CHAPTER 1 INTRODUCTION On November 18, 1971, the Comprehensive Health Manpower Training Act of 1971 became law (85 Stat. 462). Section 204 of the act provides: "The Comptroller General shall conduct a study of 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 in considering hospitals' operating costs in addition to initial construction costs. Interest was also expressed in having our study identify and evaluate ways in which the demand for facilities could be reduced or eliminated. SCOPE OF STUDY To comply with the act, the General Accounting Office undertook a broad-scale study of the many factors affecting health facilities construction costs. The study included an examination into facility planning processes, construction approaches and concepts, construction standards, and construction labor and materials and whether construction requirements could be reduced through better use of, or reduction in, the demand for existing facilities. Initial costs of constructing a facility, although substantial, are relatively insignificant compared to the cost of operating a facility over its useful life; therefore we gave special consideration to the impact that design and construction decisions have on the operation and maintenance costs over the life of a facility. We identified, through an extensive state-of-the-art survey, significant innovations in design, construction, and operation of a facility which should be considered whenever construction of a new facility or extensive renovation or expansion of an existing facility is proposed. With the assistance of a consulting firm, we developed computerized life-cycle models to quantify the benefits or disadvantages of each of the significant innovations. We used the life-cycle cost models to determine the savings in terms of initial construction costs and operating costs. To demonstrate the impact innovations would have on initial construction and operating costs, we incorporated into a recently built hospital, in an analytical model, certain of the significant innovations. Certain parts of the reference facility had to be redesigned to incorporate certain of the innovations and to recognize the impact such items had on costs. In addition to the factors impacting directly on construction costs, many significant factors impact indirectly on costs. We considered the various means by which planners can meet institutional requirements for space without constructing new facilities or expanding or renovating existing facilities. We examined such areas as whether health care is being provided in the appropriate type of facility, whether health insurance incentives should be changed, and whether preventive medicine programs would result in less inpatient care. We also examined the possibility of reducing the demand for facilities by sharing services, providing specialized care on a regional basis only, and utilizing areawide planning. During our study we examined numerous other studies and pertinent literature; used questionnaires extensively; and held discussions with, and obtained data from, numerous organizations and firms which are directly or indirectly involved in health facility construction. We visited health facilities, organizations, and firms in 29 States and the District of Columbia. Following are the types and numbers of organizations contacted during our study. This report summarizes the results of our study. tinent details are contained in supporting enclosures as follows: 26 23 16 8 12 Per Enclosure A Content B C Planning, construction requirements, con- Compilation of innovations and life-cycle analysis of selected health facility innovations Preventive medicine, use of appropriate facilities, delivery systems, utilization reviews, insurance incentives, shared services, regional systems, and planning agencies We requested that the Department of Health, Education, and Welfare (HEW), five other Federal agencies, and 17 private organizations review and comment on our report. For the most part, the agencies and organizations indicated general concurrence with our report. Prior to receipt of 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, we requested the agencies and organizations to include their views in their formal comments on this report. Comments in the formal replies are included in the pertinent sections of this report. The list of agencies and organizations and the formal comments received are included in appendixes I to XXI. TOTAL HEALTH CARE COSTS In recent years, the amount of funds expended for health care in the United States has substantially increased. The following statistics, compiled by the Office of Research and Statistics, Social Security Administration, show the increases in total health care expenditures since 1950. National health expenditures (billions) Much of this increase can be attributed to new Federal programs, such as Medicare and Medicaid, which were initiated in mid-1966. A substantial portion of this increase is due to the faster rate of escalation of medical-care prices than of all other items in the Consumer Price Index. For example, from 1967 through 1971, the prices for all items in the Index increased about 21 percent, while total medical-care prices increased more than 28 percent, largely due to an increase of over 60 percent in hospital daily service charges. (See exhibit A.) Average hospital expenses per patient-day in community hospitals increased from $16 in 1950 to about $32 in 1960 and to over $92 in 1971. Most of this increase has been attributed to increases in wage rates in medical and related fields. Other reasons for the rise in hospital operating costs include increases in the number of hospital employees per patient, improvements in medical technology which require more expensive equipment as well as more highly skilled labor, |