oversight

Planning, Construction, and Use of Medical Facilities in the San Francisco Bay Area

Published by the Government Accountability Office on 1971-10-13.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

  EXECUTIVE     RE                             ND
2 GOVERNMENT       RESEARCH
  COMMITTEE      ON
  GOVERNMENT       OPERATIONS
  UNITED    STATES SENATE                  ”




   Planning, Construction, And
   Use Of Medical Facilities
   In The San Francisco Bay Area
                                B-167966




   BY THE COMPTROLLER   GENERAL
   OF THE UNITED STATES
                       COMPTROLLER      GENERAL       OF    THE       UNITED     STATES
                                      WASHINGTQN.      DC         20548




    B-167966




    Dear Mr.   Chairman:
           This is our report  on the results  of our review of the
    planning,   construction,  and use of medical facilities  in the
    San Francisco    Bay Area.  The review was made in response to
    your request of September 18, 1969.
           The responsible Federal,      State, and local health    organiza-
    tions have not been given an opportunity          to formally  examine
    and comment on this report,      although   most of the matters were
    discussed with their   representatives      during the review.
          We plan to make no further   distribution     of this report
    unless copies are specifically   requested      and then we shall
    make distribution  only after your agreement has been obtained.
                                                    Sincerely                  yours3



                                                    Comptroller  General
                                                    of the United States
       The Honorable      Abraham A. Ribicoff
       Chairman, Subcommittee       on Executive
           Reorganization     and Government Research                            , \ /‘, \>I
    -, Committee on Government Operations                                        _,'
,j/,.-United     States Senate




                                 50 TH ANNIVERSARY                    1921 L 1971
          COMPTROLLERGENERAL'S REPORT '     ,                   PLANNING, CONSTRUCTION,
          TO THE SUBCOMMITTEE ON                                AND USE OF MEDICAL
          EXECUTIVE REORGANIZATION AND                          FACILITIES IN THE
          GOVERNMENTRESEARCH                                    SAN FRANCISCO BAY AREA
          COMMITTEE ON GOVERNMENTOPERATIONS                     B-167966
          UNITED STATES SENATE

          DIGEST
          ------
          WHY THE REVIEW WAS MADE
                  At the request of the Chairman of the Subcommittee
                  on Executive    Reorganization       and Government Research,
                  Senate Committee on Government Operations,                 the General
                  Accounting   Office       (GAO) examined into the coordination
                  among Federal     and SWte'agencies         and local organizations
                  in planning   and constructing        hospitals     and skilled-
I                 nursing-care    facilities      in certain     metropolitan      areas.
                   GAO also     reviewed the extent         to which certain        medical
I
                   facilities      and other activities        of hospitals        were being
                   shared.
                  The reviews were made in Baltimore,                  Elaryland;    Cincinnati,
                  Ohio; Denver, Colorado;              Jacksonville,      Florida;    San Fran-
                  cisco,     California;        and Seattle,       Washington.     These areas
                  were selected          on the basis of the level           of Federal     finan-
                  cial participation            in the construction         of hospital     and
                  skilled-nursing-care            facilities       and the location      of the
                  cities     throughout       the United States.          GAO did not review
                  the quality        of care being provided           by hospitals      and
                  skilled-nursing-care            facilities.
                   This report   presents     the     results     of our review       in the
                   San Francisco    Bay'area.
                  Federal,  State, and local health   organizations                   have not
                  been given an opportunity   to formally    examine                 and comment
                  on the contents  of this report.

          FINDINGS AND CONCLUSIONS
    I
    I             Hospital      bed need
    I
     I
     I             By 1974 the bed capacity in the San Francisco                     Bay area
     I
     I
                   may exceed the need by as many as 1,307 beds.                      (See p.
     I             10.)
     I
     I
     I
      I




          Tear Sheet                                  1
                                                                                  .

According      to the 1370 State plan,      prepared    by the Cali-
fornia    State Department     of Public    Health   (State    agency),
the San Francisco      Bay area will     need about 16,588 non-
Federal    hospital   beds by 1974.      As of January      31, 1971,
the bed capacity      of non-Federal     hospitals    in operation
and under construction       in the San Francisco        Bay area
was 17,423 beds-- 835 beds in excess of the 1974 projected
need.     There were 472 additional        hospital   beds which had
reached advanced stages        of planning.
The 1970 State plan showed that 2,805 hospital              bed spaces                I
in the San Francisco         Bay area did not conform      to Eli-
Burton construction         standards.   These bed spaces were
rccojpjzcd       in the State plan [as required      by Federal
regulations]       as being available     to meet current     and fu-
ture patient-care        needs and were considered      safe for
patient      care by a State     agency official.    (See p. 14.)
Hospital       bed capacity     was increasing         even though the oc-
cupancy rates          for most. hospitals       were generally        low.
During     fiscal     years 1968-70,        three fourths       of the hospi-
tals had been experiencing              occupancy      rates    below 80 per-         I
cent,    the rate that local          officials      considered       adequate
to yield       a sufficient     return      on capital      investment      and
to provide        for efficient     hospital      operations.
Skilled-nursing-care          bed need                                                I

                                                                                      I
The San Francisco   Bay area has more skilled-nursing-care
beds at the present   time than it may need by 1974.
                                                                                      I
According       to the 1970 State plan,           the bay area will      need
21,861 non-Federal         skilled-nursing-care           beds by 1974.
As of January        31, 1971, the bed capacity            of non-Federal
skilled-nursing-care           facilities       in operation   and under
construction        was 28,828 beds--6,967           beds in excess of
the 1974 projected         need.         (See p. 16.)
The 1970 State pl.an showed that     3,817 skilled-nursing-
care bed spaces did not conform      to Hill-Burton        construc-
tion standards.    These beds were recognized         in the State
plan (as required    by Federal. regulations)       as being avail-
able to meet current    and future   patient-care       needs and
were considered   safe for patient     care by a State agency
official.                                                                             I


Control    over development                                                            I
of medical     facrll ties                                                             I
                                                                                      I
                                                                                       I
The State   agency must determine            that there is a need for                 I
a proposed   hospittll      or skilled-nursing-care        facility be-                I
                                                                                       I
fore the project       can be financed         with a grant under                      I
the Hill -Eurtor:     prcgram.                                                         I
                                                                                       I
                                                                                       I
                                   2                                                   I
                                                                                       I
I
I
I
I
I
I
I                ’
                              The Federal    Hcusing Administration              (FHA) and the Small
I                             Business   Administration         (SBA} have instituted             procedures
I                             which require     that financial          assistance     not be provided
I
I                             for a proposed      medical     facility      unless    a certificate        of
I
I                             need has been issued by the State agency.                    In this way
I                             control   of Federal      funding       of excess medical         facilities
I                             is maintained.
I
I
I                             In January    1970 the California       comprehensive      health-
I
I                             planning   law took effect.        This law requires        the review
1                             and approval    of the need for proposed        medical       facility
I
I
                              projects   by the regional       comprehensive    health-planning
I                             agency before     licenses     may be granted   by the State De-
l                             partment   of Public     Health.
I
    I
    I                         The organization         and concept         of the comprehensive          health-
    I
    I
                              planning      agency is new, and the agency is in the process
    I                         of developing       criteria       for determining         the need for medi-
    I
    I
                              cal facilities.          By consistently          applying        uniform   criteria,
     I                        the planning       agency will        be better     able to determine            the
     I                        need for proposed          medical     facilities       and thereby       to cur-
    I
    I                         tail   development       of unneeded medical            facilities.         (See
    I                         pp. 20 to 24.)
    I

                                  Sharing   of medical     facilities      and services
                              In the San Francisco          Bay area, there were open-heart                  sur-
                              gery and radiation-therapy             facilities         in excess of
                              patient-care       needs and artificial             kidney     machines were
                              underused.        No authority      existed       to control       the estab-
                              lishment     of these specialized            services,        and hospitals
                              were establishing        specialized         services       regardless      of the
                              potential      for sharing.        Controls       should be established
         t                    by State and local        health-planning             agencies     over the num-
                              ber of specialized        services       developed        in a community!        to
         I                    ensure that medical          needs are met in the most economical
         I                    and effective       manner.       (See pp. 25 to 33.)
         I
         I
         I
                                  Recent legislation        --Public    Law 91-296--increases         Federal
         I                        financial   participation          in projects   involving      the sharing
         I
         I
                                  of health   services.         It should provide       hospitals    which
         I                        are seeking     Federal      grant funds with an incentive           to
         I                        share services.
         I

                                  Hospitals     in the San Francisco           Bay area have cooperated
                                  in organizing        certain     services,    such as laundry    services
                                  and supply-purchasing            services.     Officials    said that
                                  these cooperative          ventures     saved money and space and
                                  avoided    duplication       of facilities.         (See pp. 34 to 36.)



             I
             I       Tear Sheet
             I
             I
      .




                               Contents
‘

                                                                         .
                                                                             Page

    DIGEST                                                                     1

    CHAPTER
          1   INTRODUCTION
                  Hill-Burton    program                                       ::
                  San Francisco     Bay area                                   5
                  Other health-planning      activities                        7

          2   CONSTRUCTION OF HOSPITALS                                       10
                  Changes in hospital          bed capacity                   10
                  Utilization        of hospital     beds                     12
                 Hospital       bed spaces which do not conform
                      to Hill-Burton       construction     standards         14
          3   CONSTRUCTION OF SKILLED-NURSING-CARE
                FACILITIES                                                    16
                  Utilization    of skilled-nursing-care
                      facilities                                              17
                  Nursing home bed spaces which do not
                      conform to Hill-Burton        construction
                      standards                                               18
          4   COORDINATION AND CONTROL OVER DEVELOPMENT
                OF MEDICAL FACILITIES                                         20
                  Coordination      of Federal     Programs assisting
                    in construction       of medical facilities               20
                       Department      of Housing and Urban
                           Development
                       Federal Housing Administration                         E
                       Small Business Administration                          21
                  Controls     over medical     facility   development        23
          5   CONTROL OVER DEVELOPMENT OF SPECIALIZED
                MEDICAL SERVICES
                  Open-heart    surgery                                       I2
                  Radiation   therapy                                         29
                  Kidney dialysis                                             31
          6   SAVINGS POSSIBLE THROUGH COOPERATIVE USE OF
                SUPPORTIVE SERVICES                                           34
                  'Cooperative    laundry service                             34
                   Group purchasing                                           35

          7   SCOPE OF REVIEW                                                 37
                           --

FHA   Federal     Housing         Administration
GAO   General     Accounting          Office
HEW   Department      of Health,          Education,   and Welfare
OEO   Office     of Economic          Opportunity
BHS   Public     Health         Service
SBA   Small     Business         Administration
COMPTROLLERGENERAL'S REPORT *                   PLANNING, CONSTRUCTION,
TO THE SUBCOMMITTEE ON                          AND USE OF MEDICAL
EXECUTIVE REORGANIZATION AND                    FACILITIES IN THE
GOVERNMENTRESEARCH                              SAN FRANCISCO BAY AREA
COMMITTEE ON GOVERNMENTOPERATIONS               B-167966
UNITED STATES SENATE

DIGEST
------
WHY THE REVIEW WAS MADE
    At the request of the Chairman of the Subcommittee
    on Executive    Reorganization      and Government Research,
    Senate Committee on Government Operations,               the General
    Accounting   Office      (GAO) examined into the coordination
    among Federal and State agencies and local organizations
    in planning   and constructing       hospitals     and skilled-
    nursing-care    facilities     in certain     metropolitan      areas.
    GAO also     reviewed the extent        to which certain      medical
    facilities      and other activities       of hospitals      were being
    shared.
    The reviews were made in Baltimore,                Maryland;     Cincinnati
    Ohio; Denver, Colorado;            Jacksonville,      Florida;     San Fran-
    cisco, California;          and Seattle,       Washington.     These areas
    were selected        on the basis of the level of Federal finan-
    cial participation          in the construction         of hospital     and
    skilled-nursing-care          facilities       and the location      of the
    cities     throughout     the United States.          GAO did not review
    the quality       of care being provided          by hospitals      and
    skilled-nursing-care          facilities.
    This report presents   the results           of our review      in the
    San Francisco  Bay area.
    Federal,  State, and local health   organizations               have not
    been given an opportunity   to formally    examine             and comment
    on the contents. of this report.

FINDINGS AND CONCLUSIONS
    Hospital     bed need
    By 1974 the bed capacity in the San Francisco                  Bay area
    may exceed the need by as many as 1,307 beds.                   (See p.
    10.)




                                      1
According     to the 1970 State-plan,     prepared    by the Cali-
fornia    State Department    of Public   Health   (State    agency),
the San Francisco     Bay area will     need about 16,588 non-
Federal    hospital  beds by 1974.      As of January     31, 1971,
the bed capacity     of non-Federal     hospitals   in operation
and under construction      in the San Francisco       Bay area
was 17,423 beds- -835 beds in excess of the 1974 projected
need.     There were 472 additional      hospital   beds which, had
reached advanced stages of planning.
The 1970 State plan showed that 2,805 hospital            bed spaces
in the San Francisco         Bay area did not conform    to Hill-
Burton construction         standards.   These bed spaces were
recognized       in the State plan (as required     by Federal    L
regulations)       as being available    to meet current   and fu-
ture patient-care        needs and were considered    safe for
patient      care by a State agency official.       (See p. 14.)
Hospital      bed capacity      was increasing         even though the oc-
cupancy rates          for most hospitals        were generally        low.
During     fiscal     years 1968-70,        three fourths       of the hospi-
tals had been experiencing              occupancy      rates    below 80 per-
cent,    the rate that local          officials      considered      adequate
to yield       a sufficient     return      on capital      investment      and
to provide        for efficient     hospital      operations.
Skilled-nursing-care          bed need
The San Francisco   Bay area has more skilled-nursing-care
beds at the present   time than it may need by 1974.
According       to the 1970 State plan,          the bay area will       need
21,861 non-Federal         skilled-nursing-care          beds by 1974.      X
As of January        31, 1971, the bed capacity            of non-Federal
skilled-nursing-care           facilities      in operation    and under
construction        was 28,828 beds--6,967          beds in excess of
the 1974 projected        need.          (See p. 16.)
The 1970 State plan showed that 3,817 skilled-nursing-
care bed spaces did not conform to Hill-Burton            construc-
tion standards.    These beds were recognized        in the State
plan (as required    by Federal   regulations)     as being avail-
able to meet current    and future    patient-care     needs and
were considered   safe for patient      care by a State agency
official.
Control    over development
of medical     facilities
The State   agency must determine           that there is a need for
a proposed   hospital      or skilled-nursing-care        facility be-
fore the project       can be financed        with a grant under
the Hill -Burton     program.
                                   2
The Federal    Housing Administration              (FHA) and the Small
Business   Administration         (SBA) have instituted             procedures
which require     that financial          assistance     not be provided
for a proposed      medical     facility      unless    a certificate        of
need has been issued by the State agency.                    In this way
control   of Federal      funding       of excess medical         facilities
is maintained.
In January     1970 the California      comprehensive      health-
planning    law took effect.       This law requires       the review
and approval     of the need for proposed medical            facility
projects   -by the regional      comprehensive    health-planning
agency before     licenses     may be granted   by the State De-
partment    of Public    Health.
The organization         and concept         of the comprehensive         health-
planning      agency is new, and the agency is in the process
of developing       criteria       for determining         the need for medi-
cal facilities.          By consistently          applying       uniform   criteria,
the planning       agency will        be better     able to determine           the
need for proposed          medical     facilities       and thereby      to cur-
tail   development       of unneeded medical            facilities.        (See
pp. 20 to 24.)
Sharing     of medical      facilities       and services
In the San Francisco           Bay area, there were open-heart                sur-
gery and radiation-therapy             facilities        in excess of
patient-care       needs and artificial            kidney     machines were
underused.        No authority      existed       to control      the estab-
lishment     of these specialized            services,       and hospitals
were establishing        specialized         services      regardless      of the
potential      for sharing.        Controls       should be established
by State and local        health-planning            agencies. over the num-
ber of specialized        services       developed       in a community,        to
ensure that medical          needs are met in the most economical
and effective       manner.       (See pp. 25 to 33.)
Recent legislation        --Public    Law 91-296--increases       Federal
financial   participation          in projects   involving     the sharing
of health   services.         It should provide      hospitals    which
are seeking     Federal      grant funds with an incentive         to
share services.
Hospitals     in the San Francisco          Bay area have cooperated
in organizing       certain     services,    such as laundry     services
and supply-purchasing           services.     Officials     said that
these cooperative         ventures     saved money and space and
avoided    duplication      of facilities.          (See pp. 34 to 36.)
                                      1 CHAPTER 1




        Title      VI of the Public          Health Service        Act (42 U.S.C.        291),
commonly known as the Hill-Burton                    program,      authorizes      the Pub-
lic Heslth         Service      (PIIS), Department         of Health,      Education,       and
Welfare        (HEW),      to  make   grants    to  States    for   the    construction
of medical         facilities.         PHS, under the Hill-Burton              program,
requires        each State to designate             a single      agency to administer
the program and to annually                  prepare     for each designated           health
service       area of the State a plan projecting                   the need for med-
ical    facilities           and comparing      that projected        need with the
resources         expected      to exist.
        The California        Department       of Public    Health,     hereinafter
referred       to as the State agency, is designated                  to administer
the Hill-Burton         program.     This agency also issues             licenses       to
operate      hospitals     and nursing      homes, makes certification              in-
spections        for Medicare    and Medicaid,         and approves designs           and
specifications         for medical     facility     projects.         In accordance
with the method prescribed             in PI-IS guidelines,         the State agency
annually      estimates     the need for hospital           and skilled-nursing-
care beds for the ensuing            5 years for the State of California,
        We did not evaluate      the appropriateness           of the methodol-
ogy prescribed      by PHS for use in arriving              at these estimates.
We accepted     the State plan estimates              of the status      and pro-
jected    need of medical     facilities        in the San Francisco         Bay .
area.     PHS guidelines    for preparing           the State plan do not
require    that PHS , Veterans        Administration,        or military     hospi-
tals,    or the days of care that were rendered                in these facili-
ties,    be considered   in the planning           process.
      The hospital        bed needs for each service           area are esti-
mated by analyzing         hospital     usage, population,          and the rela-
tive  rapidity     of population         increase.    The skilled-nursing-
care bed needs in each service                area are estimated        by analyz-
ing usage in existing          skilled-nursing-care         facilities,      popula-
tion,   age distribution,          and the relative     rapidity        of popula-
tion increase.
        To arrive  at a projected    average daily    census of patients,
the State agency multiplies       the projected    population     by the
current    use rate (the number of days of inpatient          care in the
most recent year for each 1,000 population)           and divides    the
result    by 365.   The resulting    average daily    census is divided



                                              4
by 80 percent    for hospitals     and by 90 percent        for skilled-
nursing-care   facilities      to arrive     at an estimate     of beds
needed, assuming an 80-percent           occupancy rate for hospitals
and a 90-percent       occupancy rate for skilled-nursing-care
facilities.
       This provides   an estimated  20- or lo-percent     vacancy rate
to meet emergencies.      An extra 10 beds are added to the esti-
mated number of hospital      beds needed as an additional      pre-
caution    that emergency patients   can be treated.
        The achievements       of the Hill-Burton          program include       a
significant      improvement      in the availability          of health   facili-
ties,    modernization      of inadequate      facilities,       development       of
health-planning        processes,    and identification          of ways to im-
prove the health        care system.
SAN FRAXCISCO BAY AREA
       The San Francisco       Bay area covers about 7,500 square
miles and encompasses old urban centers              and new suburban com-
munities.     The overall      population,     as shown by the 1970 cen-
sus, is about 4.5 million.             Since 1960 this area has experi-
enced a population       growth of about 1 million.           Within   the San
Francisco    Bay area, there are a variety           of health    resources,
ranging   from university        medical schools to neighborhood          health
centers.     Services    offered     cover a wide spectrum of medical
knowledge with training          opportunities    available    locally    for
most medical fields.
       In carrying       out the purposes of the Hill-Burton                program,
the State agency has subdivided               the San Francisco      Bay area
into 16 health        service    areas.     A service    area is defined          as
a specific     identified       community served by health          facilities
located within        the community's       boundaries.      The 16 health         ser-
vice areas established           for the San Francisco         Bay area gener-
ally are consistent          with PIE guidelines        which require         a
30-minute   maximum travel          time in metropolitan        area from resi-
dence to a hospital.            The following     map illustrates         the loca-
tion of each of the 16 service              areas included      in our review.




                                          5
                 SAN FRANCISCO    BA
                    AREA COUNT,




                                                       ..-
      SANTA   ROSA
YiL                        /           \
                                           SANTA   BAt,?AR




                                       CONCORD




                                                             SAN FRANCISCO BAY
                                                             HEALTH SERVICE AREA
       As of January 1971, 102 'acute-care      hospitals    were in ex-
istence,   under construction,      or approved for construction         in
the San Francisco      Bay area.    Of the 102 acute-care     hospitals,
nine are operated      by the Federal Government--four       by the Vet-
erans Administration,        one by HIS, and four by the Department
of Defense.     Also there are 73 diagnostic       and treatment      centers,
44 public   health    centers,   and 203 community mental health         cen-
ters.
        Diagnostic       and treatment       centers provide     services     for
outpatients.          A public    health     center   is  a community     outpa-
tient     facility    t providing      services     to prevent   disease,     pro-
long life,         and maintain    a high degree of physical           and mental
efficiency.          These centers were not included           in our review.
        Generally       there are two types of nursing-care                   facili-
ties:       (1) those which provide              care for convalescent           or chronic-
disease patients           requiring      skilled     nursing    care and which are
under the general            direction     of persons licensed          to practice
medicine or surgery             in the State and (2) those wXch provide
primarily       domiciliary         care.    Only the facilities           providing
skilled      nursing      care qu-alify       for Hill-Burton      grants.          Our re-
view included        only those facilities             providing     skilled        nursing
care.       As of January 1971 there were 344 nursing-care                          facil-
ities     in the San Francisco            Bay area providing         skilled        nurs-
ing care.
OTHER HEALTH-PLANNING           ACTIVITIES
       Public    Law 89-749,       approved November 3, 1966, created             the
Partnership      for Health Program which introduced                 the concept
of comprehensive        health     planning.          Under this new type of
planning,     it is envisioned          that both providers         and consumers of
health    services    will    participate          in determining    health  needs
and resources,       establishing         priorities,       and recommending
courses of action.
       The objectives        of the Partnership      for Health Program
centered   on voluntary        planning     and the development    of a com-
prehensive    health     plan to reflect       the needs and the yriori-
ties of each State.           The California      Department   of Public Health
is the agency responsible            for the Partnership     for Health  Pro-
grams within     California.
       In the San Francisco      Bay area, the Bay Area Comprehensive
Health Planning     Council   is the areawide comprehensive         hcalth-
planning    agency funded under the Partnership       for I-Iealth Pro-
gram.    This council     is designated   by the State as the agency
responsible     for reviewing    the needs for health    facilities       in



                                             7
the 16 health        service     areas   in the nine       San Francisco        Bay area
counties.
         The impact of comprehensive              health planning     on facilities
construction       in California       is only beginning          to be felt.
Although     the Partnership        for Health Program deals with more than
facilities      planning,     the role      developing     within    California     for
comprehensive        health planning        is intended     to ensure the or-
derly development          of health     facilities.
      By means of legislation      California   established,    beginning
on January 1, 1970, regulatory       controls   over the development
of inpatient  facilities     which are required     to be licensed
by the State Department of Public Health and the State Depart-
ment of Mental Hygiene.
        Specifically        these controls        require     that the State De-
partments      of Public Health and Mental Hygiene not approve
construction         plans or issue a license             for changes in bed ca-
pacity    or for the conversion            of existing       bed capacity      to a
different       licensing      category,     except for outpatient           and emer-
gency services,          until    the applicant       has received       approval   from
the areawide comprehensive               health-planning         agency.
       The State legislation      establishing  comprehensive     health
planning     exempted all projects     with complete applications       on
file   prior    to January 1, 1970, from comprehensive      health-      *
planning     review and approval.
       Other local organizations         involved     in comprehensive health
planning     are the California       Committee on Regional Medical     Pro-
grams, the California        Hospital    Association,     the Hospital Coun-
cil of Northern     California,       and a number of other. professional
organizations.
        Numerous organizations           are involved        in planning         for health
care needs; these organizations                 include    the various         health
professions,      voluntary    planning         associations,        the State and
Federal    Government,      and others.           Current efforts         involving
many of these organizations              are being directed            toward a com-
prehensive     State plan relating            to overall       health needs.          Ef-
forts toward the comprehensive                health plan are the result               of
the Partnership       for Health Programs.               The voluntary         organiza-
tions known to do health planning                   in the area rely,          to some
extent,    on the data available            in the State agency's plan for
hospitals     and related     facilities.




                                            8
            Federal       agencies        participatiE$                in tile developri?ent 9% lo-
cal health      facilities         include      HEW, which ftinds csnstructlsn
of hospitals        9  lsng-term-sase         facilities       I) diagnrasti~      arid treat-
ment centers        I  publie:    health     centers,       neighbsrhoad       c%in%.;=s,    and
training     facilities         ~der      the Hill-Burton          program;      the Dspart-
Blent of cIpmmerr,e, which funds the construction                          of a raeighbor-
hood health        center;      the   Department         of   Housing    and   Urban Devel-
opment, which guarantees                and insures         loans for thlc construsticn
sf hospitals          ad nursing        homes; the Small Business               Administra-
tion,    which fuEds construction                of hospieals          and nursir;g     homes;
and the Office           of Economic Opportunity               (OEC)3 which funds can-
stsuctian      and operation          of neighborhssd            health    centers S
      The Veterans   Administratisn,            PHS, and the Da~artment      s3Y
Defense also provide     health      facilities       in the San Franeiscs
Bay area; these facilities         generally       are restricted    to ~sb-
by such persons    as veterans,        seamen, and military       pFtrsonne1,
lXptXtiVt2ly.

        Since the enactment      of the Hill-Burtan         program,   Federal
participation      in projects    improving     health    resources    in the
San Francisco      Bay area has totaled        more than $122.5 millian.
The following      table shows the Federal         support     by agency since
enactment     of the Hill-Burton      program.
                                  Federal Financial Assistance to
                          Health Flay                                Area
                             From January 1, 1948, to December 31, 1970

                                                                        Department
                                                                            of
                                               HEW             SBA       Commerce              FHA           OEO
        Category                Total       (note
                                             -     a)       (note
                                                             -    b)     (note c)            (note d)      (note e)
                                                                (000 omitted)
  Hospitals                   $ 83,144      $71,029         $ 815         $     -            $11,300       $   -
  Nursing homes
    ma long-
    term-care
    units                       21,444         3,114         2,067                            16,263
  Health        centers        18,030          2,519                          1,530                          13,981
         Xotal                $122,618      $76,662         $2,882        $1,530             $27,563       $13,981
  aHEWgrants do not include training   facilities or HEWcommunity health centers.
  bAmounts represent loans and guarantees and include the funding of a long-term
   psychiatric  unit.
  'Amount represents grants.
  dBHA amounts are primarily             mortgage insurance       commitments and include               applica-
    tions in process.
  eOEOhealth         center   grants include     facility      and operating        funds.
                                  ’ CHAPTER 2

                        CONSTRUCTION OF HOSPITALS
      According    to the 1970 California   State plan           prepared  by
the State    agency,  the San Francisco   Bay area will           need *about
16,588 non-Federal      hospital beds by 1974.
        As of January       31, 1971, the bed capacity        of non-Federal
hospitals     in operation       and under construction       in the San
Francisco     Bay area was 17,423--835        beds in excess of the 1974
projected    need.       As of January    31, 1971, facilities       for 472
additional      hospital     beds, which had reached advanced stages
of planning,       had not been included      in the 1970 State plan.
Therefore    by 1974, if construction         of the additional        facilities
is completed!,      the San Francisco      Bay area could have 1,307 non-
Federal    hospital      beds in excess of the 1974 need projected
in the State plan.
        We noted that about three fourths             of the hospitals     in
the San Francisco         Bay area had experienced         occupancy   rates
below 80 percent        during   fiscal    years 1968, 1969, and 1970.
Local hospital      officials      informed     us that the factors      con-
tributing     to the lower occupancy          rates were, for example,
changes in patient-care          requirements      and excess acute-care
hospital    beds available       in the bay area.
CHANGES IN HOSPITAL        BED CAPACITY
      Following     is (1) a comparison    of the hospital  bed capac-
ity in each service       area, as of January    31, 1971, with the=
bed needs projected       for 1974 in the 1970 State plan and (2)
the Federal     hospital   bed capacity  in each service   area.
                                             Bed              Net                  Net
                                         capacity       increase or         increase      or
                                          shown         dy=;s(-)            decrease (-)           Planned        Projected           1974 bed
                                          in the                                in beds                for             bed               need             Federal
                                            1970          4-l-69 to           4-l-70    to     construction        capacity         projected             hospital
              Service                   State plan         3-31-70            l-31-71                as of              by            in 1970                bed
               area                      (note a)         (note b)            (note c)             1-31-71             1974         State     plan        capacity
    SbP-Santa    Rosa                         540             27                   10                                      577               535
    302-Petaluma                              141             w                    38                                      179               173
    304-San Rafael                            497             -1                   -2                                      494               540                  55
    386-Napa                                  226                                                                          226               215
    388-Vallejo                               548                                                                         548                434              385
    310-Concord                               943                                                                      1,147             1,027                498
    fll-Richmond                              540                                                                         540               511
    313-Berkeley                              395                                                                         395               394
    314-Oakland                            1,942             168                                                       2,158             1,805             1,150
L   JlS-Hayward                            1,061                3                                     118              1,237             1,095
r   317~San         Francisco              5,013              31                                       -               5,044            4,786              l&-O
    319-Daly         City                     285             -                                                           285              306
    320-San Mateo                             818                                                                          892             869
    321-Palo Alto
    324-San Jose
                                           1,580
                                           2,054
                                                              13
                                                             178
                                                                                   13
                                                                                   72
                                                                                                                       1,609
                                                                                                                       2,454
                                                                                                                                        1,608
                                                                                                                                        2,194
                                                                                                                                                           1,493
    32S-Livermore                             110                                                                         110               96                451
            Total                         16,693                          236           472          17,895                            16,588              6,112
                                                                          C             C
    'Based on 1970 California                  State   plan which used March 31, 1969, as the cutoff    date for                       the    inclusion
     of data         in   the   plan.
    b Based     on State        agency information.
    'Changes         in bed capacity,          as provided   by officials        of the State Health          Facilities         Planning     and Construc-
     tion     Bureau.
         As the above table          shot.;Js, the San Francisco         Bay area
could have about 17,895 beds in operation                     by 1974 if the
plans of local          hospital    officials       are carried     out.     On the
basis     of these plans and the existing               hospital      bed capacity,
we estimate         that by 1974 the San Francisco              Bay area could
have as many as 1,307 beds in excess of the need shown in
the 1970 State plan.              Recent enactment        of legislation        in Cal-
ifornia,      which requires         the review      and approval      of health
facility      projects      by the regional         comprehensive      hcalth-
planning      agency,      should curtail        the development       on unneeded
medical     facilities.          (See pp. 23 and 24 for further              discus-
sion.)
UTILIZATION          OF HOSPITAL    BEDS
      To measure the utilization         of non-Federal               hospital    facil-
ities   in the San Francisco       Bay are?, we obtained,                  from the
Bay Area Comprehensive      Health    Planning     Council,             occupancy
rates   during fiscal   years 1968, 1969, and 1970                    for the hospi-
tals  in the 16 health     service    areas.      The table            below shows
the occupancy    ranges of hospitals        during   these            3 fiscal
years .
                                          Number    of non-Federal        hospitals
           Occupancy                                  Fiscal    years
             range                                           1969               1970
          80 and above                                        27
          65 to 79                          St                :4’                 St
          64 and under                     -20                -                  -29
             Total                         92
                                           E
        PHS regulations        prescribe        an occupancy       factor      of 80 per-
cent for use in computing              the number of beds required                for
each service        area.    San Francisco         HEW Regional         Office    offi-
cials    stated     that the 80-percent           occupancy      factor       was not a
minimum or a maximum but an acceptable                     occupancy        rate for
planning      purposes.      These officials          stated     that the 80-
percent     occupancy     factor     was considered          to be adequate         to
yield    a sufficient       return     on capital       investment        to maintain
and provide       for efficient        hospital      operations.
        Our review  showed that about three                fourths  of the
hospitals     in the San Francisco   Bay area              had been experiencing
occupancy     rates below 80 percent   during              fiscal  years 1968,
1969, and 1970.
          PHS, the     comprehensive     health-planning   council,       and a
private      study     have indicated     that the composite    utilization


                                           12
rate may not be the most valid method for measuring occupancy
for planning     purposes. There are four major categories      of
hospital   services : medical-surgical,   pediatric, obstetric,
and psychiatric.
        We analyzed the occupancy rates for each of these cate-
gories and determined         that certain    categories of hospital
services    were utilized       at rates significantly   lower than
others.     Generally     occupancy rates for pediatric      and obstetric
services    were well below the rates for medical and psychiatric.
      The following  tables  show the occupancy rates experienced
by the San Francisco    Bay area hospitals    during fiscal   year
1970 for the four major categories      of health   services.
    Range of
occupancy rates                                                   Number of hospitals
    (percent)                                                       medical-surgical
 80 and above                                                              32
 65 to 79
 64 and under                                                              ;;
     Range:
         High      93.0%
         Low       31.1%

    Range of
occupancy rates                              Number of hospitals
    (percent)              Pedlatrlc              Obstetrics               Psychlatr-lc
  70 and above                                               13                   16
  40 to 69                       4:                          3f                    5
  39 and under                   14
     Range:
         High                    93.3%                       97.5%                97.0%
         Low                     15.0%                       12.6%                50.0%
The statistics      are based on the 1970 annual reports                        submitted
by the hospitals       to the comprehensive health-planning                       council.
      The low hospital       occupancy rates (see p. 12) were dis-
cussed with various      hospital     officials in the San Francisco
Bay area.     These officials      stated that the following   factors
have contributed    to low occupancy rates.
      1. Change in patient-care                  requirements.
      2. Decreases     in the          average      length    of stay.

                                            13
        3. Facilities           with      speciali,zed       services      competing   for
           patients.
        4. Excess acute-care                 hospital       beds    available    in the
           bay area.
HOSPITAL       BED    SPACES    ‘tWIC!I       DO NOT      CONFORM    TO
HILL-BUR’TON         CO?4STKUCTlOid --r-c’- alGXKiGRI)S

       The 1970 State plan showed that 2,805 bed spaces)                            lo-
cated in 29 of the 93 non-Federal                  hospitals        in the San Fran-
cisco    Bay areaL, did not confor::             to IIill-Burton        construction
standards    0 These construction              standards       include    such fac-
tors as fire        resistivity,       safety,     design,       and structural
elements     affecting         the function      of nursing       units   and service
departments.
       Although     the State plan noted that 2,805 bed spaces re-
quired    modernization,      these bed spaces were recognized              in the
State plan (as required          by PUS regulations)           as being available
to meet current        and future     patient-care       needs.     These beds
were included       in the total      of 16,693 existing         beds available
to meet the projected         patient-care        requirements      of 16,588 beds
by 1974.
       Hill-Burton         construction       standards      and State licensing
requirements        for existing        hospitals     differ    in certain       aspects.
Therefore       a facility      which does not conform            to Hill-Burton
construction        standards      may meet State licensing           standards       and
would be considered            safe for patient         care and would be licensed
to operate.
       Hospital       beds in the San Francisco            Bay area, except      those
in State     or Federal        facilities,       are subject    to State licensing
requirements.           Each hospital        is subject    to an annual inspec-
tion by officials           of the State Department           of Public   Health    and
by the State        fire   marshal,        to determine    compliance    with State
standards      before     a license        can be issued     or renewed.
        Accompanied       by a State Hill-Burton           inspector,        we visited
six of the 93 hospitals           containing        823 of the 2,805 noncon-
forming     bed spaces shoiqn in the 1970 State plan,                    to review
the conditions         in these facilities.            The State Hill-Burton
inspector       said that the conditions            in the six hospitals            did
not constitute         a hazard and that the hospitals                were safe for
patient      care.     At the time of our site visits,                four of the
six hospit’als       had plans for modernization,              replacement,         or
expansion       of existing    facilities,         which hospital        officials
believed      would make their          facilities     conform    to Hill-Burton
construction        standards s



                                                  14
.
           During the past 6 years,,the          State agency, in accor-
    dance with the State-wide          emphasisron       modernization,      reallo-
    cated funds from new construction            of hospital        and public
    health    centers and long-term-care         facilities       to modernization
    and replacement      of hospitals.      The following         table shows the
    total   reallocation    during the 6-year period.
                                                                  Fiscal years
                                                               1965 through      1970
                                                          Origlnal          Revised
                                                       allocations       allocations
    Hospitals      and public      health    centers   $40,079,000       $23,681,000
    Long-term-care      facilities        (nurs-
       ing homes)                                       21,140,OOO          5,866,OOO
    Diagnostic      and treatment        centers         6,253,621        l&347,964
    Rehabilitation      facilities                       3,169,843          7,503,469
    Modernization                                        8,716,OOO        26,010,OOrJ
          Since fiscal   year 1966 the State plans have shown a
    marked decrease in the number of nonconforming     hospital  beds
    in the San Francisco     Bay area, as shown in the following  table.
                            Data As Shown In State          Plan
                                                                     Nonconforming
                                           Beds                         beds as a
    State               Beds              noncon-                     percent    of
     plan            existing             forming                    existing   beds
     1970             16,693                2,805
     1969             16,706                3,877                           2173
     1968             16,727                4,909                           29
     1967             16,505                4,643                           28
     1966             16,039                5,554                           3s




                                             1s
                                                   CfI.$PTER 3

           CONSTRUCTION OF SKILLE&NURSIWCARE                                                   FACILITPES
        PHS guidelines      state     that skilled     nursing    care is
Z3-hour     care which is sufficient            to meet the total          nursing
needs of all patients.             This care requires        the employment           of
at least     one registered        professional     nurse or licensed            prac-
tical    nurse in charge of each tour of duty.                  Facilities         pro-
viding    primarily    domiciliary        care xere not included            in our
review.
       According       to the 1970 State plan,          the San Francisco     Bay
area will      need 21,861 non-Federal          skilled-nursing-care       beds
by 1974.       As of January     31, 1971, the bed capacity            of non-
Federal     skilled-nursing-care      facilities          in operation   and under
construction        in the San Francisco        Bay area was 28,828 beds--
6,967 beds in excess of the 1974 projected                    need.
        Our review      showed that development     of skilled-nursing-
care bed capacity          in the San Francisco    Bay area exceeded     the
need projected        in the 1970 State plan in 14 of the 16 health
service     areas.      Following  is a comparison    of the skilled-
nursing-care       bed capacity    in each service    area, as of
January     31,, 1971, with the bed needs projected           for 1974 in
the 1970 State plan.

                                                        Net
                                       Bed         increase        or
                                   capacity        decrease      (-)         Total          1974 bed
                                     shown                 to                  bed              need
                                   in 1970         January       31,       capacity       projected         Excess  of
                 Service         State      plan        1971            January     31,     in 1970         beds over
                  area              (note     a)     (note    b)               1971       State      plan      need

         301-Santa       Rosa         1,127                     -9            1,118               794            324
         302-Petaluma                    454                    32                546             334            212
         304-San      Rafael          1.307                   183             1,490            1,231             259
         306-Napa                         836                 -67                 769             603            166

         308-Vallejo                      883                 312             1,195               695            500
         310-Concord                  1,806                   SE6             2,392            2,256             136
         311-Richmond                     788                                     788             627            161
         313-Berkeley                     573                 -18                 555              598           -43c

         314-Oakland                  2,474                   164             2,638            2,065              573
         315-Hayward                  3,756                   213             3,969            3,445              524
         317-San     Praneisca        4,429                   896             5,325            3,300          2,625
         319-Daly     City                386                 to7                 693              301            392
         320~tia~       Matea            945                                                       960           960
         321;Wo          Alfa
         324=&h         Deb%?
         32S-ftvetrnare
UTILIZATION  OF
SKILLED-NURSING-CARE       FACILITIES        '
        On the basis of patient-day            statistics   for calendar   year
1968, we estimated            that the average occupancy rate for skilled-
nursing-care       facilities       in the San Francisco      Bay area was
about 77 percent.             These statistics      were the most recent sta-
tistics    available        at the time of our review.         We noted that
an occupancy factor             of 90 percent was prescribed      in PHS regu-
lations    for use in computing            the number of beds needed in a
service    area.
      The following    table shows the occupancy rates                for each
of the 16 health    service  areas in the San Francisco                Bay area
on the basis of patient-day      statistics for calendar               year 1968.
                                                        Occupancy rate
   Service     area                                         (percent)
301-Santa    Rosa                                              80.4
302-Petaluma                                                   58.2
304-San Rafael                                                 72.2
SOB-Napa                                                       69.9
308-Vallejo                                                    84.5
310-Concord                                                    89.2
311-Richmond                                                   65.5
313-Berkeley                                                   92.3
314-Oakland                                                    87.3
315-Hayward                                                    70.8
317-San Francisco                                              76.7
319-Daly City                                                  71.0
320-San Mateo                                                  75.2
321-Palo Alto                                                  87.0
324-San Jose                                                   69.9
325-Livermore                                                  91.8
      The table shows that only two of the 16 service    areas
were operating    above the 900percent occupancy rate used for
determining    bed needs.
         Current   occupancy statistics   were not available    for fa-
cilities      in all areas; however,    occupancy rates were available
for 31 of 46 skilled-nursing-care          facilities operating    in the
San Jose service        area as of December 31, 1970, and are shown
below.



                                        17
                                       ancy Factors
               San Jose      AEa       ed-Nursing-Care          Facilities
                                                      Calendar     ear 1970
                                                             ---sEa-
Occupancy rate                                                    of total
    (percent)             Facilities                  Number      reporting
Reporting                        31
   90 and above                                          17                   55
      80 to 89                                             6                  19
      Under 80                                             8                  26
Not    reporting                -15                      -
       Total                    --46                     --31                100

In addition,   a State study released         in May 1970 indicated                     that
about 41 percent    of all skilled-nursing-care         facilities                 in
California   were operatin g below go-percent        occupancy.
        Low utilization,            which is a natural     result     of excess med-
ical    facilities,           generally     results in higher     operating   costs
for each patient-day.                  Since the Government    reimburses     skilled-
nursing-care          facilities        under the Medicare    and Medicaid     pro-
gram t the Government can be expected                  to share in the higher
operating         costs e
          The State Bureau of Health         Facilities          concluded,     in a
study concerning         the occupancy rates of skilled-nursing-care
facilities,       that the number of facilities                with 100 beds or
more increased        State-wide      from 37 in 1965 to 222 in 1970.
This shows a definite            trend toward larger           facilities.        The
State study indicated            that larger   facilities            had lower occu-
pancy rates.         The study indicated       also that the average occu-
pancy rate for skilled-nursing-care                 facilities           of 100 beds or
more was about 73 percent.
NURSING HOME BED SPACES WHICH DO NOT CONFORM
'I'0 HILL-BURTON COXSTRUCTION STANDARDS
        The 1970 State plan shows that 3,817 bed spaces,                       located
in 43 of the 324 skilled-nursing-care                  facilities,       did not con-
form to Hill-Burton         construction      standards.            These construction
standards     include    such factors       as fire      resistivity,       safety,
design,    and structural       elements     affecting         the function      of the
nursing    units    and service      departments.
       Although     the State plan noted that 3,817 bed spaces re-
quired    modernization,     these bed spaces were recognized  in the
State plan (as required         by PHS regulations) as being available
to meet current    and future    patient-care      needs.   These beds
were included    in the total    24;729 existing       beds available   to
meet the projected     1974 patient-cake      ‘requirements   of 21,561
beds D
         Skilled-nursing-care           facilities            participating          in the Fed-
eral Medicare          and bledicaid      health        care programs            also are re-
quired      to meet structural          and operational               standards        established
by the Social          Security    Administration.                 These standards            are
guidelines        to help State agencies                evaluate        existing       structures
which do not meet Hi.ll-Burton                  construction            regulations         that
were in effect           at the time the State                agency performed            its
survey      of skilled-nursing-care               facilities.             These guidelines
also are used to evaluate               in each facility                those aspects          of
the skilled-nursing-care              facility          which are not covered by
Hill-Burton         regulations     m
         About 94 percent       of the California           skilled-nursing-care
facilities       are certified      for participation             under the Federal
Medicare      and/or Flzdicaid      programs.          We visited      seven of the
43 skilled-nursing-care           facilities         containing       233 of the
3,817 nonconforming           bed spaces shown in the 1970 State ,plan
to review      the type and extent           of variances         from Hill-Burton
construction        standards)    their      effect     on the capacity          of the
facilities       to meet future      patient        care needs, and their           effect
on patient       safety.
       We were accompanied     during    our visits   by a State Hill-
Burton   architect  who said that these facilities          were licensed
annually    and were considered      safe for patient    care.
         Since fiscal    year 1966, the State plans have shown a
marked decrease       in the number of nonconforming     skilled-nursing-
care beds in the San Francisco         Bay area. The following        table
illustrates      this   decrease.

                           Data    As Shown In State            Plan
                                                                       Nonconforming     beds
                                                     Beds               as a percent     of
State    plan       Beds existing             nonconforming              existing    beds
     1970               24,729                       3,817                   15.5
     1969               22,206                       3,997                   17.9
     1968               18,272                       4,127                   22.5
     1967               19,373                       4,591                   23.6
     1966               16,668                       4,990                   29.9




                                              19
                                       CIfAPTER
                                              4
               COORDINATION AND CONTROL OVER DEVELOPMENT
                              OF mDICAL          FACILITIES
       Our review     of federally        assisted    hospital    and skilled-
nursing-care-facility         projects      showed that (1) the Department
of Housing      and Urban Development           was fostering     the development
of health     resources    through      its Model Cities       Program,     (2) FHA
was providing      assistance      through mortgage insurance           commitments,
and (3) SBA was providing            direct     loans and loan guarantees.
        We noted that,  under the Model Cities           Program, the Model
Cities    project  area was not consistent      with the health        service
area used in the State plan.      As a result,           the Model Cities
project     area may show that a health    facility         is needed,
whereas the State plan health     service     area! in which the proj-
ect is located,     may show that a health       facility      is not needed.
       FHA and SBA recently    have instituted        procedures   which
state that they will      not provide     financial     assistance  for a
proposed medical facility      unless the State agency has issued
a certificate    of need.    The certificate        of need is issued by
the State agency on the basis of the need for a proposed
medical facility    as shown in the State plan.
         In January 1970 the State of California                     enacted legisla-
tion that required           the review and approval             of health       facility
projects      by the regional          comprehensive       health-planning          agency
before      a license      to operate was granted.             We believe        that this
legislation         and the development        and consistent          application
of uniform        criteria     for determining         a need for a facility              by
the comprehensive           health-planning       agency should curtail                the
development        of unneeded medical         facilities.
COORDINATION OF FEDERAL PROGRAMS
ASSISTING IN THE CONSTRUCTION
OF MEDICAL FACILITIES
        We examined hospital          and skilled-nursing-care-facility
projects    to determine      whether federally          sponsored projects            had
been approved on a basis consistent                with health          service    require-
ments.     Our assessment of the need for medical facilities
provided    with Federal      financial       assistance     was based on the
California     State plan.         Following     is a description            of the
major programs of each Federal               agency involved          in hospital
and/or skilled-nursing-care-facility                 construction          in the
San Francisco      Bay area.


                                            20
Department      of Housing       and Urban       Development
       The Department        of Housing and Urban Development            is foster-
ing the planning        and development       of health   resources      through
its hIode Cities        Programs.      At the time of our fieldwork,              the
local Model Cities          Program officials     said that the Department
had not funded the construction              of hospitals    or skilled-
nursing-care    facilities.         iQe noted that several      proposals          for
local Node1 Cities         projects    made reference     to health      facilities.
        The objectives        of one Model Cities         project        included      (1)
the establishment          of a prepaid     medical plan,           (2) the develop-
ment of a parazicdical-training             program,       and (3) the construc-
tion of a ZOO-bed inpatient-care               facility.         Ve'discussed          these
objectives       with the Model Cities         planner who esplained               that
existing      facilities      were generally      inaccessible           to Xodel
Cities     residents      due to the cost of services               in relation        to
the income level          of the population.           Therefore       the area
desired      a facility      and a program that would be free of this
constraint.           He agreed that the State plan assessment of bed
needs would be correct            were it not for the financial                  condition
of area residents.            Other Model Cities         Programs are in the
planning      process but have not yet defined                their      long-term
health     objectives.
Federal     Housing     Administration
       FHA has provided   financial      assistance    for the construction
of one hospital     and 21 skilled-nursing-care          facilities      in the
San Francisco   Bay area.     Areawide,       this agency made mortgage
insurance   commitments of about $28 million           during       the period
September 1959 to December 1970.
        FHA guidelines      provide       that a certificate     of need be
obtained     from the State agency before             FHA is allowed    to insure
a mortgage for a medical            facility.      We noted that FHA had been
coordinating       its efforts      with the State agency and had been
requiring      that a certificate           of need be obtained    by the appli-
cant from the State agency before                FHA would insure    a mortgage.
We noted also that FHA had procedures                 adequate for ensuring
that such certificates           of need were obtained        from the State
agency prior       to insuring      a mortgage.
Small     Business    Administration
         SBA has funded the construction              of health    facilities
through       the Small Business Financial           Assistance      and Disaster
Loan Programs.           S&I's financial    assistance        is restricted     to
profit-oriented          organizations.    With regard to providing
financial        assistance     to health facilities,         S3A regulations
provide       that:

                                            21
       “Hospitals     will    be considered   small when their
       capacity     does not exceed 159 beds (excluding
       cribs     and bassinets)     at the time of the
       application      for the loan.”


       “Nursing  homes will    be considered  small             when they
       have an annual dollar     volume of receipts              not
       exceeding  $1 million.”
          During the period   1962 to 1970, SBA provided          loans and
guarantees       of about $2.9 million        for three hospitals     and
four skilled-nursing-care         facilities,       exclusive   of psychiatric
facilities,       in the San Francisco        Bay area.
       Our review showed that,    before     January   1970, SBA had
made loans and-guarantees     which had resulted,        in several  in-
stances s in the construction     of facilities      in excess of the
need shown in the State plans.
      A report   by the Senate Committee        on Government     Operations
in April   1970 noted that financial       assistance     by SBA had not
been confined    to areas showing a need for facilities             in the
State plan.     Hence Federal   financial      assistance   contributed
to the establishment     of excess facilities.
         The report   cited      the Vallejo,     California,        hospital     situa-
tion where a Hill-Burton             grant had been provided            in March 1966
to Vallejo      General Hospital         for modernizing         its existing       62
beds and increasing          its bed capacity        by 37 beds.          After
increasing      its bed capacity,          the hospital       had experienced         a
very low occupancy         rate and had more than half               of its 99 beds
empty.      The report     noted that the underutilization                  of the
facility     was placing       the hospital     in a financial          dilemma.
       The report       noted that the major factor     which had caused
the underutilization          was the nearby Broadway Hospital           which
had increased        its bed capacity     from 30 to 90 beds and which
was taking     patients      away from other hospitals.       Part of this
expansion     was assisted      by SBA which granted     a loan in October
1968 to the Broadway Hospital.              State agency officials        stated
,that SBA had not discussed          the project   with their     office     and
that the State plan in effect            at that time had indicated          an
excess of beds in the area,
        Cur review     showed that,  during  fiscal   year 1970, the
Vallejo    General     Hospital  and Broadway Hospital     had experienced
occupancy     rates    of 51.7 and 68.3 percent,    respectively.




                                         22
                                          .
      We noted that,    in addition      to the facilities    discussed
in the Senate Committee’s        report,   the following   skilled-nursing-
care facilities    in the San Francisco        Bay area had been pro-
vided with financial      assistance     by SBA between 1965 and 1969,
even though the State plan in effect           at that time indicated
that there was no need for the facilities.
        Bassard Convalescent           Hospital        (loan
          guarantee)                                                $270,000
        Ellens    Nursing     Home (direct          loan)              10,000
        Montara Coastside          Convalescent
          Hospital (direct          loan}                              12,000
        SBAls efforts       to establish    need for the skilled-nursing-
care facilities       listed     above included    contacts   with county
welfare     departments       and the State Department      of Public Health.
In each case the State plan indicated,              at the time of ap-
proved financing         for these facilities,      that a need for addi-
ti'onal   facilities       did not exist.
        We reviewed SBA records        for these projects     to determine
whether SBA had contacted          the State agency to ascertain
whether there was a need for the skilled-nursing-care                 facili-
ties requesting       assistance.     The records did not show any
contacts     between SBA and the State agency.           One skilled-
nursing-care-facility         owner stated    that SBA was not concerned
with the need for his facility            but was ‘only interested      in his
ability     to repay the loan.
      In January 1970 SBA established   a policy     which required
that a certificate  of need for a proposed facility        be obtained
from the State agency, before SBA provided     financial    assistance.
Since January 1970 SBA has not provided    any financial      assis-
tance for medical facilities    in the San Francisco      Bay area.
CONTROLS OVER MEDICAL FACILITY                     DEVELOPMENT
        Until      recently      the development     of hospital          and skilled-
nursing-care          facilities       took place without        restrictions           con-
cerning       the needs of the community.              Restrictions         initially
were developed           in the form of licensing           requirements          over the
physical        plant relating         to patient   safety.       The Hill-Burton
legislation          developed      a process for determining            bed need to
assist in the distribution                 of scarce Federal        funds.        Hill-
Burton grant funds would not be provided                      for the construction
of a medical facility               unless there was a demonstrated                 need
shown in a State plan for such a facility.
        Recently   FHA and SBA have instituted     procedures                   which
state    that financial   assistance will     not be provided                   unless
                                              23
there is a demonstrated         need by the State agency for a pro-
posed medical     facility.      In this way control        to limit  Federal
funding   of excess medical        facilities    is maintained.      Prior
to January    1970 regulatory        control  relating    to community     need
did not exist     for privately       funded medical    facilities.
         Because overbuilding             of health       facilities        wastes public
funds and results            in higher       patient-day          costs,    additional
efforts,      such as the Partnership                for Health         Program legisla-
tion on the Federal              level     (see discussion           on p. 7) and
comprehensive          health-planning          legislation          in California,      have
sought to remedy this               condition      by controlling           the development
of medical       facilities.
        The California     comprehensive       health-planning        law took
effect    3anuary 1, 1970.       This law, commonly referred              to as
State Assembly        Bill 1340, requires         the review      and approval
of the need for proposed         health     facility      projects    by the
regional    comprehensive     health-planning          agency before      licenses
to operate     may be granted     by the State Department             of Public
Health.
        We found that the bay area medical                   facilities      needs, as
determined        by the State plan criteria,              were substantially
met prior        to the establishment          of the comprehensive           planning
law.     Comprehensive          health   planning    is a significant            change
from previous          methods of planning        for new medical          facilities
built    with private         financing,     because the establishment                of
hospital       and skilled-nursing-care           facilities          not assisted       by
Federal      financing      is subject      to review       and approval      by an
areawide       council     on the basis of community               need.
          The organization        and concept    of the comprehensive       health-
planning      agency is new, and the agency is in the process                   of
developing       criteria      for determining     the need for medical
facilities.          The local     comprehensive     health-planning      agencies
have committed          themselves    to complete     areagide      plans during
1972.
       We believe    that,     with the development              and consistent
application      of uniform      criteria       for determining        need, the
comprehensive      health-planning           agency will       be better     able to
review     the need for proposed           medical   facilities        and thereby
to curtail     the development          of medical     facilities        which are
not needed for patient-care               needs.




                                            24
                                       CHAPTER 4

                         CONTROL OVER DEVELOPMENT OF
                        SPECIALIZED       MEDICAL SERVICES
         A report1       by the Advisory         Committee    to the Secretary       of
Health,       Education,     and Welfare        on Hospital     Effectiveness     stated
that the most promising             opportunities        for advances in hospital
effectiveness         might be expected          to result    from the combined
efforts       of health-care      institutions,        areawide      planning   agencies,
and State licensing           authorities        to encourage      and, when neces-
sary,      demand the development            of cooperative      programs     among
institutions.
        This report       also noted that planning        agencies  and
licensing      authorities      must make decisions       for shared services
on the basis of total           effectiveness      for the whole population
rather     than on the basis of institutional             autonomy or the
convenience       of individual        physicians.    The sharing   of medical
services      and equipment      helps to reduce the cost of hospital
services.
        Section      113 of Public       Law 91-296 provides            that States
are entitled         to receive    Hill-Burton      grant funds up to 90
percent      of a project’s       cost if the project            offers     potential
for reducing        health-care      cost “through       shared services            among
health      care facilities”       or “through      interfacility           coopera-
tion.”       This legislation,         which increases         Federal      financial
participation          in those projects       which involve          sharing,      should
provide      hospitals      which are seeking       Federal       grant funds with
an incentive         to share services.

        Our review        showed that numerous specialized                services     for
the treatment         of specific      illnesses      were offered        by hospitals
in the San Francisco            Bay area.        As discussed        on page 9, Fed-
eral medical        facilities      generally      are restricted          to use by
such persons as veterans              and military       personnel.          The Veterans
Administration         is specifically         authorized,         by law, to enter
into agreements          with private       medical     facilities       for the sharing
of facilities,         equipment,      and services.            For three specialized
services       (open-heart      surgery 3 radiation           therapy,     and kidney
dialysis)      ) we compared the capacity              of these services          in the
San Francisco         Bay area with the patient               case load.


1 Secretary’s      Advisory Commission           on Hospital     Effectiveness
  Report,     U.S. Government Printing            Office     (Washington:      1968),
 pp. 15 and 16.

                                            25
        Our review showed that there were open-heart-surgery                        and
radiation-therapy           facilities       in excess of patient        needs.     Also
kidney-dialysis          services      were underutilized.           Many physicians,
hospital       administrators,         and health     planners     that we contacted
during      our review concurred           in these findings.          They said that
they believed         that the-increase         in the number of unneeded
specialized       services       offered     in hospitals      did not service      the
best needs of the community nor result                    in the best approach
to good medical care.
        We notod that no authority         existed     for controlling          the
establishment      of these specialized         services;       consequently
a hospital     could establish      specialized       services      regardless
of the potential        for sharing   existing      facilities.          We believe
that controls      should be established         by State and local health-
planning    agencies over the number of specialized                   services
being developed       in a community,      to ensure that the medical
needs of the community are met in the most economical                        and
effective     manner.
OPEN-HEART SURGERY
       Our review showed that eight non-Federal            and three Federal
hospitals     in the San Francisco        Bay area offered   open-heart-
surgery    services.       In addition,    one other non-Federal    hosnital
was equipped       to offer    this service   and expected   to begin its
open-heart      surgical    program soon.
       The capacity       and utilization  rates of the open-heart-
surgery   facilities       are shown in the following  table.




                                         26
                                                                Potenti.al
                                            Total'               capacity          Percent     of
                                          operations             (note h_)      utilization
                                                                                --
Ken- Federal hospitals
  (note a) :
     Children's       Hospital
        Medical      Center                         29                     60           48
     Samuel Merritt
        iIospita1                                   SO                     70           7x
     University       of
         California      Med-
         ical Center                              200                     3eo           67
     Presbyterian        Ifos-
        pita1 of Pacific
        F!edical Center                           200                     400           50
     Mt. Zion Hospital                             24                     150           16
     Stanford       University
        Hospital                                  534                     534          100
     Santa Clara Valley
        Medical      Center                       120                     250           48
     San Jose Hospital
         and Health Center                          19                     50           -38
                                             1,176                     1,s14            -65
Federal hospitals:
     Nilitary      (note c)                         88                    100            88
     Veterans      Adminis -
         tration,     San
         Francisco     (note d)                     41                    100            41
     Veterans      Adminis -
         tration,     Palo
         Alto (note d)                              98                    200           -49
                                                  227                     400           -57
           Total                             1,403                      2,214           --63
agaseb on hospital        data      for    calendar        year        1970.
bBased on discussions            with     hospital        officials.
'Based    on hospital     data      for    calendar        year        1970.
dBased on hospital        data      for    fiscal        year     1970.




                                             2%
        The American       Heart Association           states,     in its Standards
for Cardiac      Diagnostic        and ‘Surgical       Centers,      that center
personnel     who arc responsible            for .the diagnosis           and treatment
of defects      of the heart require            training       and extensive       ex-
perience    which,      in turn,      are related        to an optimal       case load.
The standards        provide     that the necessary            concentration       of
elaborate     equipment,       highly    trained       technical       personnel,      and
skilled    professional        supervision        can be justified          only by a
continuing      daily     use of equipment          and personnel         in diagnostic,
operating,      and patient-care         areas in response             to a demon-
strated    continuing        community     need.
          Doctors    contacted       during   our review were concerned                with
the overall         development        of open-heart-surgery         facilities.
Doctors       at San Francisco           Bay area open-heart-surgery              facilities
generally        agreed that potentially           higher     case loads did exist,
especially        in the area of coronary-artery               surgery.          Furthermore
many of these doctors              said that they believed           that existing
facilities        could handle this potential              case load and that
conditions        did not warrant          the establishment       of additional
open-heart-surgery           facilities.
      We noted that,          in addition     to the above-listed       hospitals
that were engaged in            open-heart    surgery,    a non-Federal     hospi-
tal was equipped     for,        and prepared     to offer,   this service.
Most of the doctors           that we contacted        in the area were critical
of the estabiishment            of this unit.
        One of the doctors          expressed     concern   that this hospital
was not aware of the financial                aspects   of operating      an open-
heart-surgery        unit.       He said that his hospital          spent over
$100,000      a year for special         cardiovascular       supplies   needed
in the operating           room.    Another    doctor    commented that he
did not know where this hospital                :qould get its patients.         A
third    doctor    stated      that this new unit was being established
for prestige      purposes.
         The doctor     in charge of the proposed         open-heart-surgery
facility      stated    that the hospital      would be able to perform
50 to 150 open-heart          operations    a year and that,        if the hos-
pital     could not perform       at least   50 operations        a year,    it
would function         as’ a diagnostic    center.     He stated      that,     in
his opinion,        however,    a large undetected       population      in the
bay area was in need of open-heart              surgery.
        We were informed          by hospital      officials         that no regulations
existed     for controlling           the establishment         of open-heart-surgery
units ; consequently          a hospital       could offer         this service,
regardless      of the potential           for sharing       existing       facilities.
Doctors     contacted     during        our review     generally        agreed that
there was a need for some control                  over the development                 of
open-heart-surgery          facilities.

                                            28
         Officials       of the Bay Ar&a Comprehensive           Health    Planning
Council       stated     that an adequate supply of open-hoar-t-surgery
facilities         existed    in the San Francisco         Bay area to care for
the     patient     needs of the area.           These officials     advised     us
that they expected            to develop    guidelines       for evaluating      the
need for open-heart-surgery              facilities      in the future.
MDIATI    ON THERAPY
        Radiation-therapy        services        in the San Francisco          Bay area
are provided        in physicians’        offices,       Federal      and non-Federal
hospitals,      and a tumor institute.                On the basis of criteria
established       by the Committee          for Radiation          Therapy Studies,
the capacity        of existing     facilities         is almost double that
of the expected         case load.        Additional       facilities      are being
constructed,        however,    and others         are being considered         for
construction.
        In the San Francisco            Bay area, 35 non-Federal             and five
Federal    facilities        were offering      radiation-therapy            treatment.
Available     statistics          did not permit     direct       comparison      of the
capacity     and use of radiation-therapy                facilities.         Qn the
basis of guidelines           , published     by the Committee          for Radiation
Therapy Studies,           entitled     “A Prospect      for Radiation         Therapy
in the United         States ,I’ facilities       in the San Francisco             Bay
area have the capacity               to handle about 11,000 new patients
annually.
       We estimated,     on the basis of statistics               published     by
the American     Cancer Society,       that,     in the San Francisco           Bay
area, about 6,300 patients         required        radiation       therapy   in 1370
and about 7,300 would require            radiation        therapy     during   1974.
Therefore    the existing     capacity       of handling        11,003 new patients
annually   exceeds area requirements             by about 4,700 and could
exceed the projected       area requirements            for 1974 by 3,700.
        We were told by various                health      officials        that the number
of physicians        trained       in radiation          therapy       limited     the avail-
ability    of the service            nationally.           Within      the    San Francisco
Say area, however,            sufficient         trained       physicians       were avail-
able to meet the needs of the area.                         We found that about 40
trained    radiation        therapists         and a number of radiologists
were practicing         in the area.             In addition,          36 residents      were
being trained        locally       in three major centers.
       Physicians       contacted      during    our revielq indicated      that
a trained     radiation      therapist       could treat    about 30 patients
daily.     Using a S-day workweek,             or 250 workdays      a year,    and
an average 24 visits           for each patient,        a physician    could
treat   about 300 new cases annually.                On this basis we estimated
that the 40 radiation     therapists   could handle about 12,000
new patients   each year.     This capability  is almost double the
current   case load of about 6,300 cases.
         We were informed   by various    health officials  in the bay
area that radiation-therapy         units had been added on a facility-
by-facility     basis without   regard to areawide needs.       Hospital
officials     advised us that four radiation-therapy       units were
opened during 1970 and that six units were being planned.
       Physicians, hospital   administrators,    and other professional
medical people have commented on the radiation-therapy          capa-
bility   in the San Francisco   Bay area.     Some of their  statements
are as follows:
      A hospital      administrator--There.is         no need for additional
      radnatlon-therapy         facilities      in the area.    Two facilities
      with megavoltage        recently      have been added.      Our utiliza-
      tion has dropped from 125 to 88 patients               daily.
                 --There     should  be some guidelines        to control
      Ae
      t e nun er of facilities
      As it is now, facilities
                                    offering
                                    are offering
                                                radiation    therapy.
                                                      the service     because
      some of the hospital     administrators      don't like the idea
      of sending  their  patients    to other facilities         for the
      service.
      A physician      and a regional      medical    program planner--
      Calafornla      1s oversupplied     with radlatlon        theraplsts
      and facilities.         The Regional    Medical     Program helps          per-
      petuate     these facilities     by providing       radiation-physics
      support.
      We have been informed    by radiation     therapists             and hospital
administrators     that excess capacity    would continue              to be cre-
ated.     They have cited the following     reasons.
      1. A physician     dislikes      to refe'r a patient   to another
         institution    because the physician         may lose management
         of the patient's        care.
      2. Therapy facilities        draw patients        to a medical       facility
         and thus improve        hospital  utilization.
      3. At present       fees, therapy   facilities       pay their      own way
         even with      relatively    low utilization.
      4. Therapy facilities         are considered       a necessary      part        of
         a complete medical         center.




                                       30
       Although     controls    do not exist,in      the San Francisco       Bay
area to limit       the establishment     of radiation-therapy       facili-
ties,   the Bay Area Comprehensive          Health Planning      Council is
reviewing     guidelines     for possible     adoption    of such controls.
KIDNEY DIALYSIS
       Kidney dialysis,       commonly referred    to as hemodialysis,
is a method of treating         patients   with kidney disease or kid-
ney failure.       In the San Francisco       Bay area, 17 facilities
offer hemodialysis       treatment.      Of the 17 facilities,      three
are located     in Federal hospitals.         The 17 facilities     have a
capacity     to treat   143 patients     annually  and, at the time of
our fieldwork,       had a case load of 112--a utilization          rate of
about 75 percent.
       Officials     at these facilities            stated        that increased      staff-
ing and additional        work shifts          could increase          the capacity      by
about 79 patients --a total            capacity       of about 222 patients            a
year in the San Francisco             Bay area.        With this additional
capacity,      these facilities        would be about 50-percent               utilized,
which would provide          capacity       for future        patient     demand.     Dur-
ing our review plans for additional                   facilities,         as well as
for expansion       of existing       facilities,       were being developed.
       Hemodialysis       is handled in two ways: (1) by a machine
located    in a hemodialysis        facility      or (2) by a unit,           smaller
and less costly        than the hospital        unit,      installed       in a patient's
home after     the patient      has received        a period of training            in
a hemodialysis       facility.      Medical     offici'als        explained    that,
wherever possible,          home units      are preferable         because of reduced
costs to patients        , greater    convenience        to patients,        and release
of hospital      beds for other patients.
        The Bay Area Comprehensive              Health Planning           Council    and
the California        Committee on Regional           Medical      Programs have
concluded      that additional       facilities       were not needed in
certain     areas.      For example, the council's              staff      evaluated     ,
the need for hemodialysis            capability        in the San Rafael service
area (304) and found a potential                 case load of eight for the
service     area, which, they concluded,               could be easily           handled
by facilities       in adjoining       areas.       Accordingly         they recommended
that a hemodialysis         facility      not be installed            in the San Rafael
area.      At the close of our field             review,    a facility         had not
been installed        in the San Rafael area.
          The associate    director  of the California     Committee on
  Regional    Medical Programs stated that hemodialysis         facilities
'could be quickly       installed   since the machines were small and
  available    and since the required      personnel   could be trained



                                            31
in a short period of time.       Thus a minimum of advanced               plan-     ’
ning was required,     compare'd with planning  required for               other
specialized  services,    such as open-heart   surgery.
      We noted that areawide comprehensive            planning    for
henodialysis     facilities     had not been undertaken        at the time
of our field       review.     Clfficials   of the California     Committee
on Regional J4edical Programs informed us that they were in
the process of developing           plans for wider,    more effective
cooperative    arrangements       among existing    hemodialysis      facilities
so that institutions        and resources      could form comprehensive
systems of care.
       The annual cost for each patient        for hemodialysis    in a
hospital    is between $20,000 and $30,000.          We were told that
the average patient       was unable to meet the high cost of contin-
ued dialysis    and must rely on other sources for financial           as-
sistance.     In California     the Xedi-Cal   Program is the primary
source for continuing       support  of hemodialysis     patients.
      Under the Medi-Cal       Program   a patient     must have virtually
no funds to qualify       for the program.       Although    home-training
of the patient      can reduce the long-run        cost of dialysis        to
some degree, the initial        cost is still      high.    Specialists       in
the field   indicated     that the first    year's      cost was about
$13,000 to $25,000 for a patient          on a home-training         program
and that the costs in the following           years would be about
$5,000 a year.
      Some specialists     stated that the Medi-Cal       requirements
were not equitable     in this respect.      They indicated      that
Medi-Cal's  requirement      that a patient    must have virtually     no
funds tended to stifle      his incentive    to continue    his life   in-
a manner useful     and productive    to society.
         The cost of hemodialysis        can be reduced by promoting
hemodialysis      facilities     in less costly       settings.     Our review
showed that the cost to a patient                for hemodialysis    ranged from
$170 to $275 for each dialysis             in hospital-based       hemodialysis
facilities.       One hemodialysis       facility,     which was located
adjacent     to a hospital      but which did not have the costly equip-
ment and services          of a hospital     that are not required        by
hemodialysis      patients,     however, was providing          the service    to
21 patients      at a cost of $155 for each dialysis.               Certain
reductions     are expected to bring the cost down to $130 for
each dialysis.
      Specific   controls      do not exist over the development       of
hemodialysis   facilities       in the San Francisco      Bay area.   The
Bay Area Comprehensive         Health Planning     Council has made rec-
ommendations as to the         need for additional     facilities   and was


                                       32
in the process   of reviewing    possihlc                gtlideljncs      to control
the future  developraent   of faciliti&s.
         The Medi-Cal       Program offers          a method of control           because
henodialysis       facilities         must be certified           as meeting      State
established      medical       standards        for treatment        of hemodialysis
patients     before      the State Medi-Cal             Program will       reimburse       the
facility     for the treatment             of Nedi-Cal       patients.        We were
told that most chronic               dialysis      patients     eventually      come under
the Medi-Cal       Program because they cannot pay the high cost
of dialysis      treatment.            Therefore,       if the Medi-Cal        Program
would not certify            a facility       for reimbursement?           when a need
for additional        facilities          did not exist,        additlonal      facilities
would probably        not be established.


        According      to physicians        and hospital      administrators      con-
tacted    during our review,          specialized       services     were being
established       by general      hospitals      in the San Francisco         Bay
area without        regard to the areawide          needs.       For example,     11
hospitals      offer     open-heart     surgery,    35 offer      radiation    therapy,
and 17 offer        hemodialysis.         These persons said that they be-
lieved    that duplication          of specialized       services      in excess of
area requirements          was not necessary        and could have been avoided
through areawide          cooperation       and planning.
       We were told by representatives               of the Bay Area Comprehen-
sive Health    Planning     Council     that the council          was concerned
with the proliferation          of specialized        services      and was study-
ing the matter      of formulating        guidelines      on the establishment
of such services.        They said that they were concerned,                  however,
about their    legal    authority     to regulate        specialized      services
and that they therefore          had requested         a ruling     by the State
attorney   general     as to their      authority.        At the* completion
of our fieldwork,       no ruling     had been made.
         Officials       of the council     stated      that they believed        that
the council          had the responsibility          to develop      adequate planning
criteria        to ensure the orderly         establishment        of specialized
services        consistent     with areawide      needs.       Furthermore     they
stated      that all proposed projects,              including     those federally
sponsored         for specialized     services,        should be subjected        to
the council’s           review   and approval      as to the need for the
medical       service      on the basis of patient-care            requirements.




                                             33
                                     CIiAPTER.6
                                         k

                  SAVINGS POSSIBLE
                               I-  THROUGH COOPERATIVE USE
                          OF SUPPORTIVE._ SERVICES
         The benefits      to hospitals       for the development      and use of
common supportive          services    have been recognized       by hospital
administrators        and by the Itospitzl         Council  of Northern     Cal-
ifornia.       Hospitals      receive    financial    and other advantages
through pooling         resources     for supply purchasing,        laundry
service,     maintenance,        and other nonmedical      services.
       Some hospitals    in the San Francisco          Bay area have coop-
erated to organize      certain     supportive     services.       We reviewed
the operation      of a cooperative      laundry    service     and two group-
purchasing    programs to ascertain          the benefits     realized        by
such arrangements.       Officials      of the participating          organiza-
tions stated     that these cooperative         ventures     offered       savings
and other advantages,        such as avoiding       duplicate      facilities
and saving space.
COOPERATIVE LAUNDRY SERVICE
       The reasons for the cooperative             laundry    service   include
avoiding   the cost of duplicate       facilities,          equipment,    and
personnel    and maintaining   control       over service,        which control
is not possible    when commercial       laundries         are used.
        The local    cooperative       laundry  service    that we visited
began operation        during    August 1968; seven hospitals         partici-
pated in its initial          organization     and financing.      Laundry
service    representatives        said that $2.5 million        was borrowed
from non-Federal        sources for the development           of a plant
capable of servicing          about 5,000 hospital       beds.    At the time
of our field      review,     14 hospitals     having a total     of 3,200
beds were participating           in this service.
        Laundry service    representatives         cited a variety    of bene-
fits    from the service's     operation,      including   financial    savings
and space savings.        The cooperative        laundry  service    had made
one study which had estimated           savings of $25,000 for one
hospital     during 1970.
       The cooperative         laundry  service     is offering      its service
to other hospitals          in the area.      One hospital      joined     the p_rogram
during  our review.           Officials  of this hospital         stated     that
they   believed      that   this service    offered     potential       for savings




                                         34
by avoiding duplication     of facilities           and limiting       the     require-
ments for additional    hospital     space;
GROUP PURCHASING
     Group purchasing     is participating        hospitals         purchasing
as a group and benefiting     through      larger   buying         power.
       During our review     we noted that hospitals            in the San
Francisco    Bay area were participating           in either      of two group-
purchasing     programs a We examined into the two programs                 to
determine    the possible    benefits    to hospitals        participating
in such programs.       These programs      differed      in size and were
based on different      methods of procurement.             The particulars
of each program are discussed         below.
        One group, which was established                 in 1962, consisted       of
17 nonprofit          hospitals      having     a total  of 3,050 beds.       These
17 hospitals,           with the exception          of one in Oregon, were
located      in northern        California.         The hospitals   contract     with
a single       distributor       of various       brands of medical     supplies
and equipment.             Member hospitals         buy all of their    supplies
from this        distributor       and deal directly        with the distributor
when ordering           and paying.         Overhead for the program is assessed
on the basis of the number of hospital                     beds so that each hos-
pital     pays a proportionate              share based upon the size of the
hospital.
         The director     of the group-purchasing     program stated     that,
because of greater         volume and a predictable      market,  the dis-
tributor      was willing     to reduce its profit    margin.    He stated
also that hospitals         gained because they had the privilege          of
using brands of their           preference  and still   achieved  a signif-
icant     savings.
       The director     indicated   that member hospitals         had         been
able to achieve      between a lo- and 15-percent         overall            saving
on their   purchases      through their   participation      in the           program,
He cited   savings    of 500 percent     on medical     gases and            18 per-
cent on domestic      X-ray film as examples.
        The other group-purchasing           program consisted      of 130
private    and nonprofit    hospitals.          Of these hospitals,       17 are
located    in northern    California      and have a combined bed capacity
of 3,139 beds.       This program is sponsored           by the Hospital
Council    of Southern    California      although     it is functionally
separate     from the hospital       council.
        The executive     director     of the hospital      council stated
that yearly     contracts      were negotiated     with manufacturers      and
suppliers    for particular        products    at an anticipated    volume


                                        35
and that member hospitals          cho$e the products   they wished to
purchase through the program.           According   to one of the pro-
gram's officials,      member hospitals      need not participate   in,
and are not participating          in, all products   and product  groups
offered    by the program.       In contrast    to members of the other
group-purchasing      program, members of this program can buy from
any supplier      or manufacturer.
       The operating     organization  for the 17 northern California
hospitals   estimated     that savings of $228,858 were realized
during calendar      year 1970.




                                  36
                                      CHAPTER 7

                                  SCOPE OF REVIEW
        Our review of hospital           and skilled-nursing-care-facility
construction        in the San Francisco         Bay area was performed         at
PI-IS, Region 9, San Francisco,            California;       the State Department
of Public Health,         Sacramento,      California;       and hospitals    and
skilled-nursing-care          facilities     in the nine counties          of the
San Francisco         Bay area.
      Our review      included:
      --An examination    into areawide needs for                inpatient
         facilities   and an inventory  of existing                and planned
         facilities.
       --A  review    of Federal       programs funding health       facilities
         and their     relationship        with other health   facility         pro-
         grams.
       --An examination      into specialized      hospital     services,
          including   contacts    with 68 hospital       representatives,
          of whom 47 were physicians;         examination     of utilization
          records;  and discussions       with health     planners.
       --Site    visits    and discussions       with 33 representatives
          of hospital      and skilled-nursing-care        facilities    and 14
          representatives      of local      organizations    involved   in
          health    planning.
       --A review of pertinent            material     available    on Federal
          assistance for facility           construction        and areawide   health
          planning.




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