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)

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     0OF
               COMPTROLLER GENERAL OF THE UNITED STATES
                          WASHINGTON. D.C.   20548




B-167966




Dear Mr. Chairman:
     This is our report onT 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 yours,



                                   Comptroller General
                                   of the United States
The Honorable Abraham A. Ribicoff
Chairman, Subcommittee on Executive
  Reorganization and Government Research
Committee on Government Operations
United States Senate




                     50TH ANNIVERSARY 1921-1971
                            _   n t e n t s


DIGEST                                                      1
CHAPTER
   1      INTRODUCTION                                      4
              Hill-Burton program                           4
              San Francisco Bay area                        5
              Other health-planning activities              7
   2      CONSTRUCTION OF HOSPITALS                        10
              Changesin 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 SK]LLED-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                           21
                  Federal Housing Administration           21
                  Small Business Administration            21
              Controls over medical facility development   23
   S      CONTROL OVER DEVELOPMENT OF SPECIALIZED
            MEDICAL SERVICES                               25
              Open-heart surgery                           26
              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
                   AiB.IkEVIATIONS
FHA   Federal Housing Andministration
GAO   General Accounting Office

HEW   Department of Health, Education, and Welfare
OEO   Office of Economic Opportunity
PHS   Public Health Service
SBA   Small Business Administration




                      BEST       '7,MF.NT AVAILAR
COMPTROLLER GENERAL'S REPORT            PLANNING, CONSTRUCTION,
TO THE SUBCOMM4ITTEE ON                 AND USE OF MEDICAL
EXECUTIVE REORGANIZATION AN.D           FACILITIES IN THE
GOVERNMENT RESEARCH                     SAN FRANCISCO BAY AREA
COMMITTEE ON GOVERNMENT OPERATIONS      B-167966
UNITED STATES SENATE

D I G E S T
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
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.
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 Ifi.-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 11as 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.)




                         3
                          CHAPTER 1

                        INTRODUCTI ON
HILL-BURTON PROGRAM

     Title VI of the Public Health Service Act (42 U.S.C. 291),
commonly known as the Hill-Burton program, authorizes the Pub-
lic Health Service (PUS), Department of Health, Education, and
Welfare (HEW), to make grants to States for the construction
of medical facilities. P1-IS, 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 PIS guidelines, the State agency
annually estimates the need for hospital and skilled-nursing-
care beds for the ensuing S 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 forreach 1,000 population) and divides the
result by 365. The resulting average daily census is divided



                              4.           UM
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 10-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 tle 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 FRANCISCO 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 PUlS 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.




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      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-
crans Administration, one by IPHS, and four by the Department
of Dcfense. Also there are 73 diagnostic and treatment centers,
44 public health centers, and 203 community mental health cen-
ters.
     Diagnostic and trcatmient ccnters provide services for
outpatients. A public health center is a community outpa-
tient facility, providing services to prevent disease, pro-
long life, and nmaintain 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 which provide
primarily domiciliary care. Only the facilities providing
skilled nursing care qualify 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 HEALT11-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 priori-
tics 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 health-
planning agency funded under the Partnership for Health Pro-
grain. 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 participating in the develoipinent of io-
cal health facilities include HEW, which funds construction
of hospitals, long-term-care facilities, diagnostic and treat-
,; .mt centers, public health centers, neighborhood clinics, an d
training facilities under the Hill-Burton program; the Depart-
ment of Commerce, which funds the construction of a neighbor-
hood health center; the Department of Housing and Urban Devel-
opment, which guarantees and insures loans for the construction
of hospitals and nursing homes; the Small Business Administra-
tion, which funds construction of hospitals and nursing homes;
and the Office of Economic Opportunity (OEO), which funds con-
struction and operation of neighborhood health centers.
     The Veterans Administration, P-IS, and the Department of
Defense also provide health facilities in the San Francisco
Bay area; these facilities generally are restricted to use
by such persons as veterans,, seamen, and military personnel,
respectively.
     Since the enactment of the Hill-Burton program, Federal
participation in projects improving health resources in the
San Francisco Bay area has totaled more than $122.5 million.
The following table shows the Federal support by agency since
enactment of the Hill-Burton program.
                          Federal Financial Assistance to
                  Health Facilities in the San Francisco Bay Area
                     From January 1, l145, to December 31, 1970


                                                          Department
                                                              of
                                 HEW             SBA       Commerce       PHA        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
   and long-
   term-care
   units             21,444      3,114            2,067           -      16,263          -

 Health centers      18,030      2,519              -           1,530      -           13,981
     Total         $122,618    $76,662        $2,882        $1,530      $27,563    $13,981

 ajEW grants do not include training facilities or HEW community health centers.
 bAmounts represent loans and guarantees and include the funding of a long-term
  psychiatric unit.
 cAmount represents grants.
 dFHA amounts are primarily mortgage insurance commitments and include applica-
  tions in process.
 eOEO health center grants include facility and operating funds.



                                              9
                          CHAPTER 2


                  CONSTRUCTION OF HOSPITALS
     According to the 197'0 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.




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                                                                                                                                                                                            V-           V            n                             CO 44                       W                   ,
                                                         CD                    0        Ol
                                                                                        m               4                      4 r4 4        r4P            o4r4r                    .N      .           .        .                                M       0                                        4
                                                                                                                M  ~ f~                                ~
                                                                                                                                                       i01t                          ~       m                    mc   ~                  mt a                             DnMt) U
     As the above table shows, 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 area, 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               1968         1969         1970
     80 and above              18           27            21
     65 to 79                  54           51            44
     64 and under              20           14            29
          Total                92           92            94

     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 btated 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      __          1.1   ,      V
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                                                 35
 64 and under                                             22

    Range:
        High    93.0%
        Low     31.1%

   Range of
occupancy rates                     Number of hospitals
   (percent)            Pediatric        Obstetrics     Psychiatric

  70 and above               9               13                16
  40 to 69                  40               32                 5
  39 and under              14               16                -
    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 specialized services competing for
        patients.

     4. Excess acute-care hospital beds available in the
        bay area.
HOSPITAL BED SPACES '.1.LTC1I LO NOT CONFORM TO
 ILL-BURT'ON CU;IT1S-TFRti ADARS

     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 area, did not conform to Hill-Burton construction
standards. 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 820 of the 2,80S noncon-
forming bed spaces shown 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 hospitals had plans for modernization, replacement, or
expansion of existing facilities, which hospital officials
believed would make their facilities conform to Hill-Burton
construction standards.




                               14
     During the past 6 years, the State agency, in accor-
dance with the State-wide emphasis on 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
                                       Original     Revised
                                     allocations allocations
Hospitals and public health centers $40,079,000   $29,681,000
Long-term-care facilities (nurs-
  ing homes)                         21,140,000     5,866,000
Diagnostic and treatment centers      6,253,621    10,347,964
Rehabilitation facilities             3,169,843     7,503,469
Modernization                         8,716,000    26,010,000
     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                   17
 1969        16,706        -3,877                   23
 1968        16,727         4,909                   29
 1967        16,50S         4,643                   28
 1966        16,039         5,554                   35




                             15
                                       CHAPTER. 3


          CONSTRUCTION OF SKILLED-NURSING-CARE FACILITIES

     PHS guidelines state that skilled nursing care is
24-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 domiiciliary' care were 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          1,11R          794       324
      302-Petaluma             4S4           92            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          536          2,392       2,256        136
      311-Richmond             788                         788         627        161
      313-Berkeley             573          -,8            555         598        -4 3 C

      314-Oakland            2,474          164          2,638       2,065       573
      315-Hayward            3,756          213          3,969       3,445       524
      317-San Francisco      4,429          896          5,325       3,300     2,025
      319-Daly City            386          307            693         301       392

      320-San Mateo            975         945           1,920          960       960
      321-Palo Alto          1,385         101           1,486        1,438        48
      324-San Jose           3,387         417           3,804        2,922       882
      325-Livermore            163          -2.3           140          292      -152c

           Total            24,729        4,09          28,828       21,861    6,967

      'Based on data shown in California 1970 State plan.

      bBased on information provided by the State agency.

      cNegative figure indicates that capacity is less than the projected need.




                                                                              ~~~          ~La~
UTILIZATION OF
SKILLED-NUSING-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
306-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 90-percent 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
                        OccupancyFactors
        San Jose Area a-Ne      ursing-Lare Facilities
                                      Calendar year 1970
                                                Percent
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 operating below 90-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-
grams, the Government can be expected to share in the higher
operating costs.
     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
TO HILL-BURTON CONSTRUCTIO 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-care requirements of 21,861
beds.
     Skilled-nursing-care facilities participating in the Fed-
eral Medicare and Medicaid health care programs also are re-
quired to ireet 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 Hill-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 e valuate in each facility those aspects of
the skilled-nursing-care facility which are not covered by
Hill-Burton regulations.
     About 94 percent of the California. skilled-nursing-care
facilities are certified for participation under the Federal
Medicare and/or Medicaid 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


                                    , /,I.'.\
                          CHAPTER 4

          COORDINATION AND CONTROL, OVER DEVELOPMENT
                    OF MEDICAL FACILITIES

     Cur 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.
     FH1A 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 TE CONSTRUCTION-
OF MEDICAL FACILITIES
     We examined hospital and skcilled-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-facilityconstruction in the
San Francisco Bay area.


                             20        66       i VArt'
Department of Housin- and Urban Development
     The Department of Housing and Urban Development is foster-
ing the planning and development of health resources through
its Model 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. We noted that several proposals for
local Model 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 paramCindical-training program, and (3) the construc-
tiOnI of a 200-bed inpatient-care facility. We discussed these
objectives with the Model Cities planner who explained that
existing facilities were generally inaccessible to Model
Cities residents due to tIle 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-tern
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. Areauwide, 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. lWe 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 werq 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. SBA's financial assistance is restricted to
profit-oriented organizations. With regard to providing
financial assistance to health facilities, S3A regulations
provide that:

                             21     !F     ,   ,,
     "Hospitals will be considered small when their
     capacity does not exceed 150 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, 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.
     Our 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
     SBA's 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-
tional 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 bift 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 January 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 areawide 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 5

                 CONTROL OVER DEVELOPMENT OF

               SPECIALIZED MEDICAL SERVICES

     A reportl 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, radiation therapy, and kidney
dialysis), we compared the capacity of these services in the
San Francisco Bay area with the patient case load.


1Secretary'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.d
     We noted 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-IHEART SURGERY
     Our review showed that eight non-Federal and three Federal
hospitals in the San Francisco Bay area offered open-heart-
surgery services. Iniaddition, one other non-Federal hospital
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
                                        Potent ia]
                             Total       capacity      Percent of
                           operations    (note h)     utilization
Non-Federal hospitals
  (note a):
    Children's Hospital
      Medical Center            29               60       48
    Samuel Merritt
      Hospital                  50               70       71
    University of
      California Mred-
      ical Center              200              300       67
    Presbyterian lHos-
      pital of Pacific
      Medical Center           200              400       50
    Mt. Zion Hospital           24              1S0       16
    Stanford University
      Hospital                 534              534      100
    Santa Clara Valley
      Medical Center           120              250       48
    San Jose Hospital
      and Health Center         19               so       33
                             1,176         1,S14          65
Federal hospitals:
    Military (note c)           88              100       88
    Veterans Adininis-
      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

aBased on hospital data for calendar year 1970.

bBased on discussions with hospital officials.

CBased on hospital data for calendar year 1970.

dBased on hospital data for fiscal year 1970.
     The Americzmi Heart Association states, in its Standards
for Cardiac Diafignostic and Surgical Centers, that center
personnel who are responsible for tthe 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.
Maost of the doctors that we contacted in the area were critical
of the establishment 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 would 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
SO 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. fie 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.

                                        REST<ii
                                28~~aayr-ea              1MENTAVA O
     Officials of the Bay Area Comprehensive Ifealth Piinning
Council stated that an adequate supply of open-heart-surgery
facilities existed in the San Francisco Bay area to care for
the patient needs of the area. These officials advisod5 us
that they expected to develop guidelines for evaluating the
need for open-heart-surgery facilities      in the future.
RADIATION 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. On the
basis of guidelines, published by the Committee for Radiation
Therapy Studies, entitled "A Prospect for Radiation Therapy
in the United States," 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 1970
and about 7,300 would require radiation therapy during 1974.
Therefore the existing capacity of handling 11,000 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
Bay 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 review indicated that
a trained radiation therapist: could treat about 30 patients
daily. Using a 5-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


                                                     '       .v
                             29          ,~...   '
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
    radiattion-therapy facilities in the area. Two facilities
    with megavoltage recently have been added. Our utiliza-
    tion has dropped from 125 to 88 patients daily.
    A physician--There should be some guidelines to control
    the number of facilities offering radiation therapy.
    As it is now, facilities are offering 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--
    California is oversupplied with radiation therapists
    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 refer 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 officials 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 ti;me. Thus a minimum of advanced plan-
ning was required, compared with planning required for other
specialized services, such as open-heart surgery.
     Wle noted that areawide comprehensive planning for
heLiodialysis facilities had not been undertaken at the time
of our field review. Officials of the California Committee
on Regional M14edical 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 Mledi-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
in the process of reviewing possible guidelines to control
the future development of facilities.
     The Medi-Cal Program offers a method of control because
hemodialysis 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 treatmenti of Medi-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, additional 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.




                             :53
                           ChAPTER 6


           SAVINGS POSSIBLE 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 Hospital 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 S,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 $2S,000 for one
hospital during 1970.
     The cooperative laundry service is offering its service
to other hospitals in the area. One hospital joined the pyogram
during our review. Officials of this hospital stated that
they believed that this service offered potential for savings



                                       34 sIĀ¶   iaiu   T AV~ABU
                              34
by avoiding duplication of facilities and limiting the require-
merits 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. 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 10- 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 chose 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
PHS, 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.




                               37