Hospital capacity:  depending on where you are, and who you ask, there's either too much or not enough

The current building boom is being driven by factors including a shortage of beds created by consolidation; an aging population; a suburban population boom; and a desire to attract more patients by improving the quality of their stay.

In calling for the moratorium, Toussaint ( president of ThedaCare Inc. health care system)  has specifically cited Aurora (Health Care)'s ongoing building program as a reason to put the brakes on construction. In addition to Aurora's plans to build a Waukesha County hospital, Aurora has opened hospitals in Green Bay and Oshkosh, despite concerns from local competitors about too many empty hospital beds in their communities.

Grabbing market share, upgrading facilities and adding more private rooms are also behind the boom/moratorium. Rising health care costs prompt some to ask if hospital construction is part of the problem.  Over capacity raises hospital operating costs, but in today's capitated environment it is hard to pass this cost on to payers.

The extent to which hospital construction is to blame for the current level of health care spending is not really known.   One Milwaukee-area hospital CEO told The Business Journal that a moratorium now is about five years too late, given the billions of dollars hospitals have spent on capital expansion over the past several years.

Major expansions are fraught with risk.  And it looks like operating pressures on hospitals will only get worse.

The critical mass of projects -- most expected to be financed through both capital campaigns and debt -- from at least seven regional community hospitals comes even as more than 42 percent of the state's hospitals posted operating losses in 2004, with many more facing operating margins of less than three percent.

There is little argument that changing demographics and other factors will require greater hospital capacity than exists today; the question is when and how much.

Patient flow studies have demonstrated that increased patient velocity can significantly reduce the need for additional beds. Expanding areas that appear to be "capacity constrained" (ED, ICU, Telemetry) prior to patient flow studies and remediation, can result in over capacity and increased operating costs. Throwing capacity (or any other solution) at patient flow bottlenecks prior to thorough study usually results in pushing the bottleneck from one area to another, rather than eliminating it.

Generating more revenue from existing beds, and optimizing patient flow to minimize required expansions is advisable, especially for hospitals with thin or negative operating margins.