NCPA - National Center for Policy Analysis


January 5, 2006

A nationwide boom in hospital construction is changing the nature of hospital care across the United States. Expensive, high-tech hospitals in the suburbs are replacing older, cramped buildings established mostly in downtowns during the 1950s and 1960s, say observers.

The economics of hospital construction has enormous implications for federal and state governments: Taxes pay for 46 percent of the nation's medical care, mostly through Medicare for the elderly and Medicaid for the poor.

At least 15 major hospital construction projects, worth more than $5 billion, are underway or planned. Some big projects include:

  • The University of Pittsburgh Medical Center starts construction this month on a $575 million, nine-story children's hospital.
  • Children's Hospital in Columbus, Ohio, announced a seven-year, $740 million expansion that will add 1 million square feet.
  • The University of Michigan in April announced a $498 million, 1-million-square-foot children's and women's hospital to replace construction from 1950 and 1969.

The explosion in construction comes near the end of a sharp decline in hospital use that began in the 1980s. Although the number of hospital beds continues to fall, the number of hospitals and occupancy rates are rising. Hospital profits and revenue per patient visit are increasing, too, partly because of more generous Medicare reimbursements.

But, the new high-tech hospitals will cost insurers and taxpayers regardless of how much they are used, says Paul Ginsburg, an economist with the Center for Studying Health System Change. Unlike the telecommunications industry, where excess capacity leads to great prices for consumers, he says, in health care, excess capacity often means the costs get folded into the rates everyone pays.

Source: Dennis Cauchon and Julie Appleby, "Hospitals go where they money is: Amid building boom, concern over the effects on health cost," USA Today, January 3, 2006.


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