beds per 1000 residents. If the national average for 2000 is applied to Mr. Upton’s estimate of a population of 100,000 for TVRH’s service area in 2003, the number of hospital beds needed in 2003 is 360. It appears, therefore, that Mr. Upton’s estimate was based on approximately 2.0 beds per 1000 population, less than half of that for Miami Beach in 1993. Using 2.0 beds per thousand and a projected need of 240 beds by May 2005, the expected population for the service area can be calculated to be 120,000 and, multiplying that number by 3.4 beds per 1000 residents suggests that a minimum of 400 beds would be needed by May 2005 to provide average hospital service to the residents of the service area of TVRH.
The above figures, however, do not take into account the much greater rate of hospitalization for those 65 years of age and over compared to younger populations. In a recent publication (2002 National Hospital Discharge Survey, published May 21, 2004) the Centers for Disease Control and Prevention (CDC) provides national data showing that the discharge rate for persons 65 and over was 357 per thousand and for persons 45-64 the rate was 116 per thousand. They also reported that in 2002, the average age of hospital inpatients was 52.1. It seems reasonable to estimate, therefore, that for patients of this age the discharge rate would be approximately 100 per thousand or less than one-third of that for patients 65 and over.
The projected or desired utilization or occupancy rate of the hospital is another important determinant of how many beds a hospital should have. If a hospital has too few beds, as is the case now with TVRH, patients will have to be turned away and/or sent to other hospitals. Conversely, if a hospital has more beds than needed to satisfy demand, its operating margins will be less than desired.
The CDC also reports that in 2002 the average length of hospital stay for patients 45-64 years of age was five days and for those 65 and over the average was 5.8 days. Using either of these figures and multiplying by the discharge rate of 357 per thousand gives an average hospital stay of approximately 2000 days per 1000 residents who are 65 and over. Thus, for each 1000 residents 65 and over and assuming an occupancy rate of 100%, 5.48 beds would be needed and at 90% occupancy 6.1 beds would be needed. Further, if 50% of the 120,000 residents projected by Mr. Upton for TVRH’s service area for May 2005 are 65 and over, approximately 300 beds at an average occupancy of 90% would be needed just for them.
Clearly, a hospital with 240 beds will be woefully inadequate for the projected number of residents in its service area in May 2005 and will be even more inadequate in 2008. What can be done about it?
If we assume that Leesburg Regional Medical Center (LRMC), the owner of TVRH, wants to expand TVRH to assure that TVRH has enough beds to serve the needs of the population of its projected service area commensurate with national and state averages and hospitalization rates for persons over 65 years of age, the biggest problem is money. In a “Tax District FAQ’S” pamphlet available from TVRH, the following statements appear:
Q: What are the consequences of the tax referendum not passing?
A: The funds we anticipate receiving from the tax revenue are an important part of the financial plan developed to expand the hospital. If the tax levy is not approved, the project may be delayed or the scope of the projects may have to be changed or both.
Other parts of the pamphlet mention the tax revenues as part of the financial plan but are vague on how the tax revenues will be used. For example:
Q: What will be done with the money from the tax?
A: The funds will be used to insure continued hospital services to the residents of the Hospital District.
Q: Can the money from taxes be used for improving hospital staffing or to recruit additional physicians?
A: It is possible the funds could be used in this manner; however, it is the intent of the hospital Board that the funds be used to support the expansion project.
The answer to the first of the above questions is only partially true because the money from the hospital tax will be used to help provide hospital services for many people who do not live or own property in the North Sumter County Hospital District as described in Laws of Florida, Chapter 2004-451.
In the answer to the second question, it is not clear what is meant by “the hospital Board.” The wording suggests that “the hospital Board” means either the Board of Directors of LRMC or the Board of Directors of TVRH. Since LRMC owns TVRH, it seems reasonable to assume that in either case the decisions regarding use of the tax revenues will be made by LRMC. Ultimately, however, given the fungible nature of money (one dollar is the same as any other dollar), it probably does not matter what LRMC or TVRH say about how each dollar of the anticipated tax revenues will be used. It is likely that the real importance of the tax revenues is that they, in addition to certain other revenues of TVRH and possibly LRMC, can be pledged to the insurers and buyers of the $100 million in bonds that will be issued as the main source of financing for the expansion of TVRH. Thus, unless LRMC has other guaranteed revenues that can be pledged for this purpose, failure of the voters to approve the tax could jeopardize the bond issue and the entire expansion project. In this regard a major provider of ratings on municipal bonds recently said, “Pledged revenue growth and coverage levels are important considerations in determining the credit strength of all bonds backed by specific tax revenues”(Fitch, Inc., “Focus on Florida: Revenue Trends and Rating Guidelines for Tax Supported Public Debt,” April 2003).
The foregoing analysis also suggests that the size of the proposed expansion of TVRH may well have been determined to a significant extent by the amount of guaranteed (i.e., tax derived) “pledgeable” revenues available to LRMC rather than the size of the hospital needed to provide adequate hospital services to TVRH’s service area. Another factor that may be an important determinant of the size of the expansion proposed by LRMC is that the addition of beds at TVRH may reduce the demand for hospital beds at LRMC and thus reduce the operating margins at LRMC’s Leesburg hospital where most of its investment is currently located.
If the above analysis is correct and if we assume that LRMC is truly interested in expanding TVRH so it can provide more adequate hospital services to residents of its service area, the logical answer is to find a way to increase the “pledgeable” tax revenues available to LRMC. Therein, resides another set of complicated issues.
As currently written, the law (Chapter 2004-451) provides that up to 20% of the tax revenues of the North Sumter County Hospital District may be used by the Board of Trustees to contract with any foundation associated with TVRH. This suggests, therefore, that only 80% of the anticipated tax revenues are “pledgeable” by LRMC to support the proposed $100 million bond issue. The only foundation associated with TVRH is controlled by the Morse family and it is of interest to note the following quote from an article by Bill Koch published in The Reporter on June 24, 2004:
“The developer of the Villages has agreed to forgo using $20 million for a hospital foundation in order to help expand The Villages Regional Hospital, a hospital official said last week.”
Although “the developer of The Villages” is not identified by name, it appears reasonable to assume that this phrase refers to Mr. Gary Morse. As yet, to my knowledge, the “hospital official” to whom this statement is attributed has not been clearly identified but the next paragraph of the article mentions Mr. Richard Wooten, CEO of LRMC. In any case, the only way to assure rating agencies and potential buyers of the bonds that 100% of the tax revenues available from the North Sumter Hospital District will be available to TVRH/LRMC for paying the interest and principal on the bonds needed to expand TVRH is to revise the law to eliminate the possibility of up to 20% of the anticipated tax revenues being used for purposes other than providing hospital services to residents of the service area of TVRH. This change could allow a bond issue greater than the projected $100 million, perhaps as much as $125 million (100 is 25% greater than 80). This increased funding could, in turn, permit a significant increase in the currently proposed addition of hospital beds.
Other issues relate to the taxable value of the property included in the Hospital Tax District. The greater the taxable value, the greater the tax revenues available to LRMC/TVRH, the greater the bond issue that can be supported, and the greater the expansion of TVRH that can be financed. As currently constituted the land area of the Hospital Tax District is only approximately 24 square miles or about one-third larger than Leesburg’s land area of 18.7 square miles and only 4.4% of Sumter County’s 546 square miles. Indeed, in land area the North Sumter County Hospital District may well be the smallest Hospital District in Florida. It appears, therefore, that in drafting the boundaries of the Hospital District the objective may have been to make the Hospital District as small as possible rather than to make it cover as much of TVRH’s service area as possible and thus make the tax fairer to those paying the tax and also increasing the tax revenues.
In the Florida Special Districts Handbook it is stated (page 4) that the legislature, counties and municipalities recognize that one of the advantages of creating new special districts is “They focus costs only on those benefiting from the special district’s service.” Semantically this also means that those who benefit from a special district’s services should share in the costs of the special district. As currently defined in Chapter 2004-451, those potentially subject to the tax are a relatively small percentage of those who stand to benefit from the services of the Hospital District. This is contrary to one of the major purposes of special districts in Florida.
Why is the North Sumter County Hospital District limited to a very small corner of NE Sumter County? In their pamphlet on “FAQ’s”, TVRH states:
“….limiting the District to NE Sumter County allows the residents of the south and westerly portions to someday create their own hospital tax district, if they decide to bring a hospital to their area.”
Given the existing urgent need to expand TVRH as much as possible and as fast as possible to provide adequate hospital service to the existing and future populations of North Sumter, South Marion, and North Lake counties, this reason hardly seems credible. Also, if a “Sumter County Hospital District” existed and a need arose for other hospitals in Sumter County, the enabling legislation could be amended to provide for different territories (e.g., North and South Territories) just like the North Lake County Hospital District is currently divided into Northeast (Florida Hospital Waterman or FHW) and Northwest (LRMC) Territories.
Another option is to expand the boundaries of the North Sumter County Hospital District so it contains all of the people in the Zip Codes for Oxford, Wildwood, Lake Panasofkee, and Sumterville as well as the areas it currently contains. Based on current data for the number of addresses in these zip codes, this expansion is estimated to add an additional 12,000 addresses to the Hospital District. Such expansion would also include the areas of the planned I-75/CR-466 interchange and the existing interchanges and intersections in the Wildwood area involving Florida's Turnpike, I-75, U.S. 301, S.R.-44, and C.R.-44A. With the existing and planned expansion of The Villages both of these areas are likely to experience rapid growth in commercial development and taxable property values thus adding to the tax base of the Hospital District.
In regard to expanding the Hospital District to include the above Zip Codes it is interesting to note that there has already been mention of the possibility that The Villages developer and/or LRMC may someday want to build a hospital in the vicinity of Wildwood. In an article by Bill Koch (The Reporter, June 24, 2004) it is stated that:
“LRMC president Richard Wooten also told Sumter County commissioners at their meeting that The Villages is forgoing plans to build a second hospital near State Road 44 in Sumter County in order to funnel resources to TVRH.”
Just how this action would “funnel resources to TVRH” is not clear. Perhaps Mr. Wooten or Mr. Morse can explain what these resources are and how they would be funneled to TVRH unless a second Hospital District south of CR 44A (a Mid Sumter County Hospital District?) has been, and maybe still is, contemplated by LRMC and/or The Villages developer.
More recently, The Villages Daily Sun for August 11, 2004, reported that in a letter signed by Mr. Gary Morse and read to the Sumter County Board of Commissioners at its regular meeting on August 10, Mr. Morse said in regard to rumors that The Villages has plans to expand across S.R. 44:
“The Villages has no such plans to expand across State Road 44, nor have we ever had such plans.”
One may ask, however, when does an intention become a “plan”? Also, although the above statement refers to the present and the past, it is silent about the future. Perhaps coincidentally, the Hospital District does not extend south of C.R. 44A or S.R. 44, does not include Wildwood, “zig-zags” in a northwesterly direction from just east of Wildwood, and magically stops short of Interstate 75 and the area of the I-75/466 interchange in which The Villages developer is reported (Star/Banner, June 13, 2004) to have invested $3.5 million buying up land for a future commercial district including a hotel, convenience stores and a welcome center for The Villages.
In the absence of definite information from them, it is, of course, impossible for the residents of the North Sumter County Hospital District to know what The Villages developer or LRMC may have in mind for the future. It is clear, however, that restricting the size of the North Sumter County Hospital District reduces the tax revenue available for expanding TVRH. From the standpoint of the residents of the North Sumter County Hospital District, therefore, expansion of the Hospital District to include as much as possible of Sumter County clearly would be in their best interests.
LRMC apparently recognizes the inequity of current boundaries of the Hospital District by stating that LRMC will transfer to TVRH each year approximately $543,000 of LRMC’s share of the revenues from the North Lake County Tax District. From statements made by Mr. Richard Wooten, LRMC’s CEO, it appears that this is an estimate of the revenues derived from that part of the North Lake County Hospital District which is in The Villages. While this may be a generous offer, would it not be better to transfer to the North Sumter County Hospital District that part of the North Lake County District that is within the Town of Lady Lake and well within the service area of RVRH? Doing so would include not only the Lake County part of The Villages, which is largely residential, but also the residential and commercial property in the Town of Lady Lake but not in The Villages.
Alternatively, it also would be possible to amend Laws of Florida, Chapter 2003-348 (which codified all special acts relating to the North Lake County Hospital District) to provide that the hospital tax revenues paid by property owners in the Town of Lady Lake and paid to the Board of Trustees of the North Lake County Board of Trustees would be paid to the Board of Trustees of the North Sumter County Hospital District for use as provided in Chapter 2004-451. This provision would be similar to those in Chapter 2003-348 (as amended by Chapter 2004-460) which divides the North Lake County Hospital District into Northeast (NE) and Northwest (NW) Territories and specifies that revenues from the NE Territory are to be paid to FHW and those from the NW Territory are to be paid to LRMC. Either this change or the change described in the preceding paragraph would reduce the uncertainty regarding the tax revenues available and thus increase TVRH’s pledgeable revenues and bond carrying capacity.
Lastly, there is the issue of the part of Marion County that is within the service area of TVRH. Depending on whether this part of Marion County is defined by Zip Codes or by some other means (e.g., major roads), it is estimated that the area involved would be less than 30 square miles or 2% of Marion County’s 1652 square miles.
In their “FAQ’s,” TVRH states:
“Marion County Residents find themselves already in a Marion Tax District, which is not currently levying a tax. Marion County has informed us that they are unwilling to release any of those taxpayers to join a tax District here.”
In this context “Marion County” and “us” are not defined. In view of the controversy and litigation that arose between TVRH/LRMC and the two Marion County hospitals regarding legislation that would have allowed TVRH, but not the Marion County hospitals, to expand without a Certificate of Need, it is entirely likely that the Marion County hospitals (MRMC and ORMC) are not inclined to do any favors for TVRH/LRMC. The issue, however, should be what is the best way to assure that needed hospital services are available to the residents of TVRH’s service area, including those who live in south Marion County. Inadequate financing of the expansion of TVRH will hurt residents of south Marion County as well as residents of Sumter and north Lake counties. What can be done to help resolve this situation?
Given their obvious interest in assuring that residents of The Villages and surrounding areas have access to adequate health care, perhaps Congresswoman Ginny Brown-Waite (FL, 5th District) and Congressman Clifford Stearns (FL, 6th District) could be persuaded to act as mediators between appropriate representatives of Sumter County and Marion County in regard to a proposal that Marion County agree to modify the Marion County Hospital District so that at least a part of Marion County that lies within the service area of TVRH can be included in a Hospital District that includes part of Sumter County and, perhaps, part of the current North Lake County Hospital District. Such arrangement would be for the good of all.
Since TVRH is located at the junction of Sumter, Lake, and Marion counties defining geographically a Hospital District approximating the expected service area of an expanded TVRH presents a number of jurisdictional issues, several of which are discussed above. One way to avoid these issues may be to have an occupancy tax or fee that would be paid to the tax collector in a manner similar to that currently use for hotel occupancy taxes but ultimately the revenues would be transmitted to the Board of Trustees of the Hospital "District" in a manner similar to that currently used for ad valorem property taxes. Florida law currently permits special districts to collect certain "non-ad valorem assessments, fees, or service charges" (Florida Special District Handbook, p. 10) but it isn't clear whether current law would allow a special district to collect an occupancy tax or fee for use of a hospital room. It may be necessary to obtain an Advisory Opinion from the office of Florida's Attorney General to determine whether this approach is permitted by current law.
If it is possible to vote “Maybe” in the forthcoming referendum on the Hospital Tax, many electors may well choose this option to say that they recognize the urgent need for expanding TVRH and are willing to pay the tax but believe that significant changes are needed in the enabling law (Chapter 2004-451) so the Hospital District includes more of its service area and the people who will benefit from an expanded TVRH and thus increase its tax base and bond carrying capacity; so it is assured that 100% of the tax revenues will be used to expand TVRH; and so all facets of the existing law and changes needed can be openly and publicly debated in accord with Florida’s tradition of “Government in the Sunshine.”
Unfortunately, assuming the referendum will not provide for a vote of “Maybe”, the next best option for many electors may well be “No.” A vote of “No” would tell our representatives in the legislature that although an expanded TVRH is badly needed, the current law (Chapter 2004-451) is not only unfair but also fails to provide the tax base that may be needed to finance timely expansion of TVRH to meet the health care needs of the people in its service area of Sumter County, South Marion County, and part of North Lake County.
Some electors will, of course, choose to vote "Yes" in the Hospital Tax referendum. One of their reasons for voting "Yes" may be that they feel that doing so is the only way to get a significant expansion of TVRH. Although this article describes several better alternatives, that point of view is certainly understandable. Those inclined to vote "Yes" should recognize, however, that doing so means that this will be the ONLY OPPORTUNITY THEY WILL EVER HAVE TO VOTE ON ANYTHING RELATING TO THE NORTH SUMTER COUNTY HOSPITAL DISTRICT.
The taxing authority established by approval of the referendum is expected to be used to support one or more bond issues with 30-year maturities and which may well be issued over a period of years depending on the financial needs of TVRH/LRMC. The financial commitments and covenants relating to these bonds will then deter any significant change in the law establishing the Hospital District. In addition, since the current law provides that the trustees of the Hospital District are appointed by the governor, residents of the North Sumter County Hospital District will never to be allowed to vote on the trustees of their Hospital District. This arrangement contrasts with those in the North Lake County Hospital District and the Marion County Hospital District which provide that their trustees are elected directly (North Lake) or appointed by elected officials of the county government (Marion).
Finally, wouldn’t it be refreshing if the Villages developer and LRMC/TVRH stopped treating residents of The Villages and the surrounding areas less like “cash cows” and more like stakeholders, if not shareholders, in The Villages and in LRMC/TVRH? Wouldn’t it be nice if occasionally we were given all of the relevant information and asked for our opinions on important issues like the Hospital Tax District before action is taken instead of, after the action has been taken, being told the equivalent of “Shut up and pay up?” There are many different ways this concept of cooperation and reciprocity can be expressed such as “What goes around, comes around;” You scratch my back and I will scratch yours;” and One good deed deserves another.” But perhaps best of all is: “Do unto others as you would have them do unto you.”
Henry S. Perdue is a resident of The Villages and the North Sumter County Hospital District