SUMMARY AND RECOMMENDATIONS

The Comptroller General of the United States has been charged by Congress to "conduct a study of health facilities construction costs." This study is to include consideration of the feasibility of reducing the cost of constructing health facilities, particularly with respect to innovative techniques, new materials, and the possible waiver of unnecessarily costly Federal standards. As part of this study, Westinghouse Health Systems was given the responsibility for applying the latest construction and planning concepts plus the best subsystem alternatives to a reference hospital, considering both initial construction and life-cycle operations.

GAO chose the reference hospital from recently built hospitals as representative of a modern, well-planned, well-constructed, and well-managed facility. Over a 25-year period (life cycle), Westinghouse predicted the patient census at this hospital to increase from 239 to 450. Using the planning criteria of the reference hospital as a base, Health Systems applied the latest planning, construction, state-of-the-art, and subsystem cost/benefit analysis techniques to determine how initial construction costs and life-cycle operating costs could be reduced.

This study was a broad-based, multi-disciplinary effort. In addition to Health Systems, the study team included RTKL, Inc., an architectural and urban planning firm, and MDA, a construction cost consulting firm. The general methodology employed was to:

Collect required data (both GAO and Health Systems took part in this effort)
Select key state-of-the-art improvement alternatives

• Review reference hospital construction and operating costs
Perform life-cycle cost comparisons on all construction and

subsystem alternatives identified by GAO

Synthesize an improved hospital to serve the same functions as
the reference hospital

Document the savings.

By applying this methodology to a specific facility it was possible to show how the various subsystems interact in the total facility. For example, the dietary system selected has a definite impact on the materiel handling system installed, and the construction system used affects the maintenance costs of each subsystem over the hospital's useful life.

RESULTS

Since the reference hospital is a well-planned and well-managed hospital already using many state-of-the-art techniques, major cost improvements in most areas were not possible. Of the subsystems investigated, potential savings ranged from none in areas such as laundry and the patient room mix to sizable savings in dietary.

The impacts of each subsystem improvement alternative on facility, equipment, and life-cycle costs were calculated and compared with the existing subsystems at the reference hospital. Tables 1 and 2 summarize the results

of the comparisons.

The total initial facility construction cost of the improved hospital is 8.6 percent, or $1,544,200, lower than that of the reference hospital. Of the $1,544, $1,147,000 is due to the redesign and consolidation of the hospital; the remaining $397,200 results from incorporating state-of-the-art improvement alternatives. But the cost impact of the state-of-the-art alternatives over their life cycle is far more significant, producing life-cycle savings of $7,327,000, or 17.4 percent over the reference hospital. When the improvement alternatives are incorporated in the improved hospital with interstitial space over the diagnostic/ treatment area, a total life-cycle savings of $10,368,800 is possible. Based only on the hospital functions analyzed, the total life-cycle savings for the improved hospital over the reference hospital are 5.7 percent of the total $181,000,000 life-cycle operating costs of the reference hospital.

1

Total reference hospital life-cycle cost of $181,000,000 was estimated by assuming that the current annual operating budget of $9,840,000 is proportional

to beds, and applying the dynamics of Table 2, using an inflation rate of 2,5 percent and a discount rate of 7.5 percent.