oversight

Military Construction: Renovation Plans at the Portsmouth Naval Medical Center

Published by the Government Accountability Office on 1997-06-12.

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

                   United States General Accounting Office

GAO                Report to Congressional Requesters




June 1997
                   MILITARY
                   CONSTRUCTION
                   Renovation Plans at
                   the Portsmouth Naval
                   Medical Center




GAO/NSIAD-97-144
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division

             B-276792

             June 12, 1997

             The Honorable Conrad Burns
             Chairman
             The Honorable Patty Murray
             Ranking Minority Member
             Subcommittee on Military Construction
             Committee on Appropriations
             United States Senate

             As you requested, we are providing information on the Department of
             Defense’s (DOD) plans to renovate building 215 at the Portsmouth Naval
             Medical Center in Portsmouth, Virginia. Building 215 has 18 stories and is
             currently an operating hospital. A replacement hospital, under
             construction adjacent to building 215, is expected to be occupied in
             July 1998. As part of this construction project, DOD received funding to
             renovate portions of the first six floors in building 215 (about 40 percent of
             the building’s total space) for a range of health care and medical support
             services. DOD intends to request additional funds to renovate the remaining
             floors. Without the additional funds, these floors may be unoccupied in the
             future. This report addresses whether (1) the actual workload at
             Portsmouth affects its requirements for facility space, (2) the planned
             occupants of the bottom six floors of building 215 could move into the
             replacement hospital, and (3) alternative uses exist for the top floors in
             building 215.


             The Portsmouth Naval Medical Center is a teaching hospital that provides
Background   comprehensive health care services to active duty forces and, when space
             is available, provides medical services to other DOD beneficiaries (i.e.,
             dependents of active duty members and retirees and their dependents) in
             the Norfolk, Virginia, area. When space is not available, beneficiaries
             receive health care in civilian hospitals and clinics under DOD health plans.
             Currently, Portsmouth provides medical care primarily in two hospitals
             (building 1 and building 215) and seven outpatient clinics located
             throughout the Norfolk area. The two buildings have a total of 348
             inpatient beds and about 700,000 gross square feet of facility space.
             Building 1 is used primarily for psychiatric, pediatric, and obstetrics and
             gynecological services. Building 215 contains about 500,000 gross square
             feet of space on floors 1 through 15; floors 16 through 18 are mechanical
             support spaces and therefore are not available for occupancy. Building 215
             is currently used to provide a range of inpatient and outpatient services.




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                   Appendix I shows the Portsmouth Naval Medical Center, as of
                   August 1996.

                   To modernize the Center’s medical facilities and correct numerous safety
                   code violations, the Congress authorized DOD, in the National Defense
                   Authorization Act for Fiscal Years 1990 and 1991 (P.L. 101-189), to spend
                   $330 million to construct and renovate 1.5 million square feet of space.
                   This project includes construction of a new hospital with 464 inpatient
                   beds (approximately $141.8 million); renovation of building 1 for
                   administrative purposes (approximately $12.1 million); renovation of
                   40 percent of building 215—portions of floors 1 through 6—to provide
                   clinical health care and medical support (approximately $12.5 million);
                   and construction of a new parking garage, gymnasium, and central energy
                   plant. According to Portsmouth officials, the project was about 90 percent
                   complete as of February 1997, and the remaining work is expected to be
                   finished by January 2001.

                   The Navy had also planned to spend about $19 million to renovate the top
                   floors of building 215 under a separate project that would convert about
                   half of the space to housing for unaccompanied enlisted servicemembers,
                   that is, those without spouses or dependents. In 1994, the Navy canceled
                   these plans and decided to use the space for additional medical and
                   administrative functions.1 The prospective tenants for this additional
                   space include medical and support personnel who currently occupy leased
                   space in the Norfolk area and space at the Center that the Navy has
                   determined is substandard. Navy officials estimate that $34.6 million will
                   be required to renovate about 300,000 square feet of additional space in
                   building 215.

                   Partially because of concerns that the additional renovation may not be
                   needed, the DOD Comptroller deferred the funding request for this project
                   from fiscal year 1998 to 1999, pending further analysis and validation of
                   need. In January 1997, the Office of the Assistant Secretary of Defense for
                   Health Affairs contracted for a study of total workload and space
                   requirements for Portsmouth. A final report on the study’s findings is
                   expected in June 1997.


                   The assumptions used to design and size the Portsmouth Naval Medical
Results in Brief   Center have not materialized as expected. In some instances, the actual

                   1
                    The Navy requested and the Congress funded two additional military construction projects totaling
                   $16.1 million to provide housing for unaccompanied servicemembers.



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                    workload today is significantly less than anticipated. All indicators of
                    inpatient workload are over 50 percent lower than the figures that were
                    used to size the facility space. Reported outpatient visits nearly doubled.
                    Theoretically, such overstated inpatient requirements might result in
                    excess space that could be used for other purposes, such as
                    accommodating functions planned for building 215.

                    Reusing inpatient space for other purposes would not be practical because
                    the new hospital is nearly complete and costs to redesign and rebuild it
                    could be significant. In 1995, project officials authorized the redesign and
                    finishing of about 38,000 square feet of space for $4 million, or about $105
                    per square foot. In addition, the functional use of space in the new hospital
                    is severely constrained. Inpatient beds are distributed throughout the
                    hospital according to medical function, so that maternity beds are located
                    near the nursery and intensive care beds are located near the operating
                    rooms. Although inpatient workload has decreased by over 50 percent, the
                    distribution of this decrease across various medical functions is not even
                    and could result in only small numbers of beds being eliminated from each
                    function.

                    Our analysis indicates that fully renovating building 215 is a practical
                    option because some renovation of that building is unavoidable.
                    Portsmouth officials have identified tenants to fully occupy the top floors,
                    which they estimate will offset about $1.6 million in annual costs to lease
                    space and may avoid $10 million to renovate other substandard space.


                    DOD designs its hospitals based on assumptions about the beneficiary
Original Workload   population to be served, expected inpatient and outpatient workloads, and
Assumptions Have    staff needed to provide medical care. However, several assumptions made
Changed             by DOD that were used to support the modernization project at Portsmouth
                    Naval Medical Center have not materialized as expected. For example, DOD
                    estimated in 1988 that a modernized center would serve a beneficiary
                    population of about 306,000 people in 1994—when the hospital was
                    initially planned to open. At that time, about 35 percent of the
                    beneficiaries were expected to be active duty personnel. Due to military
                    downsizing and other factors, DOD now projects that the hospital, when it
                    opens in 1998, will serve about 302,500 beneficiaries, of which about
                    30 percent will be active duty members.

                    Also, significant changes over the past few years in health care delivery
                    practices, such as the shift from inpatient to outpatient care, have affected



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                                             facility use and size. As table 1 shows, all indicators of inpatient workload
                                             are significantly lower than the original projections used in Portsmouth’s
                                             design.


Table 1: Projected and Actual Inpatient Workload at the Portsmouth Naval Medical Center
                                                            Projected                                                      Percent change
                                                             workload          Actual workload                              projected 1994
Inpatient indicator                                       for FY 1994    FY 1994     FY 1995                 FY 1996       and actual 1996
Number of days available beds are occupied                        158,540         78,100         77,769        75,723                    –52
Average number of patients each day                                    393            214           213            194                   –51
Average length of stay (in days)                                        5.7           3.3            3.2           2.8                   –51
                                             Source: Naval Medical Center, Portsmouth and Defense Medical Facilities Office, IBM Mainframe
                                             Biometrics Files (as of Feb. 1997).



                                             In contrast to the decline in inpatient workload, reported outpatient visits
                                             doubled from 425,000 in 1988 to nearly 900,000 in 1996. Some of the
                                             increase can be attributed to medical functions currently performed at
                                             Portsmouth that were not included in the 1988 data, including pediatrics,
                                             family practice, and dermatology services. Some of the increase may be
                                             caused by changes in the way the data is collected and reported. For
                                             example, telephone calls that providers make to patients in their homes
                                             were not included in the design assumptions, but these calls have been
                                             included in outpatient workload since 1995. However, available data did
                                             not distinguish telephone calls from actual outpatient visits, and hospital
                                             officials could not estimate the number of calls.

                                             Another important assumption used to estimate facility size is the number
                                             of health care providers (i.e., the number of physicians and other
                                             providers who examine patients, such as nurse practitioners, physician
                                             assistants, and independent medics). According to current DOD medical
                                             standards, each practicing physician or provider should have a 100-square
                                             foot office plus two 100-square foot examination rooms. The Navy
                                             originally assumed that Portsmouth would have 471 physicians when the
                                             new hospital opens. In 1996, however, 455 providers were assigned to the
                                             facility, and the Navy projects that 530 providers will be assigned in fiscal
                                             year 1998.

                                             One additional assumption that may not materialize is the size of the
                                             graduate medical education program. The original design projections
                                             increased the total square footage of the Portsmouth facility by nearly
                                             one-third in part to accommodate the facility’s graduate medical education



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                     B-276792




                     programs. However, in February 1997, the Navy Surgeon General
                     announced plans to eliminate 7 of Portsmouth’s 12 graduate medical
                     education programs. If these plans are implemented over the next 5 years,
                     87 physician training positions, or 20 percent of the total health care
                     providers, will be cut. Portsmouth officials told us these changes will not
                     affect the demand for medical care. Therefore, these officials have
                     requested the Navy Surgeon General to provide additional physicians to
                     handle the workload, but a final decision is on hold.

                     Determining the exact square footage requirements for any major medical
                     center is not a precise calculation but is instead based on subjective
                     decisions by the designers and facility managers. For DOD, this process is
                     further complicated because of its dual mission to prepare active duty
                     members for military operations and ensure the availability of peacetime
                     health care for other beneficiaries. The teaching mission at Portsmouth
                     also adds other considerations into decisions about facility space.

                     In addition, the Office of the Assistant Secretary of Defense for Health
                     Affairs contracted for a revalidation study of the workload and space
                     requirements at Portsmouth in January 1997. For these reasons, we did not
                     make definitive conclusions about the impact of workload changes on the
                     need for additional space in building 215. However, to gauge the
                     correlation between total workload and facility space, we compared the
                     Portsmouth facility with DOD’s nine other medical centers. This analysis
                     shows that Portsmouth compares favorably with other centers in the
                     indicators that determine facility space. For fiscal year 1995, the last year
                     complete data were available, Portsmouth served the largest DOD
                     beneficiary population and was the second largest facility. Compared with
                     the nine other facilities, Portsmouth ranked third in the number of
                     outpatient visits, sixth in the number of days inpatient beds were
                     occupied, and seventh in the number of beds.


                     In addition to our review, two prior DOD studies identified a decrease in
Some Renovation of   Portsmouth’s inpatient workload that could result in some excess space in
Building 215 Is      the new hospital being used for other purposes. However, potential reuse
Unavoidable          of this space is not practical at this point in the project because the new
                     hospital is nearly complete. Therefore, a portion of building 215 must be
                     renovated to accommodate the patient care functions that cannot be
                     relocated to the new hospital.




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                         In a 1993 audit, the DOD Inspector General raised questions about excess
                         capacity in the proposed new hospital and recommended a complete
                         redesign of the project.2 In 1992, Health Affairs identified a one-third
                         decline in inpatient care and recommended that the facility be redesigned.3
                         The Navy and DOD reached a compromise solution that reduced the
                         number of inpatient beds by 101 but did not affect the size of the facility.
                         The rationale for this compromise was that redesign of the space would
                         delay the project several years and increase costs. At the time, the Navy
                         estimated redesign costs to be $11 million, and facility construction had
                         not begun.

                         This situation is worse now because construction of the new facility is
                         nearly 85 percent complete. The new hospital is designed in distinct
                         sections, called pods, by facility engineers. Related medical functions are
                         collocated in various pods to improve health care delivery. For example,
                         the maternity space is located near the delivery rooms, nursery, and
                         neonatal intensive care unit. Similarly, the intensive care and the coronary
                         care units are located near the operating rooms. This dispersion of
                         inpatient space does not allow easy reuse of portions of the space that is
                         commensurate with a 50-percent decline in aggregate inpatient workload
                         because the decline is not concentrated in one medical specialty, which
                         would allow redesign of only one section of the hospital.

                         According to facility engineers, the inpatient space is not modular
                         construction and cannot be easily changed. A Navy official said that the
                         costs to redesign the space could range from 10 to 12 percent of the costs
                         to make the physical change, but this official could not provide a definite
                         estimate without having specific parameters for a change. However, a
                         recent change in the new hospital that moved some obstetrics functions,
                         occupying about 38,000 square feet of space, from one floor to another
                         cost $4 million, or about $105 per square foot.


                         Alternatives that we examined to use the additional space in a renovated
Other Alternatives Are   building 215 are not feasible and cost-effective. One alternative would be
Not Feasible and         to limit the renovations to those necessary to correct known building code
Cost-Effective           violations, such as a lack of adequate fire protection and removal of
                         life-threatening asbestos. Portsmouth officials estimated this option would

                         2
                           Medical Facility Requirements—Naval Hospital Portsmouth, Va., DOD Office of the Inspector
                         General, Report No. 93-160, September 2, 1993.
                         3
                           Naval Hospital Portsmouth, Va., Revalidation of Requirement, Office of the Assistant Secretary of
                         Defense for Health Affairs, August 13, 1992.



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    cost about $19 million in construction funds, or $15 million less than the
    current proposal. In a 1995 economic analysis, DOD concluded that the net
    present value of life-cycle costs, over a 30-year period, for the full
    renovation would be less than comparable costs of a safety upgrade.4 This
    conclusion was reached because the upgrade option does not include any
    improvements to the heating and ventilation system, which is very
    inefficient. Portsmouth officials estimate that about $1.2 million each year
    is wasted in energy costs because of the inefficient heating system. Also,
    the interior space, which is currently designed for inpatient hospital care,
    will not be modified into more efficient space. Without these changes,
    Portsmouth officials estimate that about $1.6 million will be incurred each
    year to provide space for staff that cannot move into the building.

    We performed a net present-value analysis and also concluded that a full
    renovation is more cost-effective over a 30-year period. Like the DOD
    analysis, we included the additional costs of the inefficient heating system.
    We also considered costs that are required to provide space for
    prospective tenants of building 215, as described below.

•   According to Navy data, the life safety upgrades would not provide as
    much useful space as a full renovation because the interior building design
    would not be reconfigured. According to Portsmouth officials, building 215
    has an unusual floor configuration that limits efficient use. Without a full
    renovation, Portsmouth officials estimate that the building will have
    25 percent less usable floor space, which will not accommodate several
    functions currently located in leased space in surrounding areas. For
    example, the Naval Environmental Health Center and the administrators
    for DOD’s new managed health care program currently lease about
    43,000 square feet of space at an annual cost of nearly $800,000 each year.
    By consolidating these and other off-site functions into 120,450 square feet
    of renovated space in building 215, the Navy can avoid paying about
    $1.6 million per year in lease costs and maintenance expenses at other
    locations.
•   Fully renovating building 215 will allow Portsmouth officials to relocate
    personnel from substandard on-site space at the Center and avoid the cost
    of renovating this space. Although Portsmouth officials have not done a
    thorough evaluation, they estimate that renovating this space to an
    acceptable level would cost nearly $6 million. These officials also estimate
    that they would have to spend another $4 million to renovate some of the
    off-site space. The total costs are estimated to be approximately


    4
     Naval Medical Center Portsmouth, Va., A Revalidation Assessment, $33 Million Alteration and Life
    Safety Upgrade, Building 215, Office of the Assistant Secretary of Defense for Health Affairs, May 1995.



    Page 7                                      GAO/NSIAD-97-144 Portsmouth Naval Medical Center
B-276792




$10 million. We did not independently validate these costs; however, our
review of recent renovations on the sixth floor of building 215 indicates
that these estimates appear reasonable.

Another option involved relocating the administrative office space from
building 1 to building 215. This option could avoid $11 million in
renovation costs for building 1. However, the option is not feasible
because building 1 is on the National Registry of Historic Landmarks and
must be maintained in a manner that considers preservation of its
historical integrity. Although the National Historic Preservation Act
(16 U.S.C. 470h-2) allows some exceptions, Portsmouth and DOD officials
support the historical restoration of this building and have not sought
exceptions. Also, relocating personnel from building 1 to building 215
would leave other personnel in substandard on-site facility space or
require Portsmouth to renovate other facilities.

An additional option would be to discontine using the building or to use
only portions of it. However, Portsmouth and DOD officials believe building
215 is a valuable asset that should be used, and thus do not believe that
total abandonment of the building or a partial renovation is reasonable.
The officials are concerned that a vacant building 215 would eventually
deteriorate and become a safety hazard to the Medical Center. A DOD
official estimated that it would cost between $15 million and $20 million to
raze the structure because of environmental controls needed to protect
against asbestos contamination. In addition, the Navy has invested over
$7 million to design a full renovation of building 215, build connecting
bridges to the new hospital and parking garage, and renovate some of the
clinical space on the sixth floor, and this investment would be lost. As with
the situation concerning the historical builing, total abandonment would
leave some support personnel in substandard space that the Navy would
have to renovate.

Regarding a partial renovation, Portsmouth officials would not estimate
how much it might cost to seal the upper floors because the officials do
not believe that this option is viable. They told us that the asbestos must
be removed from the entire building. In a prior study, asbestos removal
was estimated to cost about $11 million. Although fewer initial funds
would be invested, our economic analysis indicated that sealing the
building would not be cost-effective over a 30-year life cycle.

DOD and Portsmouth officials involved with this project believe it has
progressed to the point at which the only feasible option is to finish it as



Page 8                           GAO/NSIAD-97-144 Portsmouth Naval Medical Center
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                     planned, although they acknowledge that, if they were designing this
                     facility today, they would do some things differently. Project officials have
                     expressed concerns that delaying the $34.6 million until fiscal year 1999, as
                     currently required by the DOD Comptroller, would cause DOD to incur
                     unnecessary costs, such as $1.6 million per year in lease costs and
                     $1.2 million in wasted energy costs. An official from the DOD Comptroller’s
                     Office maintains that the most appropriate time frame to fund this project
                     is fiscal year 1999. This official said the 1998 funding request was not
                     delayed solely because of concerns about facility size and the need for a
                     revalidation. The decision was also based on an analysis of the project’s
                     spending patterns. The official said the 1999 budget request would
                     recognize potential additional inflation costs. DOD officials told us that
                     building 215 will be completely designed and ready to renovate in
                     October 1997.

                     In addition, two assessments of the Defense Health Program, which could
                     impact Portsmouth, are still underway. In August 1995, the Deputy
                     Secretary of Defense directed DOD to reexamine its wartime medical
                     personnel requirements. An original study concluded that 50 percent of
                     active duty physicians were in excess of the minimum number needed to
                     meet essential wartime medical demands. If the reexamination reaches
                     similar conclusions, personnel assigned to all DOD hospitals, including
                     Portsmouth, could be significantly impacted. The first of three phases of
                     this wartime medical requirements study is expected to be completed this
                     year.

                     Also, the May 1997 Report of the Quadrennial Defense Review identifies
                     several DOD initiatives to reduce defense infrastructure personnel and
                     costs, including outsourcing selected patient care, medical training, and
                     installation support in the Defense Health Program. In addition, the
                     Secretary of Defense commissioned a Task Force on Defense Reform to
                     further examine the Office of the Secretary of Defense and other defense
                     agencies. This panel will review the history, missions, resources,
                     operations, and requirements of these organizations to reengineer the way
                     they operate. The panel is expected to report its findings by
                     November 1997.


                     In commenting on a draft of this report, DOD generally concurred with our
Agency Comments      findings (see app. II). DOD officials described some of the findings from
and Our Evaluation   their 1997 revalidation efforts, which also concluded that a full renovation
                     of building 215 is more cost-effective than other alternatives. DOD officials



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              B-276792




              believe that we implied that the project was not planned properly because
              we did not state in the results in brief section that dramatic changes in the
              U.S. healthcare delivery caused the assumptions used for the Portsmouth
              facility to not materialize.

              We believe we have appropriately discussed in the body of the report that
              a shift from inpatient to outpatient care has occurred. However, this
              changing trend was acknowledged as early as 1983 in an economic
              analysis prepared for DOD that served as the starting point for the
              renovation of the Medical Center. At that time, the consultants who
              assessed the medical care demands at Portsmouth recommended that DOD
              build a new outpatient clinic and renovate the existing hospital for
              inpatient care rather than construct a new inpatient hospital. We did not
              pursue these issues in this report because we believe the project is too far
              along in the construction cycle to cost-effectively redesign the inpatient
              space in the new hospital to accommodate a significant increase in
              outpatient workload or other functions.


              To identify workload changes, we gathered information on the inpatient
Scope and     and outpatient workload projections in the Navy’s 1988 economic analysis
Methodology   for the Portsmouth project and the most recent workload data available.
              We compared projections for fiscal year 1994 with actual data for fiscal
              years 1994 through 1996 in the following areas: (1) total inpatient and
              outpatient workload, (2) beneficiary population by category of beneficiary,
              and (3) staffing by category of provider. We also compared workload and
              space requirements from the economic analysis with the 1990 program
              design and the 1996 actual space layout to identify potential excess space
              resulting from changes in workload. Further, we assessed the consistency
              of Portsmouth’s workload and other characteristics by comparing the data
              with similar data from the other nine military medical centers.

              To identify potential opportunities to consolidate clinical space in the new
              hospital, we reviewed all prior assessments of the project. We also
              compared the suggested changes from these studies with the actual
              actions taken. We compared relevant costs of possible alternative uses for
              the additional space in building 215 with their potential benefits to assess
              the cost-effectiveness of each alternative. In making these comparisons,
              we relied on the estimates provided by DOD and Portsmouth officials. We
              did not independently verify the cost estimates; however, we compared
              the actual costs of recent renovations with the estimates to assess their
              reasonableness. To consider the time value of money for the different



              Page 10                         GAO/NSIAD-97-144 Portsmouth Naval Medical Center
B-276792




alternatives, we performed a net present-value analysis. In doing so, we
considered both the costs and savings of the different alternatives. We
assumed that renovations funded by military construction funds would be
accomplished over a 2-year period and that renovations funded through
the operation and maintenance appropriation would be funded at
$1 million per year.

We interviewed responsible agency personnel and reviewed applicable
policies, procedures, and documents at the Portsmouth Naval Medical
Center, Portsmouth, Virginia; Atlantic Division, Naval Facilities
Engineering Command, Norfolk, Virginia; Office of the Assistant Secretary
of Defense for Health Affairs, Arlington, Virginia; Defense Medical
Facilities Office, Falls Church, Virginia; and Navy Bureau of Medicine and
Surgery, Washington, D.C.

We performed our review between October 1996 and March 1997 in
accordance with generally accepted government auditing standards.


We are sending copies of this report to the Secretaries of Defense and the
Navy and the Director of the Office of Management and Budget. Copies
will also be made available to others on request.

Please contact me on (202) 512-5140 if you or your staff have any
questions concerning this letter. Major contributors to this report are
listed in appendix III.




Mark E. Gebicke
Director, Military Operations
  and Capabilities Issues




Page 11                         GAO/NSIAD-97-144 Portsmouth Naval Medical Center
Appendix I

The Portsmouth Naval Medical Center as of
August 1996




              Source: Portsmouth Naval Medical Center.




              Page 12                                    GAO/NSIAD-97-144 Portsmouth Naval Medical Center
Appendix II

Comments From the Department of Defense




              Page 13    GAO/NSIAD-97-144 Portsmouth Naval Medical Center
Appendix III

Major Contributors to This Report


                        Sharon A. Cekala
National Security and   Valeria G. Gist
International Affairs   Charles W. Perdue
Division, Washington,
D.C.
                        Robert C. Mandigo, Jr.
Norfolk Field Office    Raul S. Cajulis
                        Patricia F. Blowe


                        Richard Seldin
Office of the General
Counsel




(703184)                Page 14                  GAO/NSIAD-97-144 Portsmouth Naval Medical Center
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