DOD Should Adopt a New Approach To Analyze the Cost Effectiveness of Small Hospitals

HRD-85-21: Published: Mar 15, 1985. Publicly Released: Mar 15, 1985.

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GAO discussed the need for the Department of Defense (DOD) to adopt a new approach to analyzing the cost-effectiveness of providing inpatient services at small hospitals.

GAO found, through its studies of nonfederal hospitals, that smaller hospitals are less economical to operate than larger ones. The studies indicate that the most economical hospital size is between 200 and 300 beds. GAO also found that, in fiscal year (FY) 1983, DOD operated 69 hospitals having daily inpatient loads of 50 or less. The cost to operate these hospitals totalled about $506 million. Using a model that compared the costs of operating small military hospitals to the estimated costs of converting them to outpatient clinics, GAO found that DOD could have saved $3.9 million in FY 1981 costs had it converted smaller hospitals to clinics.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: This recommendation is over 5-years old and has not been fully implemented. Because of the uncertainty of the future of new military hospital construction, GAO does not foresee full implementation in the near term.

    Recommendation: The Secretary of Defense should direct the Assistant Secretary of Defense for Health Affairs and the Surgeons General of the Army, Navy, and Air Force to: (1) develop criteria to determine when providing inpatient services at small military hospitals is economical and necessary to meet the wartime or peacetime benefit missions, and the criteria should include the minimum work load needed to justify offering inpatient care, the distance to other civilian or federal hospitals, alternative treatment settings for active duty patients who require limited care, and other relevant considerations; (2) use a methodology similar to the one discussed in this report, and analyze each small military hospital in the direct-care system to determine its potential for conversion to an outpatient clinic; and (3) perform such analyses before requesting funds from Congress, or before expending any already approved funds, for reconstructing or renovating any small hospital in the DOD system.

    Agency Affected: Department of Defense


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