Today's Managing Health Care Cost Number is $1 billion
Photo by Roger Crogswell, Sibley Hospital, via Flickr creative commons license
Big health care news in Boston over the last week is that Children's Hospital here has cleared the final hurtle to gain approval for a billion dollar expansion. Children's has overcome community opposition to bulldozing a beloved community garden, and has gained support from the Public Health Commission despite a finding by the state's Health Policy Commission that the expansion will increase medical costs in Massachusetts.
Children's has claimed that all new resources will be used to provide care to those residing outside of Massachusetts - and thus any impact of this expansion on total Massachusetts costs will be minimal. But its current volume is only about 30% out-of-state -making it highly likely that Children's market share will increase from the current 46% to 55% or more.
The Health Policy Commission estimates that Children's operating costs will increase by $130 million annually - someone has to staff the 71 new beds, 4 new operating rooms, and 2 new MRI scanners. The bond payments on a billion dollar bond paid over 20 years with 3% interest rate would be about $70 million a year - so total "new" costs would be about $200 million a year for 20 years.
How could this not raise costs of health care in Massachusetts?
1. All incremental costs could be covered by out-of-state insurers. As the HPC noted, that's highly unlikely. The cost of care would still go up
2. Children's could cut spending in other areas. Their new buildings could be more energy efficient - and better facility design could lead to fewer complications and help lower costs. But this would mean taking other capacity off line -which is not part of this plan
3. Children's could displace one of the other two pediatric hospitals in Boston. This could lower the amount paid to that facility - but both MGH Hospital for Children and Tufts Floating Hospital are less expensive on a unit cost basis - so movement of volume to Children's is likely to increase overall cost.
Capital expenses drive future health care costs (and trend). When hospital campuses are full of construction cranes, health care costs are likely to increase more rapidly over the subsequent years.
This is probably an example of capital expense restrictions (such as "determination of need" regulations) just don't work in the real world. One commentary in the Boston Globe was headlined “Children’s Hospital Expansion Plan is built on old-school Boston politics.” It's hard for politicians and policymakers to argue against one of the world's greatest hospitals which provides world class care to kids -and is among the largest health care employers in the state.
On completion, this expansion of Children’s Hospital is highly likely to raise overall medical costs in Massachusetts.
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