COMPTROLLER GENERAL'S REPORT TO THE CONGRESS

STUDY OF HEALTH FACILITIES CONSTRUCTION COSTS B-164031(3)

DIGEST

WHY THE REVIEW WAS MADE

This study was made pursuant to section 204 of the Comprehensive Health Manpower Training Act of 1971. The act required the General Accounting Office (GAO) to study the feasibility of reducing the cost of constructing health facilities assisted under the Public Health Service Act, particularly with respect to innovative techniques, new materials, and the possible waiver of unnecessarily costly Federal standards. The act required that GAO submit its report to the Congress on or before November 18, 1972.

The requirement for the study was added while the act was under consideration by the Senate Committee on Labor and Public Welfare because of concern over the high cost of constructing health facilities. Subsequent to passage of the act, the Committee expressed particular interest in having the study concentrate on patient care facilities, primarily hospitals, and consider the costs of operating hospitals in addition to initial construction costs. Interest was also expressed in having GAO identify and evaluate ways in which the demand for facilities could be reduced or eliminated.

FINDINGS AND CONCLUSIONS

Factors impacting on planning and construction process

The success of any construction project depends in large measure on the planning that precedes it. GAO found

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the following weaknesses and potential opportunities for improvement in the preconstruction planning process.

--Projects often were conceived in a crisis situation with little or no attention given to advance analysis of specific health care needs. (See p. 17.)

--Cost estimates were deficient and alternative sources of funds were not identified early in the planning process. (See pp. 17 and 18.)

--Some projects were delayed by certain Federal review procedures. (See pp. 18 and 19.)

--An opportunity may exist for the reuse of designs, in whole or in part, which would provide the potential to reduce design time and project costs. (See pp. 19 and 20.)

No substantive evidence was found that construction requirements under the Hill-Burton program (the major Federal program providing funds for health facility construction) are increasing construction costs unnecessarily. GAO found, however, that more uniformity is needed between Federal and non-Federal construction requirements. Performance criteria should be developed through research and accumulation of scientific data on construction materials and methods. (See pp. 22 and 23.)

Many agree that the time connected with project delivery can be reduced. This would allow earlier delivery of medical care to a

community and avoid increased project cost due to escalating costs experienced in the construction industry.

Use of the fast-track and total concept approaches is increasing in health facility construction to reduce project delivery time and cost. Fast-track involves the overlapping of programing, design, and construction so that one activity begins before the other is completed. Construction managers or consultant builders provide needed coordination and early involvement of construction expertise. In the total concept approach, a developer may undertake the entire responsibility for a project under one contract with the owner. These approaches have seldom been used on projects assisted under the Hill-Burton program. (See pp. 25 to 36.)

Construction labor and material costs have increased in recent years but labor costs have increased at a higher rate than material costs. Wage rates for construction workers have increased significantly. Contractors claim, and unions deny, that productivity of construction workers has decreased and that restrictive work practices and jurisditional disputes between trade unions add to high construction costs.

Since no reliable objective means exist to measure productivity of building construction, the impact of productivity on health facility construction is not known. Contractor and union officials must both act, however, if rising construction costs are to be stabilized on a voluntary basis. Recent wage and fringe benefit increases being approved by the Construction Industry Stabilization Committee should reduce the rate of increase. Certain Federal requirements--involving min

imum wages, safety, and equal employment opportunity--also are affecting or may affect future construction costs. (See pp. 40 to 50.)

Compilation of innovations and life-cycle cost analysis of selected innovations

GAO identified significant innovations which should be considered in health facility construction and renovation. The GAO study used com puterized life-cycle cost analyses to evaluate the impact of selected improvement alternatives on hospitals of various sizes. Under this method of analysis, the operating costs of an alternative, as well as its initial investment and future capital costs, were taken into account. (See pp. 57 to 59.)

To demonstrate the impact that certain alternatives would have on initial construction and life-cycle costs, GAO selected a recently opened hospital for detailed study. In the demonstration project, the hospital was redesigned on paper to incorporate the alternative features considered and to give recognition to the impact such items have on costs. The demonstration showed that

--initial construction costs of the redesigned facility would have been as much as 8.6 percent, or $1,544,200, lower than those of the facility that was built and

--life-cycle costs of as much as $10,368,800 could have been saved by incorporating the improvement alternatives into the redesigned hospital. (See pp. 79 to 88.)

GAO found that hospital planners generally do not evaluate on a lifecycle basis alternative construction techniques, materials, designs, and

operating systems. Many hospital administrators and architects, in efforts to curb the rising cost of hospital construction, search for obvious savings in initial construction. This initial savings often precludes later savings in operations and maintenance that exceed the initial cost savings. (See pp. 57 and 58.)

GAO believes that life-cycle cost analysis is essential in the planning and design of all hospital construction projects. Health facility planners also must consider other factors when evaluating hospital system alternatives. These factors vary with the alternative being evaluated and include patient care, environmental considerations, availability of a competent labor force, flexibility to change, and interaction of improvement alternatives with other hospital systems. Hospital management may find that these factors dictate the type of system to be used and override any potential life-cycle cost savings of an alternative system. (See p. 90.)

The results of this study demonstrate that potential exists to achieve significant life-cycle savings in construction and operation of health facilities.

Reducing demand for health facility construction

GAO identified and studied means by which health facility construction could be avoided by either reducing the demand for facilities or increasing the productivity of existing facilities. Means identified and studied were:

Preventive medicine--The present system of health care is not geared

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toward prevention, and the majority of health resources treat illness and injury only after they occur. GAO believes that unless the medical profession and individuals give more attention to preventing illness and injury, the present health care delivery system may become overburdened and may not be able to meet future health care demands. (See pp. 95 to 97.)

Care in the appropriate facility-Health care authorities generally agree that an estimated 25 percent of the patient population is treated in facilities which are excessive to its needs. GAO found that patients are not being cared for in the appropriate type of facility because of (1) undue emphasis on providing inpatient care in short-term hospitals; (2) inadequate alternative facilities, services, and reimbursement mechanisms, and (3) physician and patient reluctance to use available alternatives. (See pp. 98 to 101.)

Health care delivery systems --Prepaid group practice plans, foundations for medical care, and health maintenance organizations are being used on a limited basis as alternatives to the solo physician, feefor-service method of health care delivery. Progressive medical practices of these organizations have generally resulted in about a 20-percent reduction in hospital days per 1,000 patients compared with traditional medical practices. A 20-percent reduction in hospital days applied to American Hospital Association-registered short-term hospitals could make as many as 190,000 beds available to meet future needs. (See pp. 102 to 105.)

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Utilization reviews--These reviews are concerned with insuring that health care services provided are

necessary, appropriate and of high quality, and such reviews could be used more effectively to reduce lengths of stay in hospitals. GAO found that the lengths of stay for specific types of illnesses varied from area to area and may be unnecessarily prolonged in some areas because of less progressive medical customs and practices. (See pp. 105 and 106.)

Health insurance incentives--The benefit structures of private insurance plans emphasize coverage of hospital care and of physicians' services associated with hospitalization. Many experts recommend an increase in insurance coverage for outpatient and out-of-hospital benefits to eliminate the incentive to use hospital beds. (See pp. 107 to 109.)

Shared services--GAO found that sharing services among hospitals could free existing facilities for other purposes and could be effective in meeting demands for space without construction. Many hospitals, however, have been impeded from establishing shared-service agreements because (1) physicians are reluctant to share hospital medical staff privileges, (2) economic incentives are lacking, (3) hospital medical staffs and administrators want to provide a full range of services, and (4) some communities insist on having such services readily available. pp. 109 to 111.)

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Regional systems --GAO found authorities consider regional hospital systems to be an effective way of organizing and utilizing scarce medical skills and facilities and of curbing rising costs. Communities, hospital officials, and physicians, however, have resisted

the development of such systems because they desire to maintain complete autonomy and to provide each community ready access to health services. (See p. 112.)

Health planning agencies--GAO found that while some planning agencies have been effective, others have been unsuccessful in preventing construction and expansion of unneeded facilities. The inability of planning agencies to prevent unnecessary and costly expansion of facilities and services has been often attributed to the agencies or others lacking the authority to enforce planning agency decisions. (See pp. 112 to 114.)

GAO believes that, in view of the probable continuing high demand for health care services and the increased demand which may result from proposed Government programs, such as national health insurance, greater implementation of the methods cited above could be instrumental in meeting the demand for health facilities and offsetting increased health care costs. (See p. 115.)

RECOMMENDATIONS OR SUGGESTIONS

GAO recommends that the Secretary of HEW (1) compile and publish information on the essential factors to be considered in project planning, (2) explore the feasibility of reusing hospital designs, (3) adopt a common set of construction requirements for HEW-administered programs, (4) develop and disseminate a scientific base of knowledge on construction requirements, and (5) require that the fast-track and total concept approaches be considered for health facility projects assisted under the Public Health Service Act. (See pp. 20, 23, 24, and 37.)

GAO recommends also that HEW establish the capacity to provide lifecycle cost data to health facility planners and require that applicants for Federal funding justify the use of construction techniques, materials, designs, and operating systems which differ from those recOmmended by HEW. GAO recommends further that, until such time as HEW establishes the capacity to provide life-cycle cost data to health facility planners, HEW should encourage planners to consider the information presented in this report, along with local operating conditions and costs, in identifying the alternatives for life-cycle analysis that are likely to be the most appropriate for inclusion in the facility. (See p. 91.)

GAO recommends that the Secretary of HEW solicit the cooperation of other governmental agencies, private health organizations, and medical professionals and assume leadership in an effort to (1) place greater emphasis on preventive medicine practices, (2) more appropriately use various types of health care facilities, (3) employ more effective utilization review techniques, (4) change health insurance incentives that emphasize inpatient care, (5) share more hospital services, and (6) increase the capabilities of areawide health planning agencies. (See pp. 115 and 116.)

AGENCY ACTIONS AND UNRESOLVED ISSUES

HEW, five other Federal agencies,

and 17 private organizations were requested to review and comment on all or parts of this report. For the most part, the agencies and organizations indicated general concurrence with our report. Prior to receipt of formal comments, a meeting was held with each group to obtain suggestions for improving the report. In those instances in which the groups wished to stress a particular point or in which agreements could not be reached, the agencies and organizations were requested to include their views in their formal comments on the report. Comments in the formal replies are included in the pertinent sections of this report. (See pp. 21, 37 to 39, 50 to 56, and 92.) The list of agencies and organizations and the formal comments received are included in appendixes I to XXI.

MATTERS FOR CONSIDERATION BY THE CONGRESS

Some health care providers have changed traditional health care demand and utilization patterns, decreasing the need to construct acute care and other types of health facilities. The economic benefits emanating from these changes and the means by which such changes have been effected, as discussed in this report, may be of particular interest to the Congress in considering legislative health care proposals, such as those providing for the reorganization of the existing health care delivery system and for programs for national health insurance. (See p. 116.)