EPA-453/R-94-048a
Medical Waste Incinerators-Background Information for Proposed
Standards and Guidelines: Analysis of Economic Impacts for Existing
Sources
July 1994
U. S. Environmental Protection Agency
Office of Air and Radiation
Office of Air Quality Planning and Standards
Research Triangle Park, North Carolina
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DISCLAIMER
This report is issued by the Emission Standards Division, Office
of Air Quality Planning and Standards, U. S. Environmental
Protection Agency. It presents technical data of interest to a
limited number of readers. Mention of trade names and commercial
products is not intended to constitute endorsement or
recommendation for use. Copies of this report are available free
of charge to Federal employees, current contractors and grantees,
and nonprofit organizations--as supplies permit--from the Library
Services Office (MD-35), U. S. Environmental Protection Agency,
Research Triangle Park, North Carolina 27711 ( [919] 541-2777) or,
for a nominal fee, from the National Technical Information
Service, 5285 Port Royal Road, Springfield, Virginia 22161
([703] 487-4650).
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TABLE OF CONTENTS
Page
List of Tables iii
List of Figures vi
1. 0 INTRODUCTION 1
1.1 SCOPE 1
1.2 ORGANIZATION 3
1. 3 SUMMARY 4
2 . 0 BACKGROUND 8
2.1 . MWI POPULATION 8
2 . 2 CONTROL COSTS 11
2 . 3 REGULATED INDUSTRIES 11
2 . 4 MODEL FACILITIES 13
2.4.1 Hospitals 22
2.4.2 Nursing Homes 25
2.4.3 Physicians' Offices 26
2.4.4 Dentists' Offices and Clinics 26
2.4.5 Outpatient Care -. 27
2.4.6 Freestanding Blood Banks 29
2.4.7 Veterinary Facilities 29
2.4.8 Laboratories 31
2.4.9 Funeral Homes 33
2.4.10 Fire and Rescue 33
2.4.11 Corrections 34
2.4.12 Commercial Incineration Facilities 34
3 . 0 ECONOMIC IMPACTS 34
3 .1 METHODOLOGY AND OVERVIEW 34
3.2 PRICE ELASTICITY OF DEMAND 38
3 . 3 INSTITUTIONAL CONSIDERATIONS 40
3.3.1 Health Care Providers Paid in Part
by Third Parties 40
3.3.2 Public and Not-For-Profit Establishments. 46
3 . 4 INDUSTRY-WIDE IMPACTS 48
3.4.1 Industry-wide Annualized Control Costs... 48
3.4.2 Financial/Economic Inputs 52
3.4.3 Commercial Incineration 52
3.4.4 Market Price Increase 57
3.4.5 Consequences of the Market Price
Increase 60
3.4.5.1 Output Impacts 60
3.4.5.2 Employment and Revenue Impacts.. 63
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TABLE OF CONTENTS
(Continued)
Page
3 .5 PER-FACILITY IMPACTS FOR MWI OPERATORS 67
3.5.1 Linking Control Costs to Model
Facilities 67
3.5.2 Facility Price Increase 69
3.5.2.1 Hospitals 72
3.5.2.2 Other MWI Operators 76
3.5.3 Cost Absorption 77
3.5.3.1 Hospitals 80
3.5.3.2 Other MWI Operators 80
3.5.4 Capital Availability 81
3.5.4.1 Hospitals 87
3.5.4.2 Other MWI Operators 88
3.5.5 Substitution 88
3.6 PER-FACILITY IMPACTS FOR OFFSITE GENERATORS 113
3 . 7 IMPACTS ON TAXPAYERS 120
3 . 8 IMPACTS ON SMALL ENTITIES -124
4.0 REFERENCES 13°
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TABLE 1.
TABLE 2.
TABLE 3.
TABLE 4.
TABLE 5A.
TABLE 5B.
TABLE 5C.
TABLE 6.
TABLE 7.
TABLE 8.
TABLE 9. ,
TABLE 10.
TABLE 11.
TABLE 12.
TABLE 13.
TABLE 14.
TABLE ISA.
LIST OF TABLES
Page
CONTROL OPTIONS 2
DISTRIBUTION OF EXISTING MWIs 9
CONTROL COSTS FOR EXISTING MWIs (1989 DOLLARS)... 12
SUMMARY OF THE INCIDENCE OF MWIs IN MAJOR
INDUSTRIES GENERATING MEDICAL WASTE 14
MODEL FACILITIES: HOSPITALS 16
MODEL FACILITIES: MWI OPERATORS OTHER THAN
HOSPITALS
18
MODEL FACILITIES: OFFSITE GENERATORS 19
ELASTICITY ESTIMATES 41
CALCULATION OF NET INDUSTRY-WIDE ANNUALIZED
CONTROL COSTS
49
FINANCIAL/ECONOMIC INPUTS FOR THE INDUSTRY-WIDE
ECONOMIC IMPACT ANALYSIS 53
NET INDUSTRY-WIDE ANNUALIZED CONTROL COSTS AS
A PERCENT OF REVENUE/BUDGET
58
INDUSTRY-WIDE OUTPUT IMPACTS OF THE MARKET PRICE
INCREASE 61
INDUSTRY-WIDE EMPLOYMENT IMPACTS OF THE MARKET
PRICE INCREASE 64
INDUSTRY-WIDE REVENUE/BUDGET IMPACTS OF THE
MARKET PRICE INCREASE 66
CAPITAL CONTROL COSTS FOR MODEL FACILITIES
(1989 DOLLARS) ,
ANNUALIZED CONTROL COSTS FOR MODEL FACILITIES
(1989 DOLLARS)
70
71
PER-FACILITY ANNUALIZED CONTROL COSTS AS A
PERCENT OF REVENUE: HOSPITALS 73
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TABLE 15B.
TABLE 16A.
TABLE 16B.
TABLE 17A.
TABLE 17B.
TABLE ISA.
TABLE 18B.
TABLE 19A.
TABLE 19B.
TABLE 19C.
TABLE 19D.
LIST OF TABLES
(Continued)
Page
PER-FACILITY ANNUALIZED CONTROL COSTS AS A
PERCENT OF REVENUE/BUDGET: MWI OPERATORS OTHER
THAN HOSPITALS
PER-FACILITY ANNUALIZED CONTROL COSTS AS A
PERCENT OF NET INCOME: HOSPITALS
PER-FACILITY ANNUALIZED CONTROL COSTS AS A
PERCENT OF BEFORE-TAX NET INCOME: MWI OPERATORS
OTHER THAN HOSPITALS
PER-FACILITY CAPITAL CONTROL COSTS AS A PERCENT
OF NET INCOME: HOSPITALS
PER-FACILITY CAPITAL CONTROL COSTS AS A PERCENT
OF BEFORE-TAX NET INCOME: MWI OPERATORS OTHER
THAN HOSPITALS
PER-FACILITY CAPITAL CONTROL COSTS AS A PERCENT
OF TOTAL LIABILITIES: HOSPITALS
PER-FACILITY CAPITAL CONTROL COSTS AS A PERCENT
OF TOTAL LIABILITIES: MWI OPERATORS OTHER THAN
HOSPITALS
COMPARATIVE ANNUAL PER-TON COSTS OF ONSITE
MEDICAL WASTE INCINERATION AND ALTERNATIVE
TREATMENT METHODS: BASELINE AND CONTROL
OPTION 1
COMPARATIVE ANNUAL PER-TON COSTS OF ONSITE
MEDICAL WASTE INCINERATION AND ALTERNATIVE
TREATMENT METHODS: BASELINE AND CONTROL
OPTION 2
COMPARATIVE ANNUAL PER-TON COSTS OF ONSITE
MEDICAL WASTE INCINERATION AND ALTERNATIVE
TREATMENT METHODS: BASELINE AND CONTROL
OPTION 3
COMPARATIVE ANNUAL PER-TON COSTS OF ONSITE
MEDICAL WASTE INCINERATION AND ALTERNATIVE
TREATMENT METHODS: BASELINE AND CONTROL
OPTION 4
74
78
79
82
83
84
85
92
93
94
95
-IV-
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TABLE 20.
LIST OF TABLES
(Continued)
COMPARATIVE CAPITAL COSTS OF 1) CONTROLS FOR
AN EXISTING MWI AND 2) A NEW AUTOCLAVE SYSTEM.
INPUTS FOR PER-FACILITY SUBSTITUTION ANALYSIS,
Page
.. 99
..103
TABLE 21.
TABLE 22. PER-FACILITY ANNUALIZED SUBSTITUTION COSTS
AS A PERCENT OF REVENUE (ONLY FOR CASES IN
WHICH SUBSTITUTION IS NECESSARY) 105
TABLE 23. PER-FACILITY ANNUALIZED SUBSTITUTION COSTS AS
A PERCENT OF NET INCOME (ONLY FOR CASES IN
WHICH SUBSTITUTION IS NECESSARY) 106
TABLE 24. ESTIMATED INCREMENTAL ANNUAL COSTS FOR
FACILITIES THAT SEND ALL OF THEIR MEDICAL
WASTE OFFSITE TO BE INCINERATED 116
TABLE 25. PER-FACILITY ANNUALIZED CONTROL COSTS AS A
PERCENT OF REVENUE/BUDGET: OFFSITE GENERATORS...118
TABLE 26. PER-FACILITY ANNUALIZED CONTROL COSTS AS A
PERCENT OF BEFORE-TAX NET INCOME: OFFSITE
GENERATORS 119
TABLE 27. PER-CAPITA IMPACTS OF ANNUAL COSTS TO PUBLIC
FACILITIES 121
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LIST OF FIGURES
Page
FIGURE 1. ECONOMIC IMPACT ANALYSIS METHODOLOGY (FOR
FACILITIES WITH AN ONSITE MWI) 35
FIGURE 2. THE EFFECTS OF INADEQUATE REIMBURSEMENT (e.g.,
FROM MEDICARE) OF INCREASED COSTS TO HEALTH
CARE PROVIDERS ... 45
FIGURE 3. ALTERNATIVE QUANTITY IMPACTS FOR COMMERCIAL
INCINERATION FACILITIES 55
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ANALYSIS OF ECONOMIC IMPACTS FOR EXISTING SOURCES
1.0 INTRODUCTION
1.1 SCOPE
In this report, the economic impacts of the Section
lll(d) Emission Guidelines for medical waste incinerators
(MWIs) are evaluated. The analysis is conducted by
comparing control costs to economic and financial parameters
of the regulated industries. Impacts are assessed for four
control options defined in Section 4.2 of the "Model Plant
Description and Cost Report."1 These control options are
summarized in Table 1. Control Option 1 consists of a
secondary chamber with a minimum gas residence time of 1
second at a minimum temperature of 1,700° F. Control Option
1 is evaluated in the current report because existing MWIs
are not controlled at this level in the baseline. In
contrast, new MWIs are controlled at this level in the
baseline. Therefore, Control Option 1 is not evaluated in
the report on the economic impacts of the New Source
Performance Standards (NSPS) on new sources ("Analysis of
Economic Impacts for New Sources").2 Control Option 2
consists of a secondary chamber with a minimum gas residence
time of 2 seconds at a minimum temperature of 1,800° F.
Control Option 3 consists of a venturi scrubber/packed bed
system and two-second combustion. Control Option 4 consists
of a dry injection/fabric filter system with carbon and two-
second combustion. Two variants of the latter option —
without carbon and with some carbon — are also presented in
the Model Plant Description and Cost Report. Control costs
for these variants are slightly lower than under Control
Option 4. In order to avoid a proliferation of
calculations, the variants are not assessed in the current
report. Instead, they are conservatively represented by
Control Option 4.
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TABLE 1. CONTROL OPTIONS
Control Option
(C.o.) Description
1* One-second combustion
2 Two-second combustion
3 Venturi scrubber/packed bed system and
two-second combustion
4 Dry injection/fabric filter system with
carbon and two-second combustion
*Applies only to existing sources. Does not apply to new
sources because they are controlled at this level in the
baseline.
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The report seeks mainly to determine 1) the average
industry-wide price increase necessary to recover control
costs; 2) the market response to the industry-wide price
increase — specifically, impacts on output, employment,
revenue, and market structure; 3) the extent to which
individual establishments can recover control costs by
increasing prices; 4) the availability of capital to finance
the investment in controls; 5) the extent of economic
hardship if control costs cannot be fully recovered or if
capital is not readily available; and 6) the extent to which
the impacts of control costs can be, and will be, avoided by
switching to an alternative medical waste treatment and
disposal method. In addition to establishments that
operate an MWI, impacts are assessed for establishments that
generate medical waste and send it offsite to be
incinerated. This recognizes that such establishments will
likely pay higher fees for commercial incineration as a
result of the Emission Guidelines. An analysis of the
potential for significant impacts on small entities (e.g.,
small businesses) is included.
1.2 ORGANIZATION
In Section 1.3, which follows, the findings of the
economic impact analysis are summarized. Background
information is provided in Section 2.0. This includes
information on the population of existing MWIs (Section
2.1), control costs (Section 2.2), the regulated industries
(Section 2.3), and model facilities (Section 2.4). Model
facilities and their parameters are presented in Tables 5A,
5B, and 5C. Economic impacts are assessed in Section 3.0.
In Section 3.1, the general methodology of the economic
impact analysis is outlined and an overview of the findings
is presented. The price elasticity of demand — a measure
of the sensitivity of market demand to the price level — is
discussed in Section 3.2. Institutional constraints to
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increasing prices (in an attempt to recover control costs)
are addressed in Section 3.3. In Section 3.4, industry-wide
(as opposed to per-facility) impacts are calculated and
evaluated. This includes a discussion of impacts on the
commercial incineration industry (Section 3.4.3). Per-
facility impacts are calculated and assessed for MWI
operators in Section 3.5 and for facilities that send their
medical waste offsite to be incinerated in Section 3.6.
Section 3.5 includes an analysis of the potential to avoid
control costs by switching from onsite incineration to an
alternative medical waste treatment and disposal method
(Section 3.5.5). In Section 3.7, impacts on taxpayers are
evaluated. In Section 3.8, the potential for significant
impacts on small entities is assessed. References are
provided in Section 4.0.
1. 3 SUMMARY
No average industry-wide price increase necessary to
recover control costs ("market price increase") exceeds one
percent under any of the four control options evaluated in
this report for the Emission Guidelines. All market price
increases are therefore considered to be achievable.
Owing to a small market price increase and/or
relatively inelastic demand, all impacts on industry-wide
output, employment, and revenue are also insignificant.
This implies that no medical waste-generating industry will
need to be significantly restructured (e.g., through
closures or consolidations).
Individual facilities could be significantly impacted
by the Emission Guidelines, however. For MWI operators in
the following cases, annualized control costs may not be
fully recoverable with a price increase and the resulting
impact on earnings may not be sustainable, and/or capital to
finance the investment in pollution controls may not be
readily available:
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Hospitals with fewer than 50 beds under Control
Options 3 and 4
Hospitals with 50-99 beds under Control Option 4
Certain categories of hospitals with 100+ beds
under Control Option 4
Nursing homes with 100+ employees under Control
Options 3 and 4
Veterinary facilities with 10-19 employees under
Control Options 3 and 4
Veterinary facilities with 20+ employees under
Control Option 4
Tax-paying commercial research labs with 20-99
employees under Control Options 3 and 4
In these cases, onsite incineration may have to be
terminated. In this event, substitution (i.e., switching
from onsite incineration to an alternative medical waste
treatment method) would be necessary in order to avoid
closure — or at least to avoid the termination of
operations that result in, or are dependent on, the
generation of medical waste. The two most common
alternatives to onsite incineration for the treatment of
medical waste are offsite contract disposal (most commonly
offsite incineration) and onsite autoclaving.
In general, switching from onsite incineration to one
or the other of these alternatives is feasible. For all but
two model combustors, there are incremental costs associated
with substituting. This is because the costs of the
alternative treatment methods are greater on average than
the cost of onsite incineration in the baseline. In many
cases, incremental substitution costs can be recovered with
a price increase. If not, it will, in general, be possible
to absorb the costs without compromising competitive
position. This is consistent with the fact that in all
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industries in which medical waste is generated, the majority
of facilities already utilize an alternative to onsite
incineration.
However, depending on particular conditions in
individual market segments, there may, under Control Options
3 and 4, be a few exceptions in which a facility for which
annualized control costs or capital control costs are
prohibitive would have to shut down. Closure would require
that the facility generates a substantial proportion and/or
quantity of pathological waste, for which substitution
options are limited because it cannot be autoclaved. In
addition, the facility would either have to face substantial
competition from other MWI operators that are not forced to
substitute, or have to pay significantly more than average
for offsite contract disposal (because, for example, it is
remote from a treatment facility).
In addition to being necessary in some cases in order
to avoid closure, substitution will also offer the
opportunity in some cases to save costs. This is because
relative to the costs of alternative medical waste treatment
methods, the cost of onsite incineration increases as a
result of the Emission Guidelines, especially as the control
options become more stringent. Hence, it can be expected
that a major impact of the Emission Guidelines will be to
trigger substitution. Substitution would probably escalate
under Control Options 3 and 4. While there is a cost-saving
alternative to only two model combustors under Control
Option 1, there is a cost-saving alternative to three model
combustors under Control Option 2, five model combustors
under Control Option 3, and six model combustors under
Control Option 4.
The Emission Guidelines will directly impact facilities
that operate an MWI. It will also indirectly impact
facilities that generate medical waste and send it offsite
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to be incinerated. This is because such facilities are
likely to pay higher fees for commercial incineration as a
result of the Emission Guidelines (and the NSPS). It is
estimated that the cost of offsite incineration will
increase on average by $9/ton under Control Option 1,
$25/ton under Control Option 2, $86/ton under Control Option
3, and $149/ton under Control Option 4 as a result of the
Emission Guidelines (and the NSPS). These impacts assume
the same control stringency for new MWIs under the NSPS as
for existing MWIs, under the Emission Guidelines.
The great majority of facilities that generate medical
waste and send it offsite for incineration are not
significantly impacted by the Emission Guidelines. Under
certain conditions, facilities of this type could experience
similar impacts to MWI operators. On average, however,
impacts for this type of facility are lower because
commercial MWIs are comparatively large and efficient, and
therefore have lower per-ton impacts from the Emission
Guidelines.
Substitution will increase the demand for alternative
medical waste treatment methods, including offsite
incineration. As a result, it is expected that, despite
control costs, output at commercial incineration facilities
will not be adversely impacted by the Emission Guidelines.
This means that commercial incineration facilities will be
able to recover control costs by increasing prices.
Impacts of the Emission Guidelines on taxpayers are
minimal. In some rare cases — specifically requiring an
MWI to be operated by a facility under the jurisdiction of a
government unit with a population of only several
thousand — the impacts of controls might be considered
significant. If the impacts are significant, however, they
are expected to be avoided by substitution.
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An analysis of the potential for significant impacts on
small entities is conducted. This involves determining,
according to EPA criteria, whether the Emission Guidelines
have a "significant economic impact on a substantial number
of small entities." Some "small" medical waste generators,
as well as "small" commercial incineration facilities and
government jurisdictions, may be "significantly" impacted
under Control Options 3 and 4. However, because the
Emission Guidelines (and the NSPS) will cause the demand for
offsite incineration to increase, it is expected that
commercial incineration facilities will be able to recoup
control costs by passing them along to customers.
Furthermore, the number of small medical waste generators
and government jurisdictions that will be significantly
impacted should not be "substantial." This is in part due
to the opportunity that the great majority of facilities
will have to avoid the impacts of control costs by
substituting. Hence, it is concluded that the Emission
Guidelines will not have a significant economic impact on a
substantial number of small entities.
2.0 BACKGROUND
2.1 MWI POPULATION
The nationwide distribution of existing MWIs that would
be affected by the Emission Guidelines is estimated in Table
2. The distribution is represented by the seven model
combustors defined in Section 4.1 of the Model Plant
Description and Cost Report. The model combustors are
identified by type and Ib/day capacity (e.g., the Continuous
36,000 is a continuous MWI with a daily capacity of 36,000
pounds). For the batch unit, the Ib/day capacity is equal
to the Ib/batch design capacity (500 Ibs) multiplied by an
average of 1/2 batch per day (one batch every other day).
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TABLE 2. DISTRIBUTION OF EXISTING MWIs
=========
Industry
Hospitals
Nursing homes
Veterinary
facilities
Research labs
Commercial
=======
Model MWI
Inter .
Cont.
Inter.
Path.
Inter .
Batch
Inter.
Path.
Inter.
Path.
Inter.
Inter.
Cont.
Inter.
Path.
Inter.
Cont.
21,000
24,000
8,400
2,000
2,000
250
8,400
2,000
2,000
2,000
2,000
21,000
24,000
8,400
2,000
2,000
36,000
=====
Per-unit
capacity,
tons/yr
1,176
977
470
172
115
27
470
172
115
172
115
1,176
977
470
, 172
115
3,907
Identified
population
50
57
219
158
513
115
2
14
37
86
10
6
4
21
50
46
39
Projected
nationwide
population
142
161
620
448
1,453
326
3,150
19
132
349
500
493
_57
550
23
i a
lo
83
197
181
500
150
incineration
facilities
Total
_——
Abbreviations: Inter.
Path.
= Intermittent, Cont.
= Pathological.
1,427
========
Continuous,
4,850
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For all other units, the Ib/day capacity is equal to the
Ib/hr design capacity multiplied by the number of charging
hours per day.
Per-unit capacity is reported in Table 2 in terms of
tons per year. It is derived from the Ib/hr "actual
capacity" (usually lower than the design capacity) in the
Model Plant Description and Cost Report, considering the
number of charging hours per day and the number of operating
days per year. Within each industry, the model combustors
are listed in descending capacity. The Continuous 36,000
used by commercial incineration facilities is the largest
model MWI, while the Batch 250 used at hospitals is the
smallest.
The "identified population" in Table 2 is from Table 42
of the Model Plant Description and Cost Report. It
represents existing MWIs that were specifically identified
for this study. The nationwide distribution in Table 2 is
projected from the identified population. Within each
industry, the nationwide distribution is proportionate to
the identified population distribution, and is constrained
to sum to the estimated industry total (e.g., 3,150 for
hospitals).
The total number of MWIs in Table 2 is 4,850. The
table excludes two categories of MWIs: municipal waste
combustors (MWCs) that co-fire medical waste and MWIs that
are not attributable to any particular industry (MWIs at
"other/unidentified facilities"). These categories are not
included in the economic impact analysis. However, impacts
on MWCs are likely to be comparable to the impacts that will
be measured for facilities that operate a dedicated
commercial MWI (commercial incineration facilities), while
impacts on MWIs at other/unidentified facilities are likely
to be represented by the many industries that are included
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in the analysis. The estimated number of MWCs co-firing
medical waste is 31 and the estimated number of MWIs at
other/unidentified facilities is 150. Together/ these two
categories account for 3.6 percent of the estimated total of
5,031 MWIs (4,850 + 31 + 150).
2.2 CONTROL COSTS
Per-MWI control costs are presented in Table 3. Both
capital and total annualized costs are used in the economic
impact analysis. Total annualized cost is the sum of
annual O&M costs and annualized capital. Capital is
annualized using the "capital recovery factor" assuming a
discount rate of 10 percent.
2.3 REGULATED INDUSTRIES
The Emission Guidelines will directly impact facilities
that operate an MWI. The regulation will also indirectly
impact facilities that generate medical waste and send it
offsite to be incinerated. This is because it can be
expected that increased costs of commercial incineration
will be passed along to these facilities. For example, it
can be expected that a fire and rescue operation that
generates medical waste and sends it to a hospital to be
incinerated will have to pay a higher fee for the hospital's
increased cost of incineration. Facilities that generate
medical waste but do not incinerate it onsite are termed
"offsite generators" in this analysis.
With one exception, the economic impact analysis
includes all industries in which the average medical waste
generation rate per facility exceeds 0.25 tons per year.
Information on medical waste generation rates is provided in
the "Industry Profile Report For New and Existing
Facilities."3 The exception is residential care facilities
(0.38 tons/yr per facility, on average), which are similar
to, but offer less comprehensive services than, nursing
-11-
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homes. They are not included in the analysis because their
impacts will be conservatively represented by small (0-19
employees) nursing homes, which, using employment as a scale
factor, are estimated to generate per facility slightly over
one ton of medical waste annually. The selection criterion
excludes health units in industry (0.04 tons/yr) and police
departments (less than 0.08 tons/yr). These categories are
likely to be minimally impacted by the Emission Guidelines
because of their low medical waste generation rates.
Table 4 lists the industries generating medical waste
that are included in the economic impact analysis. Also
included in the analysis are commercial incineration
facilities, which are not listed in Table 4 because they do
not generate medical waste.
Table 4 highlights that the vast majority of medical
waste generators do not operate an MWI. A little less than
half of all hospitals operate an MWI. In the other
industries in which medical waste is generated, a much lower
percentage of facilities operate an MWI. No MWIs have been
assigned to ten categories in which medical waste is
generated (e.g., physicians' offices, blood banks). In
reality, some MWIs may be operated in these categories.
However, the number of MWIs in relation to the number of
facilities is likely to be insignificant.
2.4 MODEL FACILITIES
The economic impact analysis is conducted by comparing
control costs to financial and economic parameters of the
regulated industries. At this point, it is necessary to
establish model facilities with financial and economic
attributes. The model facility data can be used directly to
calculate per-facility economic impacts (Sections 3.5 and
3.6), and can be aggregated to calculate industry-wide
impacts (Section 3.4).
-13-
-------
TABLE 4. SUMMARY OF THE INCIDENCE OF MWIS IN
MAJOR INDUSTRIES GENERATING MEDICAL WASTE
Industry*
Hospitals
Nursing homes
Veterinary facilities
Laboratories
Research
Medical
Dental
Funeral homes
Physicians' offices
Dentists' offices and
clinics
Outpatient care
Physicians' clinics
Kidney dialysis
facilities
Freestanding blood banks
Fire and rescue operations
Correctional facilities
Total
no. of
facilities"
6,882
17,525
21,496
3,826C
6,871
7,970
22,000
191,278
104,213
6,519
839
218
29,840
4,288
No. with
an MWI
3,150
500
550
500
0
0
0
0
0
0
0
0
0
0
Percent
of total
45.8%
2.9%
2.6%
13.1%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
•Included if the average medical waste generation rate per facility
exceeds 0.25 tons per year, with the exception of residential care
facilities (0.38 tons per year).
fcSee Section 2.4 for sources.
'Commercial facilities only.
-14-
-------
Model facilities are defined in Tables 5A, 5B, and 5C.
The financial and economic parameters assigned to the model
facilities include employment (or full-time-equivalent
employment), annual revenue, annual before-tax and after-tax
net income, total assets, and net worth (assets minus
liabilities). All of the parameters are averages per
facility. Therefore, the model facilities represent average
or typical establishments. All dollar figures (e.g.,
revenue, net income) are in 1989 dollars.
To account for heterogeneity, most industry categories
are divided into "subcategories," i.e., they are assigned
more than one model facility. For example, tax-paying and
tax-exempt establishments are distinguished. Subcategories
are also created whenever there is significant variation in
the size of facilities. This will permit the assessment of
differential impacts on different-size facilities. The size
dispersion of nursing homes, for example, is accounted for
by specifying model facilities with 0-19, 20-99, and 100+
employees.
Table 5A represents hospitals. MWIs are potentially
operated in all of the numerous hospital subcategories.
Table 5B includes other industries and industry
subcategories in which MWIs are potentially operated. Table
5C represents offsite generators. Due mainly to the small
amount of medical waste they generate, the model facilities
in Table 5C are not likely to operate an MWI. Offsite
generators will not directly incur control costs, but will
instead be indirectly impacted by the Emission Guidelines by
having to pay higher fees for offsite incineration.
The Emission Guidelines will impact establishments that
cover the gamut of organizational structures: for-profit,
not-for-profit, and public (i.e., government). Often, not-
for-profit and public establishments do not earn profits,
-15-
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per se. Rather, they operate at a surplus or deficit. In
these cases, net income can be construed as a measure of the
surplus or deficit. Also, some not-for-profit and public
establishments do not generate revenues (fire departments,
for example). Rather, they have a budget to pay for their
expenses. Not-for-profit organizations often are
underwritten by grants, donations, and fund-raising
proceeds, while public establishments typically are
appropriated tax revenues. In these cases, revenue and the
budget will be treated as synonymous..
The revenue estimates in Tables 5A, 5B, and 5C
represent revenues of entire facilities. It is not believed
that in any case this will lead to a significant
overstatement of the "revenue basis." The revenue basis is
the amount of revenue that is dependent on the product or
process being regulated, and to which a potential price
increase (in order to recover control costs) would be
applied. The revenue basis would be overstated if medical
waste generation (and the subsequent necessary treatment and
disposal) is not a necessary by-product of all operations of
the establishment. Most of the regulated industries do not
have diverse product lines, however. The generation of
medical waste is likely to be a necessary by-product of all
operations. Hospitals may be an exception. However, if a
hospital department does not generate medical waste, it is
probably still interdependent with departments that do.
Therefore, total revenue would be representative of the
revenue basis.
With the exception of hospitals, uniform after-tax
profit rates are specified in each industry category. It is
assumed, for example, that profitability does not vary by
establishment size. This is similar to an assumption of
perfect competition, with every firm earning a normal
-20-
-------
profit. In reality, profit rates within an industry are not
uniform. To the extent profitability is variable,
profitability impacts will be overstated for facilities with
profit rates above the industry average, and understated for
facilities performing below the industry average.
For tax-paying facilities, all before-tax profit
margins are calculated from after-tax profit margins, or
vice versa, using an average tax rate of 30 percent. The
statutory Federal corporate tax rate is 15 percent for the
first $50,000 in income, 25 percent for the next $25,000,
and 34 percent for all incremental income (i.e., income
above $75,000). Because the regulated establishments are
predominantly small, most will have effective Federal tax
rates significantly below 34 percent. State and local
income taxes, which can average around 5 percent, must also
be considered. All in all, an average total tax rate of 30
percent is considered appropriate. Before-tax and after-tax
net income are calculated by applying the before-tax and
after-tax profit margins, respectively, to revenue.
Tax-exempt establishments do not pay income taxes, of
course. Public (government) establishments are tax-exempt.
So are many not-for-profit establishments, though nonprofit
status is only a prerequisite for exemption. Other
requirements must be satisfied in order to achieve tax-
exempt status.4 Note in Tables 5A, 5B, and 5C that not-for-
profit model facilities are specified only for hospitals
(Table 5A). These facilities are assumed to all be tax-
exempt. This is because a minimum of 1,145 for-profit
hospitals — which are tax-paying — are represented in
Table 5A. This constitutes 17 percent of the total number
of hospitals, 6,882 ("Total" in Table 5A). The 1987 Census
of Service Industries, in turn, reports that 19 percent of
all hospitals are tax-paying.5 This suggests that the vast
majority of not-for-profit hospitals are tax-exempt.
-21-
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By definition, tax-exempt establishments have identical
before-tax and after-tax profit margins. For industry
categories and subcategories consisting of both tax-paying
and tax-exempt establishments, it is assumed that tax-exempt
establishments have the same after-tax profit margin as tax-
paying establishments. This is based on the notion that
tax-paying and tax-exempt establishments will tend to have
after-tax, rather than before-tax, profit rates that are
aligned. If before-tax profit rates were aligned,
for-profit establishments would be at an unsustainable
competitive disadvantage after paying taxes.
Following is an industry-by-industry discussion of the
sources of data in Tables 5A, 5B, and 5C, and ways in which
the data can be interpreted and used.
2.4.1 Hospitals
All information on the number of facilities, the number
of beds, full-time-equivalent (FTE) employment, and annual
expenses is from the American Hospital Association's (AHA's)
"1989 Annual Survey of Hospitals," the results of which were
published in the 1990-91 edition of Hospital Statistics.6
The data therefore pertain to 1989. The total number of
hospitals in the U.S. counted by the AHA, 6,882, appears in
Table 5A on the line "Total." At the bottom of the table is
a subset of all hospitals in the U.S.: community hospitals,
distinguished between urban and rural. Urban hospitals are
classified as being inside of, and rural hospitals as
outside of, Metropolitan Statistical Areas, as defined by
the U.S. Office of Management and Budget. Metropolitan
Statistical Areas include cities and their environs (e.g.,
suburbs). Consequently, the urban subcategory includes both
urban and suburban hospitals.
With the exception of psychiatric hospitals and the
t.b.(tuberculosis) and other respiratory diseases
subcategory, after-tax profit margins are from the 1990
-22-
-------
edition of ?*« sourcebook. published by Health Care
investment Analysts, Inc. (HCIA), a research firm in
Baltimore, Md.7 The 1990 edition of The Sourcebook reports
results for 1989. HCIA compiles statistical information
annually from cost reports filed by the majority of
hospitals in the U.S. that participate in Medicare. The
statistical measure in The Sourcebook used to measure the
after-tax profit margin is the median (50th percentile)
"total profit margin" (after taxes). The total profit
margin, unlike the "operating profit margin," accounts for
revenues from all sources, including sources not related to
patient care, such as philanthropic contributions,
investment income, and government grants.
The total profit margin is disaggregated by HCIA for
hospitals in the following bed-size groupings: 50-99,
100-249, 250-399, and 400 and over. In contrast, as the row
headings in Table 5A reveal, the bed-size groupings used to
disaggregate hospitals in the economic impact analysis are
fewer than 50, 50-99, 100-299, and 300 or more. Although
the match is not perfect, the profitability of hospitals
with 50-99 beds is used to represent hospitals with fewer
than 50 beds and 50-99 beds; the profitability of hospitals
with 100-249 beds is used for hospitals with 100-299 beds;
and the more conservative, or lesser, of the profitabilities
of hospitals with 250-399 and 400 or more beds is used for
hospitals with 300 or more beds (in all cases this turned
out to be the profitability of hospitals with 250-399 beds).
The overall (nationwide) median total profit margin in
1989 was 3.44 percent. This is applied to "Total" and to
several subcategories that are composed of more than one
type of hospital. The median margin was 3.53 percent for
not-for-profit hospitals, 2.67 percent for investor-owned
(for-profit) hospitals, and 3.51 percent for state and local
government hospitals. 1989 was the first year in which
-23-
-------
for-profits were less profitable than the other two
categories. In another departure from the past, rural
hospitals were more profitable than urban hospitals (3.53%
vs. 3.38%, respectively). As mentioned, the urban hospitals
subcategory includes both inner-city and suburban hospitals.
Inner-city hospitals tend to be far less profitable than
suburban hospitals. One subcategory, short-term other
special and general for-profit hospitals with fewer than 100
beds, had a negative median total profit margin: -0.18
percent.
The HCIA database does not include psychiatric and
tuberculosis hospitals. For psychiatric hospitals, the
average after-tax profit margin found for SIC 8063,
Psychiatric Hospitals, in a 1990 survey by Dun and
Bradstreet, Inc. is used.8 Dun and Bradstreet's 1990 survey
findings for SIC 8069, Specialty Hospitals, Except
Psychiatric, are used for the tuberculosis hospitals
subcategory. Another subcategory not covered by HCIA is
Federal hospitals. This is because they do not have
Medicare patients. It is assumed that the profitability of
Federal hospitals is the same as that of state and local
government hospitals.
Annual revenue in Table 5A is equal to annual expenses
divided by one minus the before-tax profit margin. The
before-tax profit margin is used in this equation because
expenses do not include taxes.
The ratios of assets to revenue and net worth to assets
are from the 1990 Dun and Bradstreet survey. SIC 8063,
Psychiatric Hospitals, is used for psychiatric hospitals;
SIC 8069, Specialty Hospitals, Except Psychiatric, is used
for tuberculosis hospitals; and SIC 8062, General Medical
and Surgical Hospitals, is used for all else, including
"Total." Assets and net worth are then calculated by
applying the ratios to revenue.
-24-
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2.4.2 Nursing Homes
For both tax-paying and tax-exempt nursing homes, three
size subcategories are defined: 0-19 employees, 20-99
employees, and 100+ employees. Nursing homes with 100+
employees are classified in Table 5B because they
potentially operate an MWI. While it is estimated that 500
MWIs are operated at nursing homes nationwide, there are
over 5,000 nursing homes with 100+ employees.9 The typical
nursing home with 0-19 or 20-99 employees, on the other
hand, is not likely to operate an MWI and is therefore
classified in Table 5C. Nursing homes in the U.S. are
estimated to generate 198,000 tons per year of medical
waste. Allocating this to the model facilities according to
employment, a scale factor, the average nursing home with
20-99 employees is estimated to generate 8.4 tons per year
of medical waste. This falls far short of the capacity of
the smallest model combustor assigned to nursing homes
115 tons/yr for the Intermittent 2,000 — suggesting that it
is not common for a nursing home with 20-99 employees to
operate an MWI.
The total number of nursing homes in the U.S., 17,525,
and the break-out by employee-size class, are from the 1987
Census. Employment and revenue are also from the 1987
Census. However, revenue from the Census has been inflated
by 13.7 percent, the change in the fixed-weighted price
index for personal consumption expenditures on medical care
from 1987 to 1989.10 This adjusts revenue to 1989 dollars.
The after-tax profit margin, the ratio of assets to
revenue, and the ratio of net worth to assets, are all
weighted averages, based on the number of tax-paying
establishments nationwide, of SICs 8051, 8052, and 8059 —
the three SICs comprising nursing home care — in the 1990
Dun and Bradstreet Survey.
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2.4.3 Physicians' Offices
Physicians' offices do not in general operate an MWI.
Therefore, they are classified as offsite generators in
Table 5C. Physicians' Offices are represented by Offices of
Physicians, which is set apart by the Bureau of the Census
as a subset of SIC 8011, Offices and Clinics of Doctors of
Medicine. Actually, this subset does include clinics "owned
and operated by physicians associated for the purpose of
carrying on their profession."" All other clinics are
included in the subset Clinics of Physicians, which is
assigned to outpatient care in Section 2.4.5. The number of
establishments, employment, and revenue are all from the
1987 Census. As with nursing homes, revenue is increased by
13.7 percent so as to be on a 1989 basis. All Offices of
Physicians in the 1987 Census are tax-paying.
Before-tax net income is calculated as the product of
the average number of non-Federal office-based medical
doctors rendering patient care per practice in 1986/1987,
1.71, and the median "take-home" income for office-based
physicians in 1989, $132,550.12-J3 Assuming that take-home
income consists of wages or earnings from an unincorporated
business, personal taxes will have to be paid. To calculate
after-tax net income, an average personal tax rate of 30
percent — the same as the corporate tax rate — is used.
The ratios of assets to revenue and net worth to assets
are from the 1990 Dun and Bradstreet survey of SIC 8011.
2.4.4 Dentists' Offices and Clinics
Like physicians' offices, dentists' offices and clinics
generally do not operate an MWI and are therefore included
in Table 5C. The number of facilities, employment, and
revenue are all from the 1987 Census (SIC 8021, Offices and
Clinics of Dentists). Again, revenue is adjusted to 1989
dollars by inflating by 13.7 percent.
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Before-tax net income is calculated as the product of
average take-home income per practitioner and the average
number of dentists per practice. Average take-home income
per practitioner in 1983 (the last year for which
information was available) was $55,570.14 This is inflated
to 1989 using the change in the GNP implicit price deflator
from 1983 to 1989 (+21.6%). The number of dentists per
practice is derived by apportioning the total number of
active dentists in the U.S. in 1986, 137,900, to offices and
clinics according to employment in the 1987 Census.15 This
yields an average of 1.32 dentists per office and 2.55 per
clinic. After-tax net income is based on an assumed average
personal tax rate of 30 percent. No basis was available for
calculating net income at tax-exempt clinics.
The ratios of assets to revenue and net worth to assets
are from the 1990 Dun and Bradstreet survey of SIC 8021.
2.4.5 Outpatient Care
Outpatient care facilities are classified as offsite
generators in Table 5C. In the "Market Profile Report,"
ambulatory care centers, managed care organizations, and
kidney dialysis facilities represent the outpatient care
category.16 In the economic impact analysis, managed care
organizations are excluded because they are not exclusively
health care providers. As insurers, they also serve as
vehicles for the financing of health care. In fact, many
managed care organizations do not provide any health care
directly, but rather arrange so that their subscribers
receive health care from independent providers. As a
result, managed care organizations and some of the industry
categories included in the economic impact analysis (e.g.,
hospitals, physicians' offices) are not mutually exclusive.
The two subcategories representing outpatient care in
the economic impact analysis are kidney dialysis facilities
and physicians' clinics. Kidney dialysis facilities are
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classified in SIC 8092. Clinics of Physicians, a subset of
SIC 8011, is used to represent ambulatory care centers.
Table 5C shows a total of 6,519 physicians' clinics. The
estimated total number of ambulatory care centers in the
U.S. is fairly close: 1,221 ambulatory surgery centers and
4,000 general ambulatory care centers.17'" Therefore, the
Clinics of Physicians subset of SIC 8011 is considered to be
fairly representative of ambulatory care centers.
Medical waste is generated by outpatient care
facilities other than physicians' clinics and kidney
dialysis facilities. Other types of outpatient generators
include home health care agencies, hospices, and drug
treatment centers. However, they tend to generate less
medical waste than physician's clinics and kidney dialysis
facilities. Therefore, it is assumed that economic impacts
for other types of outpatient facilities will be
conservatively represented by the impacts calculated for
physician's offices and kidney dialysis facilities.
For both physicians' clinics and kidney dialysis
facilities, the number of facilities, employment, and
revenue are from the 1987 Census. Revenue is increased by
13.7 percent for adjustment to 1989 dollars.
The before-tax profit margin specified for tax-paying
physicians' clinics, 4.0 percent, is the average among 180
facilities of multi-unit ambulatory care chains surveyed by
Modern Healthcare in 1989.19 The average after-tax profit
margin in the 1990 Dun and Bradstreet survey of SIC 8092,
Kidney Dialysis Centers, is used for both tax-paying and
tax-exempt kidney dialysis facilities.
The ratios of assets to revenue and net worth to assets
are also taken from the 1990 Dun and Bradstreet survey (SIC
8011 for physicians' offices and SIC 8092 for kidney
dialysis facilities).
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2.4.6 Freestanding Blood Banks
Blood banks are classified as offsite generators in
Table 5C. The total number of facilities, 218, reflects the
164 freestanding blood banks that are members of the
American Association of Blood Banks, one freestanding
facility that is not a member, and the 53 regional Red Cross
centers.20 Employment and revenue were estimated by
Jack Faucett Associates in 1987.21 Revenue has been
increased by 13.7 percent for adjustment to 1989 dollars.
Profitability data are not available. All freestanding
blood banks are not-for-profit.22
2.4.7 Veterinary Facilities
Three subcategories of veterinary facilities are
defined: 0-9 employees, 10-19 employees, and 20+ employees.
As in all other industry categories, MWIs will tend to be
located at larger facilities (which may in some cases be
better regarded as animal hospitals than as veterinary
offices or clinics). Veterinary facilities with 20+
employees potentially operate an MWI and are therefore
included in Table 5B. There are 595 such facilities in the
U.S.23-24 The estimated number of MWIs in the industry is
550. Since even among the larger facilities, operating an
MWI is not universal, it is likely that in addition to
veterinary facilities with 20+ employees, some veterinary
facilities with 10-19 employees (of which there are 2,584 in
the U.S.) also operate an MWI. Consequently, these
facilities are also classified as MWI operators in Table 5B.
However, it is possible that relatively few veterinary
facilities with 10-19 employees operate an MWI. As a
result, the typical veterinary facility with 10-19 employees
that operates an MWI is likely to be larger than the average
facility in this subcategory, represented by the model
parameters in Table 5B. This implies that impacts
calculated for veterinary facilities with 10-19 employees
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will probably be conservative. Based on the average
industry ratio of 0.30 tons/yr of medical waste generated
per employee (31,000 tons generated, 103,887 employees), the
average veterinary facility with 10-19 employees is
estimated to generate only 3.8 tons per year.25 This would
not warrant operating even the Intermittent 2,000, which has
a capacity of 115 tons per year. Veterinary facilities with
0-9 employees are classified as offsite generators in Table
5C.
The total number of facilities, 21,496, was cited by
the Veterinary Medicine Publishing Company in 1989.M The
disaggregation of the number of facilities and employment
are from 1988 County Business Patterns (CBP).v The total
number of establishments reported in CBP is only 16,687.
However, CBP does not cover establishments without paid
employees. It is conceivable that many veterinary
practices do not have any paid employees (e.g., the owner is
the only employee, and is not paid wages, but rather is paid
from the businesses earnings). It is assumed, therefore,
that practices without paid employees account for the
difference between the two estimates.
Estimated average revenue for a veterinary facility in
1989 is $344,800. This is based on an average of 2.56
veterinarians per practice and Veterinary Economics'
estimate of average revenue per veterinarian of $134,704.28-29
The disaggregated revenues are calculated using the
distribution of facility sizes in CBP, and assuming a
constant ratio of payroll to revenue (CBP reports payroll,
not revenue). It is assumed additionally that revenue is
the same for facilities without any paid employees as for
facilities with 1-4 employees, the smallest disaggregation
in CBP.
Average before-tax net income is equal to the average
of 2.56 veterinarians per practice, multiplied by an average
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take-home income per veterinarian of $51,900. After-tax
net income assumes an average personal tax rate of 30
percent. Before-tax and after-tax net income are
apportioned to the three subcategories in proportion to the
disaggregation of revenue.
The ratios of assets to revenue and net worth to assets
are weighted averages, based on the number of respondents,
of SICs 0741, Veterinary Services for Livestock, and 0742,
Veterinary Services for Animal Specialties, in the 1990 Dun
and Bradstreet survey.
2.4.8 Laboratories
Among all types of laboratories, MWIs are found
predominantly in research laboratories. Medical and dental
laboratories, therefore, are considered to be offsite
generators and are classified in Table 5C. Research labs
are represented in Tables 5B and 5C by commercial
establishments. Tax-paying commercial research labs with 0-
19 employees are classified as offsite generators in Table
5C. Tax-paying commercial research labs with 20-99 and 100+
employees, and tax-exempt commercial research labs (147.7
employees per facility, on average), are classified as MWI
operators in Table 5B.
In addition to commercial research labs, which are
independent and stand-alone, MWIs are also operated by
research laboratories that are captive to a larger
organization such as a pharmaceutical company or a research
university. Captive research labs that are integrated with
other operations of an umbrella organization will tend to be
impacted less by the Emission Guidelines than independent,
stand-alone labs because their revenue basis will be
greater. However, impacts measured for commercial research
labs will be representative of impacts on captive research
labs that are separate profit centers (and therefore are
effectively stand-alone).
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There are 169 tax-paying commercial research labs with
100+ employees and 304 tax-exempt commercial research labs
in the U.S.31-32 These subcategories do not fully account for
the industry's allocation of 500 MWIs. However, as
discussed, captive research labs also operate MWIs.
Therefore, it is possible that relatively few tax-paying
commercial research labs with 20-99 employees (of which
there are 576 in the U.S.) operate an MWI. As a result, the
typical tax-paying commercial research lab with 20-99
employees that operates an MWI is likely to be larger than
the average facility in this subcategory, represented by the
model parameters in Table 5B. This implies that impacts
calculated for tax-paying commercial research lab with 20-99
employees will probably be conservative. Based on the
average industry ratio of 0.40 tons/yr of medical waste
generated per employee (55,500 tons generated, 137,517
employees), the average tax-paying commercial research lab
with 20-99 employees is estimated to generate only 13.7 tons
per year.33 This would not warrant operating the
Intermittent 2,000, which has a capacity of 115 tons per
year.
For all categories of labs — research, medical, and
dental — the number of facilities, employment, and revenue
are from the 1987 Census. SIC 8731, Commercial Physical and
Biological Research, represents commercial research labs.
Medical and dental labs are classified in SICs 8071 and
8072, respectively. In order to adjust to 1989 dollars,
revenue is increased by 7.6 percent, the change in the GNP
implicit price deflator from 1987 to 1989.
The after-tax profit margin, the ratio of assets to
revenue, and the ratio of net worth to assets are from SICs
8071, 8072, and 8731 in the 1990 Dun and Bradstreet survey.
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2.4.9 Funeral Homes
As offsite generators, funeral homes are classified in
Table 5C. It is estimated that there are 22,000 funeral
homes in the U.S.34 The average revenue of a funeral home is
based on an average of 150 funerals per year and $3,000 per
funeral.35 Employment, the after-tax profit margin, the
ratio of assets to revenue, and the ratio of net worth to
assets are all from the 1990 Dun and Bradstreet survey of
SIC 7261, Funeral Service and Crematories. Employment is
adjusted, however, to reflect that SIC 7261 is a
heterogenous grouping of funeral homes and crematories.
Revenue per employee in SIC 7261 is $64,141. Applying this
to the estimated revenue per funeral home of $450,000 yields
an average of 7.0 employees per funeral home. This exceeds
the overall average in SIC 7261 of 5.3 employees per
facility, reflecting that funeral homes are larger on
average than crematories.
2.4.10 Fire and Rescue
As offsite generators, fire and rescue operations are
included in Table 5C. The number of facilities represents
the number of public fire departments in the U.S., estimated
by Jack Faucett Associates in 1987.36 This number is
composed of 23,157 fire departments that are all-volunteer,
1,999 that have fully career staffs, and 4,684 that are part
career, part volunteer. Public fire departments in the U.S.
are operated by county governments, municipal governments,
township governments, and special-district governments.
Employment is from the 1987 Census of Governments.37
The average budget is equal to total public (government)
spending on fire protection in 1989, $12.35 billion, divided
by the number of facilities.38 Public fire departments are
taxpayer-financed. It is not known whether they tend to
operate at a surplus or deficit.
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2.4.11 Corrections
Correctional facilities are offsite generators and are
therefore classified in Table 5C. The 1983 and 1984
Censuses by the Bureau of Justice Statistics reported that
there were 47 Federal facilities, 903 state facilities, and
3,338 local jails in the U.S.39 Local facilities are
operated by both county and municipal governments.
Employment is from the 1987 Census of Governments.
Revenue is calculated by applying the percentage of total
public spending on corrections accounted for by each level
of government, reported in the 1987 Census, to total public
spending on corrections in 1989, $24.4 billion, and dividing
by the number of facilities.40 Any tendency for correctional
facilities to operate at a surplus or deficit is not known.
2.4.12 Commercial Incineration Facilities
By definition, commercial incineration facilities
operate an MWI. They are therefore included in Table 5B.
The number of facilities, 75, is based on 150 MWIs
nationwide, extrapolated from data from 15 states (see the
Industry Profile Report, Section 6.3.5); and an estimated
two MWIs per facility. Survey responses from 15 commercial
incineration facilities were used to calculate average
revenue. Data were not available for other economic/
financial parameters.
3.0 ECONOMIC IMPACTS
3.1 METHODOLOGY AND OVERVIEW
The general methodology of the economic impact analysis
can be understood with the aid of the flow chart in Figure
1. The figure applies specifically to facilities with an
onsite MWI.
Two separate impact analyses are conducted: industry-
wide and per-facility. The linchpin for the industry-wide
analysis (Section 3.4) is calculating the "market price
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increase." This represents the average industry-wide price
increase necessary to recover control costs. Because most,
if not all, of the regulated industries are fragmented,
actual price increases will vary from market segment to
market segment according to such factors as 1) the number of
facilities, 2) the number of facilities operating an MWI, 3)
the distribution of MWI types, and 4) market structure and
pricing mechanisms. Ideally, the average price increase in
each market segment would be measured. However, it is not
possible to define and characterize literally hundreds of
regional and local market segments. • Therefore, the market
price increase, which is an average price increase across
all market segments, is used to represent the average price
increase in each individual market segment. All market
price increases in the analysis are Under one percent and
are therefore considered to be achievable.
Based on the market price increase, the industry-wide
change in output is estimated. The change in output is
inversely related to the market price increase depending on
the price elasticity of demand, which is assessed in Section
3.2. Impacts on industry-wide employment and revenue are,
in turn, estimated from the change in output. No impacts on
industry-wide output, employment, or revenue are found to be
significant in the analysis.
The per-facility analysis (Sections 3.5 and 3.6) is
triggered'by calculating the "facility price increase,"
which is the price increase necessary for individual model
facilities to recover control costs. The facility price
increase is then compared to the market price increase
(hence the industry-wide and per-facility analyses are
linked). If the facility price increase is not
significantly higher than the market price increase, it is
judged to be achievable (market structure is also considered
in this assessment). This is based on the premise that
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facilities will be able to implement price increases that
are not far out of line with the average industry-wide price
increase. Of course, in some market segments, where the
average price increase is lower than the average industry-
wide price increase (because, for example, a large
proportion of facilities do not operate an MWI), it may be
more difficult than average to increase prices.
If the facility price increase is achievable, onsite
incineration can be continued. This does not rule out
substitution from occurring, however. Because the
comparative cost of onsite incineration increases as a
result of the Emission Guidelines, it may be possible after
the regulation to save costs by substituting (though cost is
not the only consideration in choosing a medical waste
treatment and disposal method).
A number of cases in which the facility price increase
may not be achievable are identified in the analysis. These
cases include some categories of MWI operators and, because
the cost of commercial incineration increases as a result of
the Emission Guidelines, possibly also some facilities that
send their medical waste offsite to be incinerated.
However, on average, impacts are lower for facilities that
send their medical offsite to be incinerated than for MWI
operators because commercial MWIs are comparatively large
and efficient, and therefore have lower per-ton impacts from
the regulation.
For facilities that may not be able to achieve the
facility price increase, two questions are then asked: 1)
will absorbing the portion of control costs that cannot be
recovered through a price increase result in an
unsustainable decline in earnings?, and 2) will capital
generally be available to finance the investment in
pollution controls? If neither is a problem, onsite
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incineration can be continued, though substitution may take
place, depending in part on which is lower-cost.
If, on the other hand, earnings will be prohibitively
impacted or capital will be difficult to obtain, onsite
incineration will have to be terminated. In this event,
substitution would be necessary in order to avoid closure —
or at least to avoid the termination of operations that
result in, or are dependent on, the generation of medical
waste. The analysis finds that, in general, substitution is
possible (both feasible and cost-effective) and closure can
be avoided. This is consistent with the fact that in all
industries in which medical waste is generated, the majority
of facilities already utilize an alternative to onsite
incineration. Depending on particular conditions in
individual market segments, there may be a few exceptions in
which a facility would have to shut down, however.
3.2 PRICE ELASTICITY OF DEMAND
A key aim of the economic impacts analysis is to
determine the ability of regulated establishments to pass
along control costs to their customers by increasing prices.
The extent to which this is possible without an attendant
decline in output depends greatly on the price elasticity of
demand.
The price elasticity of demand measures the percent
change in quantity demanded along the demand curve in
response to a percent change in price. The more inelastic
demand is, the greater is the ability of producers or
providers to increase prices without losing output.
Conversely, relatively elastic demand restricts the ability
to increase prices without losing output. The most
important determinants of demand elasticity are 1) the
availability and closeness of substitutes, 2) the extent to
which the product or service is a necessity, 3) the share of
the cost of the product or service in consumers' budgets,
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and 4) the importance of price versus non-price attributes
of the product or service. Products or services without
close substitutes, which are relative necessities, which do
not constitute a significant share of consumers' budgets, or
which have important non-price attributes, all tend to have
relatively inelastic demand.
The import elasticity of supply can also be a
determinant of domestic price elasticity of demand. It is
not a factor in this study, however, because none of the
regulated industries face competition from abroad.
The majority of medical waste is generated by
industries involved in the provision of health care. In
general, the demand for health care is considered to be
relatively inelastic. This would be represented by an
elasticity estimate between -1 and zero. One recent
estimate of the elasticity of demand for health care is
-0.47.41 This was said to fall "within the range of
elasticity estimates reported in several previous studies of
the demand for medical care."
The demand for health care is relatively inelastic for
several reasons. First, other than abstinence, there is no
substitute for health care. Secondly, good health is a
virtual necessity. As a result of these factors, consumers
are relatively captive to providers (e.g., physicians) and
often are given little choice in medical decisions. Another
factor is that health care providers tend to compete more on
quality (a non-price attribute) than price. Finally, and
perhaps most importantly, patients are to a great extent
insulated from changes in the price of health care because
medical bills are commonly paid by third parties such as
government programs (e.g., Medicare, Medicaid) and private
insurers. In 1987, third parties paid for 72.2 percent of
the cost of health care in the U.S.42
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There are some offsetting factors. For one,
co-payments and deductibles on insurance plans still
constitute a significant share of consumers' budgets.
Further, health care providers have been meeting increased
resistance to price increases from third-party payers.
Finally, abstaining from health care is apparently an
option, as 37 million Americans are presently without health
insurance.43
Table 6 summarizes the elasticity estimates used in the
economic impact analysis. The estimates, which are
qualitatively derived, represent ranges, as follows:
Elasticity Range
Highly inelastic 0 to -0.33
Moderately inelastic -0.33 to -0.67
Slightly inelastic -0.67 to -1.00
Slightly elastic -1.00 to -1.33
Moderately elastic -1.33 to -1.67
Highly elastic less than -1.67
The major determinants in Table 6 are labeled "(-)" if they
contribute to relative inelasticity and "(+)" if they
contribute to relative elasticity.
3.3 INSTITUTIONAL CONSIDERATIONS
The ability of regulated establishments to recover
control costs by increasing prices will also be influenced
by certain institutional factors.
3.3.1 Health Care Providers Paid In Part Bv Third Parties
As we have seen, the demand for health care is
relatively inelastic, i.e., quantity demanded is not very
responsive to a change in price. This would normally imply
that prices can easily be raised to pass through a cost
increase to consumers (without a significant attendant
decline in output). In the health care sector, however,
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TABLE 6. ELASTICITY ESTIMATES
Price elasticity
of demand
Major determinants
Hospitals
Highly inelastic
Nursing homes
Moderately
inelastic
o 90.5 percent third-
party-financed (-)
o Primary health care a
virtual necessity (-)
o Compete more on quality
than price (-)
o Some competition from
outpatient facilities
o No close substitutes
(residential facilities
provide less/ inferior
care) (-)
o Quality and service, in
addition to price,
important (-)
o 49.3 percent direct
payment (+)
o For direct-payment
residents, significant
share of budget (+)
Physicians'
offices
Highly inelastic
Dentists'
offices
Moderately
inelastic
o Primary health care a
virtual necessity (-)
o 74.4 percent third-
party-financed (-)
o Patients very captive
(-)
o Quality important (-)
o Some competition from
ambulatory care (+)
o No close substitutes (-)
o Quality important (-)
o Non-preventive care a
virtual necessity (-)
o 61 percent direct pay-
ment (+)
o Significant share of
budget (+)
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TABLE 6. (Continued)
Price elasticity
of demand
Maior determinants
Physicians'
clinics
Kidney
dialysis
facilities
Freestanding
blood banks
Highly inelastic
Highly inelastic
Highly inelastic
o Primary health care a
virtual necessity (-)
o 74.4 percent third-
party financed (-)
o Patients very captive
o Quality important (-)
o Some competition from
physicians' offices (+)
o Necessity (life-saving)
o No substitutes (-)
o Necessity (life-saving)
o Little latitude for
substitution (account
for 89% of all blood
collected in the U.S.)
(-)
o Only about 0.3 percent
of total health care
spending in the U.S.
Veterinary
facilities
Research
laboratories
Medical
laboratories
Dental
laboratories
Slightly inelastic
o No close substitutes (-)
o Demand, especially for
pets, somewhat discre-
tionary (+)
o Significant share of
budget (+)
Slightly elastic o R&D often discretionary
Slightly elastic
Slightly inelastic
o Competition from hos-
pitals, doctors' offices
o Face less competition
than medical labs (-)
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TABLE 6. (Continued)
Price elasticity
of demand
Major determinants
Funeral homes Highly inelastic
Fire and
rescue
Corrections
Highly inelastic
Highly inelastic
o Compete on reputation,
not price (-)
o Death disposal an abso-
lute necessity (-)
o Competition from crema-
tories (+)
o Necessary public good
(-)
o No substitutes (-)
o Necessary public good
<-)
o No substitutes (-)
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willingness to pay does not always reflect underlying
demand. This is due to the role of third-party payers.
Since the implementation of the Prospective Payment System
(PPS) in 1983, reimbursement rates under Medicare, and even
more so under Medicaid, have fallen short of the costs of
providing health care. Lately, private third-party payers
have also increased their resistance to underwriting
increases in the cost of health care. The involvement of
third-party payers, therefore, is preventing health care
providers from recovering their costs, even though
underlying demand is relatively inelastic.
This phenomenon is demonstrated in Figure 2. D is the
market demand curve and S is the initial short-run market
supply curve. The initial market equilibrium is point A,
with output of Qj and a price of P,. As a result of control
costs, supply shifts to S'. If it were not for
institutional constraints, the new market equilibrium would
be point D. However, third-party payers, by limiting
reimbursement rates, constrain the price to P2. This is not
a market-clearing price, as the quantity demanded, Q2D,
exceeds the quantity that providers are willing to supply,
Q2S. This is a case of excess demand, represented by BC.
It would probably be evidenced by waiting lists for health
care.
One implication of this is that the price increase
necessary to recover control costs, no matter how small, may
not be achievable in the short run. Price may adjust only
to P2, not P3, the price level necessary for the market to
clear in the short run. Another implication is that the
short-run impact of control costs on output may be more
pronounced than if the market were allowed to clear.
Instead of falling to Q3, output may fall further to Q^.
The inability to recover control costs in the short run
due to institutional constraints may apply particularly to
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1) nursing homes, which receive almost half of their funding
from Medicaid; 2) kidney dialysis facilities, which are
almost entirely dependent on Medicare for funding ($4
billion per year); 3) rural hospitals, which tend to have
older constituencies and are therefore especially reliant on
Medicare; and 4) inner-city hospitals, which serve
disproportionately poor populations and are therefore
relatively dependent on Medicaid.44
In the long run, in theory, excess demand is not
sustainable. Eventually, consumers.would have to make it
clear to third-party payers (e.g., Medicare, Medicaid,
private insurers) that accessible health care is imperative.
Reimbursement rates would have to be adjusted to allow the
market to clear.' Considering that since 1983 PPS has
consistently under-reimbursed health care providers,
however, it is not clear when the "long run" would take
effect. Nevertheless, in the long run, price and output
adjustments should more closely reflect underlying demand
than in the short run. Moreover, the extent to which short-
run price and output adjustments are derailed by
institutional barriers may not be that great, as third-party
reimbursements — particularly under PPS — though
deficient, still compensate the bulk of health care cost
increases.
3.3.2 Public and Not-For-Profit Establishments
Public (government) establishments may also be limited
— regardless of underlying demand — in their ability to
recover a cost increase. Public establishments often
produce public goods or provide public services that are
valuable socially but for whose production or provision the
marketplace would not reward private enterprise. Typically,
they are funded at least in part from tax revenues, which,
considering current government budget restrictions, may not
-46-
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offer a lot of flexibility for passing along a cost
increase.
Not-for-profit establishments may face similar
limitations. This applies particularly to establishments
that, to meet their budget, are to some degree dependent on
such sources of funds as donations, grants, and fund-raising
proceeds. For example, the American Red Cross, which
collects half of the nation's blood supply, is currently
revamping its procedures and controls for collecting and
processing blood. It is estimated that this program will
cost $100 million. In addition to stepping up fund raising,
the Red Cross says it will have to borrow and cut other
parts of its budget in order to pay for this.45 Therefore,
despite the underlying relatively inelastic demand for blood
(because it is a necessity), it is clear that the Red Cross
is restricted, at least in the short run, in its ability to
recover a cost increase. It is evidently not a matter of
simply increasing prices.
Several regulated industries or industry subcategories
may be particularly affected by this type of restriction.
These include public hospitals; blood banks, which are not-
for-profit; correctional facilities, which are public; and
fire and rescue operations, which are public. Public
hospitals, for example, typically rely on government
subsidies to offset operating deficits.46 In addition,
they tend to be located in areas (e.g., rural) with a high
percentage of uninsured patients.47
These industries or industry subcategories provide
services on which society is reliant. This is reflected in
relatively inelastic demand. In the short run, revenues
perhaps cannot be increased sufficiently in response to a
cost increase to reflect this demand. As a result, normal
profits will not be earned. Output will contract and there
will be excess demand. In the long run, the public should,
-47-
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in theory, be forthcoming with more generous tax payments,
donations, grants, contributions to fund-raising drives,
etc. In reality, government budget restrictions and the
scarcity of funds for nonprofit uses may make it difficult
to fully recover costs even in the longer term.
Nevertheless, as in the case of inadequate reimbursement of
health care costs, while short-run price and output
adjustments may be distorted, in the long run these
adjustments should more closely reflect underlying demand.
3.4 INDUSTRY-WIDE IMPACTS
3.4.1 Industry-vide Annualized Control Costs
Net industry-wide annualized control costs, which are
needed to calculate industry-wide economic impacts, are
estimated in Table 7. Industry-wide annualized control
costs, in the first four columns, are calculated by summing
for each model combustor the product of the total number of
MWIs in the industry (Table 2) and per-MWI annualized
control costs (Table 3). Note that there are no such costs
for industries in which no MWIs are operated.
Next, Table 7 recognizes that control costs
attributable to capacity that is used to incinerate other
generators' medical wastes (i.e., used for commercial
incineration) will be passed along to these offsite
generators. This is accomplished in a two-step process. In
the first step, annualized control costs attributable to
capacity used for commercial incineration are estimated and
aggregated in a "commercial incineration cost pool." In the
short run, under perfect competition, only marginal costs
would be passed along to offsite generators. In the long
run, however, all costs are variable. Therefore, it is
assumed that annualized control costs associated with
capacity used for commercial incineration are fully passed
along to offsite generators. The portion of annualized
control costs that is passed along depends on the fraction
-48-
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of MWI capacity used to incinerate waste generated offsite.
By definition, 100 percent of the MWI capacity of commercial
incineration facilities is used by offsite generators. For
hospitals, nursing homes, veterinary facilities, and
research laboratories, it is assumed that 10 percent of MWI
capacity is used by offsite generators. This estimate may
be high. However, this is preferred so that impacts
calculated for offsite generators will be conservative.
The commercial incineration cost pool is derived by
summing annualized control costs passed along to offsite
generators in each industry. The result, shown in Table 7,
is $9.2 million under Control Option 1, $21.2 million under
Control Option 2, $67.7 million under Control Option 3, and
$118.8 million under Control Option 4.
The second step is to allocate the commercial
incineration cost pool to offsite generators. Ideally, this
would be done according to the share of total medical waste
incinerated offsite. This information is not available,
however. Instead, the share of total medical waste
generated and not incinerated onsite is estimated and used
as a proxy. This is done assuming that the amount of total
industry medical waste generated that is not incinerated
onsite is in proportion to the fraction of facilities in the
industry that do not operate an MWI. For example, an
estimated 54.2 percent of all hospitals do not operate an
MWI (see Table 4). Therefore, it is assumed that 54.2
percent of total medical waste generated by hospitals is not
incinerated onsite.
This methodology results in the industry shares of the
commercial incineration cost pool shown in Table 7. Even
though almost half of all hospitals operate an MWI, the
hospital category is still estimated to account for over
half (57.87%) of all medical waste incinerated offsite.
Physicians' offices have the second largest share — 10.45
-51-
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percent. Commercial incineration facilities have no share
of the commercial incineration cost pool because they do not
generate medical waste.
Applying these shares to the commercial incineration
cost pool, incremental offsite incineration costs are
calculated for each industry in Table 7. Het industry-wide
annualized control costs can now be estimated as industry-
wide annualized control costs, minus control costs passed
along by MWI operators to offsite generators, plus
incremental offsite incineration costs incurred by offsite
generators. Net industry-wide annualized control costs are
shown in the last four columns of Table 7. It is
interesting to note that despite the comparative prevalence
of MWIs at hospitals, net industry-wide annualized control
costs are higher for hospitals than industry-wide annualized
control costs. This is because the hospital industry is
estimated to generate more medical waste that is incinerated
offsite than it incinerates commercially on behalf of
offsite generators.
3.4.2 Financial/Economic Inputs
Financial/economic data are also needed for the
analysis of industry-wide economic impacts. These inputs
are presented in Table 8. Revenue and employment are
aggregated from the model facility data in Tables 5A, 5B,
and 5C. The price elasticities of demand are from Table 6.
3.4.3 Commercial Incineration
Note in Table 8 that the price elasticity of demand has
not been estimated for commercial incineration facilities.
Due to the limited number of medical waste treatment and
disposal options, the demand for commercial incineration is
probably relatively inelastic. However, specifying a price
elasticity of demand for commercial incineration will not
indicate the impact of the Emission Guidelines on the output
of commercial incineration facilities because output will
-52-
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TABLE 8. FINANCIAL/ECONOMIC INPUTS FOR THE INDUSTRY-WIDE ECONOMIC IMPACT ANALYSIS
Industry
revenue
<$ million)
Hospitals
Nursing homes
Veterinary facilities
Laboratories
Commercial research
Medical/dental
Funeral homes
Physicians' offices
Dentists' offices & clinics
Outpatient care
Freestanding blood banks
Fire & rescue operations
Correctional facilities
Commercial incineration fac
Total
a
223,665
32,137
7,422
11,847
7,640
9,900
95,295
27,406
15,008
1,239
12,348
24,245
150
468,302
Industry
employment
3,957,150
1,332.608
103,887
137,517
132,031
154.000
1,032,901
492,742
202,011
13.298
29,542
424,397
N/A
8,012,084
Price elasticity
of demand
Max.
a
-0.33
-0.67
-1.00
-1.33
-1.33
-0.33
-0.33
-0.67
•0.33
-0.33
-0.33
-0.33
N.E.
Hin.
0.00
-0.33
-0.67
-1.00
-0.67
0.00
0.00
-0.33
0.00
0.00
0.00
0.00
N.E.
======,
Full-time-equivalent
N/A Not available.
N.E. Not estimated.
-53-
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also be influenced by the effect of the regulation on the
demand for offsite incineration. On the one hand, through a
shift in supply, control costs will result in a decrease in
quantity demanded and therefore a decrease in output, to the
extent that demand is not perfectly inelastic. On the other
hand, because offsite incineration is a substitute for
onsite incineration, the increase in the cost of onsite
incineration resulting from the Emission Guidelines will
cause an increase in the demand for offsite incineration.
Through a shift in demand, this will produce an increase in
quantity supplied and an increase in output, to the extent
that supply is not perfectly inelastic.
The countervailing effects that control costs and an
increase in the demand for offsite incineration have on
commercial incineration output are demonstrated in Figure 3.
The initial market supply curve is S and the initial market
demand curve is D, with an equilibrium quantity of Q.
Control costs cause supply to shift to S'. With no change
in demand, this would cause quantity to decrease from Q to
Q'. However, demand increases, with a counter effect on
quantity. If demand shifts to D',, the new equilibrium
quantity is Q',, which is less than Q. On the other hand,
if demand shifts to D'2, the new equilibrium is Q'2. In this
case, quantity has increased.
The comparative strengths of these countervailing
supply and demand effects will determine the impact of the
Emission Guidelines on the output of commercial incineration
facilities. If the impact is negative, the industry-wide
output decline is likely to be shared across the country by
a number of commercial incineration facilities because the
commercial incineration market is effectively regionalized
by transportation cost differentials. In general, to the
extent that a market is fragmented (e.g., regionalized), an
industry-wide decrease in output will not require
-54-
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-55-
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restructuring (e.g., closures), but rather will be brought
about by a number of marginal facilities reducing their
capacity utilization.
This can be understood from the following example.
Consider an industry with 100 firms, all of the same size
(i.e., all with a 1% market share). If the industry is not
fragmented (i.e., the market is nationwide), in theory a one
percent decrease in industry-wide output would be brought
about by a 100 percent decrease in the output of one firm —
the marginal firm. This implies that the marginal firm
would have to shut down. Suppose, in contrast, that the
industry is fragmented into 25 market segments —
distinguished by locality or region, for example — each
consisting of four firms. Because these market segments are
independent (i.e., firms do not compete with firms in other
market segments), a one percent decrease in industry-wide
output would be brought about by a one percent decrease in
output in each individual market segment. This would
require output of the marginal firm in each market segment
to decline by only four percent, which does not necessarily
imply closure.
Consequently, no commercial incineration facilities
would be likely to have to shut down. Another mitigating
factor is that if commercial incineration output is
negatively impacted by the Emission Guidelines, commercial
autoclaving is likely to benefit. Some commercial waste
management companies offer both incineration and
autoclaving. These types of commercial facilities might
only experience a shift in sales from incineration to
autoclaving. This may also suggest that commercial
facilities dependent on incineration have the flexibility to
branch into autoclaving if necessary.
However, the presumption of this analysis is that the
demand for commercial incineration will increase to offset
-56-
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the impact on output of control costs. Already, commercial
incineration capacity is tight in the face of rapidly
growing demand. The Emission Guidelines will give impetus
to this demand growth, as onsite incineration becomes more
expensive. Given these forces, a contraction of industry
output is unlikely.
If the output of commercial incineration facilities is
not negatively impacted by the Emission Guidelines, one
implication is that prices will be raised to fully recover
control costs. This is because profitability will have to
be undiminished (implying full recovery of control costs) in
order for regulated facilities to have the incentive to
maintain their level of output. This can also be understood
with reference to Figure 3. If demand shifts to exactly
offset the effect on output of the shift in supply, leaving
output unchanged, the change in price (per unit of output)
will equal the per-unit control cost, represented by the
vertical distance between S and S'. Since the per-unit
changes in price and cost are the same, control costs are
fully recovered.
3.4.4 Market Price Increase
Regulated facilities would ideally like to pass along
control costs to their customers by increasing prices. The
market price increase is defined as the average industry-
wide price increase (i.e., increase in the revenue basis)
necessary to recover control costs. It is calculated in
Table 9 as the ratio of net industry-wide annualized control
costs to revenue.
Because most, if not all, of the regulated industries
are fragmented, actual price increases will vary from market
segment to market segment according to such factors as 1)
the number of facilities, 2) the number of facilities
operating an MWI, 3) the distribution of MWI types, and 4)
market structure and pricing mechanisms. Ideally, the
-57-
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TABLE 9. NET INDUSTRY-WIDE ANNUAL I ZED CONTROL COSTS AS A PERCENT OF REVENUE/BUDGET
—Existins MUIs—
Industry
C.0.1
C.0.2
C.0.3
C.0.4
Hospitals
Nursing homes
Veterinary facilities
Laboratories
Conroercial research
Medical/dental
Funeral homes
Physicians' offices
Dentists' offices & clinics
Outpatient care
Freestanding blood banks
Fire S rescue operations
Correctional facilities
0.023X 0.033X
0.020X 0.028X
0.079X 0.1 WX
0.059X
0.006X
O.OOOX
0.001X
0.001X
0.005%
0.011X
O.OOOX
O.OOOX
0.082X
O.OHX
0.001X
0.002X
0.002X
0.011X
0.025X
0.001X
0.001X
0.109X 0.216X
0.098X 0.211X
0.371X 0.844X
0.275X 0.564X
0.046X 0.081X
0.002X 0.003X
0.007X 0.013X
0.006X 0.011X
0.035X 0.062X
0.080X O.U1X
0.003X 0.005X
0.003X 0.005X
-58-
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average price increase in each market segment would be
measured. However, it is not possible to define and
characterize literally hundreds of regional and local market
segments. Therefore, the market price increase, which is an
average price increase across all market segments, is used
to represent the average price increase in each individual
market segment.
As an average, the market price increase does not
reflect the range of price increases that all facilities in
an industry would require to recover control costs. The
range of price increases necessary to recover control costs
should be particularly wide in industries consisting of both
MWI operators and offsite generators. On average, offsite
generators will require a lower price increase to recover
control costs (passed along from commercial MWIs) than MWI
operators. This is because 1) the average offsite generator
is less dependent on offsite incineration than the average
MWI operator is dependent on onsite incineration; and 2)
MWIs used for commercial incineration are larger than
average, and therefore have relatively low control costs per
ton. Among offsite generators, the price increase necessary
to recover control costs will vary with the degree of
dependence on offsite incineration.
All market price increases in Table 9 are under one
percent and are therefore considered to be achievable. Due
to institutional constraints, it may require some time for
the price increases to be fully implemented, however. The
low values reflect in part that in all industry categories,
the majority of facilities do not operate an MWI.
Commercial incineration facilities (all of which, by
definition, operate an MWI) are not included in Table 9
because they were defined in Table 7 as having no net
annualized control costs.
-59-
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3.4.5 Consequences of the Market Price Increase
The market price increase will result in changes in
output, revenue, and employment, depending on demand
elasticity. Output will decrease unless demand is perfectly
inelastic. (For health care industries, output is the level
of service provided, such as the number of patients
admitted, or the number of operations performed.) Revenue
will change if the demand elasticity is not unitary (i.e.,
equal to -1) . It will increase if demand is relatively
inelastic and decrease if demand is relatively elastic. It
can be assumed that employment will decrease if output
decreases.
3.4.5.1 Output Impacts. Table 10 shows the industry-
wide percent change in output in response to the market
price increase. The calculations follow from the
specification of a constant-elasticity demand function:
QD -
where, QD = quantity demanded
a = a constant
P = price
e = price elasticity of demand
This function is an arc that is asymptotic to the origin.
It assures that elasticity does not change over the range of
the market price increase. Alternatively, it can be viewed
to allow the elasticities specified in Table 6 to be
averages over the range of the market price increase.
The demand function can be used to solve for the
percent change in output (%AQ) :
-60-
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The output impacts in Table 10 are obtained by setting
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in output and the percent change in price are inversely
related because the demand curve is downward-sloping. This
inverse relationship is imparted to the equation for %AQ by
e's negative coefficient.
Owing to a small market price increase and/or
relatively inelastic demand, none of the impacts in Table 10
are significant. All are less than one percent. The
biggest impact is -0.837 percent, registered by veterinary
facilities in the case of the maximum elasticity under
Control Option 4. The impact on hospitals ranges up to
-0.071 percent in the case of the maximum elasticity under
Control Option 4.
With the possible exception of commercial research
labs, all of the regulated industries are fragmented because
-62-
-------
they are regionalized or localized. The typical community
hospital (that is, one that is not specialized), for
example, does not compete with hospitals outside of its
locality or region. Consequently, the output impacts in
Table 10 will not require any industries to be restructured
(e.g., through closures or consolidations), but rather will
be brought about by declines in capacity utilization that
will be shared by a number of facilities (in theory, the
marginal facilities, i.e., the facilities with the highest
average costs). The rationale for this was discussed in
Section 3.4.3.
Capacity utilization in the U.S. hospital industry is
already quite low (the average occupancy rate of hospitals
registered with the American Hospital Association declined
from 77.7% in 1980 to 69.2% in 1988) ,48 But the impact of a
0.071 percent decrease in industry-wide output (Control
Option 4, maximum elasticity) on capacity utilization would
be insignificant.
Although the industry-wide output impact on commercial
research labs — which may not be a fragmented market —
ranges up to -0.746 percent in the case of the maximum
elasticity under Control Option 4, this, too, would not be
sufficient to cause the industry to restructure.
3.4.5.2 Employment and Revenue Impacts. The impact of
the market price increase on industry-wide employment,
assuming that employment is proportionate to output (i.e.,
fixed labor-output ratio), is calculated in Table 11. The
biggest employment decreases are registered by hospitals and
nursing homes. As a percent of baseline employment (see
Table 8), however, these impacts are small. In the case of
the maximum elasticity under Control Option 4, employment
declines by 0.071 percent at hospitals and by 0.141 percent
at nursing homes (by definition, these are the same as the
-63-
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-64-
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output impacts in Table 10). Because all of the regulated
industries are geographically dispersed, the employment
impacts will not be felt in any one particular region of the
country.
Table 11 does not account for some potential employment
effects of the regulation that are positive. For example,
employment related to the production of pollution control
equipment should increase. In addition, additional people
will be needed to give training to MWI operators. Further,
there should be an increase in employment related to the
production and operation of autoclave systems and MWIs used
for commercial incineration.
Revenue impacts resulting from the market price
increase are stated in Table 12. The percent change in
revenue is equal to the sum of the percent change in price
(market price increase) and the percent change in output,
plus their cross-product. Revenue increases in response to a
price increase if demand is relatively inelastic, and
decreases if demand is relatively elastic. It does not
change if the elasticity is unitary (e = -1) .
Revenue decreases only at commercial research labs and
medical/dental labs in the case of the maximum elasticity.
In all other cases, revenue increases because demand is
relatively inelastic or does not change because demand is
unitary-elastic. Relative to the baseline, the decrease in
revenue in the case of the maximum elasticity under Control
Option 4 is only 0.19 percent at commercial research labs
and 0.03 percent at medical/dental labs. Not only are these
impacts small, but they also will not entirely impact the
bottom line (i.e., net income) because they will be at least
partially offset by variable costs that decrease along with
the decrease in output.
-65-
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-66-
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3.5 PER-FACILITY IMPACTS FOR MWI OPERATORS
3.5.1 Linking Control Costs to Model Facilities
Control costs for the model combustors were presented
in Table 3. In order to estimate economic impacts on
facilities that operate an MWI, it is necessary to link the
control costs to the model facilities defined in Tables 5A
and 5B. This is accomplished by assigning model combustors
to model facilities.
The assignment scheme reflects that, generally, larger
MWIs are expected to be located at larger facilities.
Six model combustors — the Intermittent 21,000,
Continuous 24,000, Intermittent 8,400, Pathological 2,000,
Intermittent 2,000, and Batch 250 — are attributed to
hospitals in Table 2. Hospital subcategories in which the
average number of beds is 300 or greater are assigned the
two largest MWIs, the Intermittent 21,000 and Continuous
24,000. Hospitals with 100-299 beds are assigned the next-
largest MWI, the Intermittent 8,400. This includes "Total"
and the urban hospitals subcategory. Hospitals with 50-99
beds — including the rural hospitals subcategory — are
assigned the two next-largest MWIs, the Pathological 2,000
and Intermittent 2,000. Hospitals with fewer than 50 beds
are assigned the smallest MWI, the Batch 250.
The Intermittent 8,400, Pathological 2,000, and
Intermittent 2,000 are attributed to nursing homes in Table
2. Nursing homes with 100+ employees — the only
subcategory in which MWIs are operated — are assigned the
Pathological 2,000 and a "composite" of the two intermittent
MWIs. The composite is a weighted average of the two
intermittent MWIs based on their representation in the
projected nationwide population of nursing home MWIs (as
indicated in Table 2, 19 Intermittent 8,400s and 349
Intermittent 2,000s). The composite is not an actual MWI.
-67-
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Rather, it is intended to represent a typical intermittent
MWI used by nursing homes with 100+ employees.
The two model combustors attributed to veterinary
facilities in Table 2, the Pathological 2,000 and
Intermittent 2,000, are similar in size. Therefore, both
are assigned to the two subcategories of veterinary
facilities in which MWIs are operated ~ 10-19 employees and
20+ employees.
Tax-paying commercial research labs with 100+ employees
(they average 356.9 employees) are assigned the Intermittent
21,000 and Continuous 24,000. Tax-exempt commercial
research labs (they average 147.7 employees) are assigned
the Intermittent 8,400. Tax-paying commercial research labs
with 20-99 employees are assigned the Pathological 2,000 and
Intermittent 2,000.
Finally, the only model combustor attributed to
commercial incineration facilities in Table 2 is the
Continuous 36,000. Survey responses from 15 commercial
incineration facilities indicated that the average facility
operates about two MWIs. Therefore, commercial incineration
facilities are assigned two Continuous 36,000s
(alternatively, control costs for the Continuous 36,000 are
multiplied by two). In all other industry categories there
is typically only one MWI per facility (though there are
exceptions), so model combustors are assigned to model
facilities on a one-to-one basis.
By linking the control costs in Table 3 directly to
model facilities, it is assumed that no portion of control
costs is passed along to offsite generators. This deviates
from the methodology used to estimate industry-wide control
costs in Section 3.4.1. Nevertheless, this approach is
taken because many MWI operators, no doubt, do not use any
of their capacity to incinerate waste generated offsite.
-68-
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The impacts of controls on these MWI operators would be lost
if control costs were uniformly reduced to reflect
commercial incineration cost sharing. Therefore, the per-
facility economic impacts on MWI operators should be
regarded to apply to facilities that do not incinerate
commercially and therefore will not share control costs with
offsite generators. Impacts will be overstated
(conservative) for facilities that do incinerate
commercially and share control costs with offsite
generators.
Per-facility control costs are.summarized in Tables 13
and 14. Table 13 shows capital control costs and Table 14
shows annualized control costs. These costs are used for
the calculation of all impacts in this section. Note that
the costs for commercial incineration facilities are double
the costs of the Continuous 36,000 in Table 3 because there
are two units per facility.
3.5.2 Facility Price Increase
The facility price increase is defined as the price
increase necessary for an individual facility to fully
recover control costs. It is distinguished from the market
price increase, which is the average industry-wide price
increase necessary to recover control costs. Because
offsite generators are on average impacted less by the
Emission Guidelines than MWI operators, the facility price
increase calculated for MWI operators in industries in which
there are also some offsite generators will exceed the
market price increase.
To the extent that an industry is competitive,
individual firms are constrained to institute price
increases that are not far out of line with the market price
increase. Under perfect competition, for example, where all
firms are price-takers, an attempt by a firm to increase
-69-
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prices above the prices of its competitors would result in
the loss of all output. The achievability of the facility
price increase depends on how much it deviates from the
market price increase, as well as on market structure.
The facility price increase is calculated as the ratio
of annualized control costs to revenue for hospitals in
Table 15A and for other MWI operators in Table 15B.
3.5.2.1 Hospitals. The average facility price
increase for all hospitals ("Total") is 0.06 percent under
Control Option 1, 0.09 percent under Control Option 2, 0.29
percent under Control Option 3, and 0.54 percent under
Control Option 4. The latter amount represents only 5.6
percent of the 9.7 percent average annual increase in
hospital spending in the U.S. from 1980 to 1987.49
Even though model combustors have been assigned to
model facilities in relation to size, it is evident that
larger facilities have economies of scale. Under Control
Option 4, for example, while the average facility price
increase for all hospitals with 300+ beds ranges from 0.21
percent (Continuous 24,000) to 0.26 percent (Intermittent
21,000), the average facility price increase for all
hospitals with fewer than 50 beds is 3.04 percent (Batch
250). The facility price increase ranges from 0.03 percent
under Control Option 1 to 0.31 percent under Control Option
4 for urban hospitals, and from 0.13 percent to 1.29 percent
for rural hospitals. The impacts on rural hospitals are
higher because rural hospitals are smaller on average than
urban hospitals.
All facility price increases under Control Options 1
and 2 are less than one percent. They are therefore
considered to be achievable. Institutional constraints may
-72-
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TABLE ISA. PER-fACILITY ANHUALIZED CONTROL COSTS AS A PERCENT OF IEVENUE : HOSPITALS
-EXISTING KWIS"
Intermittent MUI
Industry category
AHA-registered
Federal
Psychiatric
Other special I general
-------
TABLE 156. PER-FACILITY ANNUALIZED CONTROL COSTS AS A PERCENT OF REVENUE/BUDGET :
NUI OPERATORS OTHER THAN HOSPITALS
"EXISTING HUIs--
*filCSEESSSEersSSr==E=5ESSS£SSSSSSSSSSS3SS=S=SS=SSS:rSrSSS=S===S=SS====BBSSffiS==SSXttaee:SeSS3SSSS3:SSSSSS«***SSB=ES£
a
Batch, continuous.
Intermittent NUI or pathological NUI
Industry
Nursing homes
100+ Employees
Tax-paying
Tax-exempt
Veterinary facilities
10-19 Employees
20+ Employees
Commercial research labs
Tax- pay ing
20-99 Employees
100+ Employees
Tax-exempt
Commercial incineration fac.
C.0.1
0.37X
0.27X
1.40X
0.65X
0.45X
0.12X
0.15X
C.0.2
0.47X
0.34X
1.73X
0.80X
0.56X
0.20X
0.22X
C.0.3
1.68X
1.21X
6.27X
2.90X
2.03X
0.56X
0.69X
C.0.4
. 3.71X
2.66X
14.01X
6.47X
4. SAX
0.89X
1o30X
C.0.1
0.33X
0.24X
1.26X
0.58X
0.41X
0.10X
1.41X
C.0.2
0.43X
0.31X
1.64X
0.76X
0.53X
0.15X
7.77X
C.0.3
1.53X
1.10X
5.88X
2.72X
1.91X
0.43X
23. SOX
C.0.4
3.51X
2.52X
13.52X
6.25X
4.39X
0.72X
34.90X
>a
Table 14 indicates which type of HUI -- batch, continuous, or pathological -- is applicable.
-74-
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prevent the price increases from being fully achieved in the
short run. Still, in the U.S. system of health care
financing, hospitals are reimbursed by third parties for the
majority of cost increases. In the long run, institutional
constraints on the ability of hospitals to fully pass along
control costs should be less of a factor.
Under Control Options 3 and 4, hospitals with fewer
than 50 beds will need to increase prices by more than one
percent in order to recover control costs. The same applies
to hospitals with 50-99 beds under Control Option 4. The
average facility price increase is 1.31 percent under
Control Option 3 and 3.04 percent under Control Option 4 for
hospitals with fewer than 50 beds, and ranges up to 1.40
percent under Control Option 4 for hospitals with 50-99
beds. These facility price increases may not be achievable
against market price increases of only 0.109 percent under
Control Option 3 and 0.216 percent under Control Option 4
(see Table 9).
There are also several subcategories in which the
average number of beds per facility is greater than 100 that
have a facility price increase exceeding 1 percent under
Control Option 4. They are t.b. hospitals (only 4
nationwide), long-term other special and general not-for-
profit hospitals, and "other" hospitals not registered with
the American Hospital Association.
Small hospitals (e.g., fewer than 100 beds) may not
only be prevented from achieving the facility price increase
by competition from other hospitals. They also face
particular institutional constraints in raising prices (or
achieving rate increases). Small hospitals are often
located in rural areas, where the population is
disproportionately aged and poor. This makes rural
hospitals relatively dependent on Medicare and Medicaid.
Rural hospitals also have high costs of charity care because
-75-
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rural areas have high concentrations of uninsured people.
Moreover, a disproportionate number of small hospitals are
public. Many public hospitals rely on government subsidies,
which have been cut back in recent years.
3.5.2.2 other MWT operators. A number of the facility
price increases calculated in Table 15B may not be
achievable because they deviate significantly from the
market price increase. These include the impacts for both
subcategories of nursing homes with 100+ employees under
Control Options 3 and 4. For tax-exempt nursing homes with
100+ employees, even a facility price increase of 1.21
percent under Control Option 3 (intermittent MWI) may not be
sustainable against a market price increase of only 0.098
percent (see Table 9). Other cases in Table 15B in which
the facility price increase may not be achievable include
veterinary facilities with 20+ employees under Control
Options 3 and 4, veterinary facilities with 10-19 employees
under all four control options, and tax-paying commercial
research labs with 20-99 employees under Control Options 3
and 4. The 1.30 percent facility price increase for tax-
exempt commercial research labs under Control Option 4 is
probably achievable because it does not deviate much from
the market price increase, 0.564 percent (see Table 9).
In all of these cases, the great majority of facilities
do not operate an MWI: 97.1 percent of all nursing homes,
97.4 percent of all veterinary facilities, and,
conservatively (because it is assumed that all research labs
are commercial facilities), 86.9 percent of all research
labs (see Table 4). For this reason, the facility price
increase is large in relation to the market price increase.
As discussed in Section 3.4.3, it is expected that due
to an increase in the demand for offsite incineration,
commercial incineration facilities will be able to fully
pass along control costs to their customers. This means
-76-
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that the facility price increases in Table 15B — 1.41
percent under Control Option 1, 7.77 percent under Control
Option 2, 23.80 percent under Control Option 3, and 34.90
percent under Control Option 4 — are achievable. To be
sure, the price increases especially under Control Options 3
and 4 are high. However, as will be seen later in Section
3.5.5, the per-ton cost of commercial incineration does not
increase as a result of the Emission Guidelines by as much,
on average, as the per-ton cost of onsite incineration.
Therefore, despite the price increases of 23.80 percent
under Control Option 3 and 34.90 percent under Control
Option 4, many MWI operators would be able to save costs by
switching to commercial incineration (i.e., their costs of
onsite incineration increase by more than 23.80 percent and
34.90 percent, respectively).
3.5.3 Cost Absorption
In the previous section it was seen that it may not be
possible in all cases to implement the facility price
increase and fully recover control costs. Tables 16A and
16B calculate the impact on net income if control costs are
fully absorbed. This represents the extreme case of no
price increase. The impact is calculated as the ratio of
annualized control costs to before-tax net income. This
ratio indicates the percent reduction in earnings if there
is no price increase. Before-tax net income is the
appropriate measure of earnings because control costs are
before taxes and are tax-deductible. For some subcategories
of hospitals in Table 16A, after-tax net income is used as a
substitute because before-tax net income is not available.
This leads to a conservative estimate of impacts because
after-tax net income is less than or equal to before-tax net
income.
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TAKE 16*. MR-FACILITY AHNUALIZED CONTROL COSTS AS A PERCENT OF NET INCOME : HOSPITALS
—EXISTING HWIf
b
latch, continuous,
Intermittent KUI
Industry category
AHA-registerad
Federal
Psychiatric
Other special t general
-------
TABLE 16B. PER-FAC1L1TY ANNUALIZED CONTROL COSTS AS A PERCENT OF BEFORE-TAX NET INCOME :
MWI OPERATORS OTHER THAN HOSPITALS
—EXISTING HUIS--
================================r==============================™============"========SE=
Intermittent HUI
Industry
Nursing homes
100+ employees
Tax-paying
Tax-exempt
Veterinary facilities
10-19 Employees
20+ Employees
Commercial research labs
Tax-paying
20-99 Employees
100+ Employees
Tax-exempt
Commercial incineration fac.
C.O.I
9.32X
9.56X
3.63%
1.68%
7.55%
1.98%
3.48%
C.0.2
11.71X
12.01X
4.49%
2.07%
9.34%
3.26%
5.16%
C.0.3
42.04%
43.13%
16.29%
7.53%
33.91%
9.29%
16.50%
C.0.4
92.68%
95.08%
36.39%
16.81%
75.75%
14.81%
30.85%
C.0.1
8.20%
8.42X
3.28%
1.52%
6.83%
1.69%
N/A
•
Batch, continuous,
or pathological HUI
C.0.2
10.67X
10.95X
4.27%
1.97%
8.89%
2.54X
N/A
C.0.3
38.16%
39.15X
15.27%
7.05X
31 .78%
7.18%
N/A
C.0.4
87.79X
90.07X
35.13%
16.23%
73.12%
11.99X
N/A
a
Table 14 indicates which type of MUI -• batch, continuous, or pathological -- is applicable.
N/A Not available.
-79-
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A cost increase is considered sustainable if it does
not lead to closure. In the short run, the theoretical
closure point is when variable costs, including incremental
annualized control costs, exceed revenues. Since some costs
are fixed, net income must decline by more than 100 percent
for the short-run closure threshold to be surpassed. In the
long run, however, a firm is free to redeploy its capital to
investments that yield a higher rate of return. In the long
run, therefore, the closure point is when the rate of return
on capital falls below the opportunity cost of capital.
3.5.3.1 Hospitals. For all of the cases in which
hospitals may not be able to achieve the facility price
increase, Table 16A shows that the impact on net income
would be significant if control costs had to be fully
absorbed. Net income would decline at the average hospital
with fewer than 50 beds by 62.67 percent under Control
Option 3 and by 145.28 percent under Control Option 4. Net
income would decline at the average hospital with 50-99 beds
by from 64.67 to 66.99 percent under Control Option 4.
These impacts are possibly unsustainable — if not in the
short run, then in the long run. The impacts under Control
Option 4 for t.b. hospitals, long-term other special and
general not-for-profit hospitals, and "other" hospitals not
registered with the American Hospital Association are also
significant. (The impacts on short-term other special and
general for-profit hospitals with fewer than 50 beds and 50-
99 beds are "not meaningful" because net income in the
baseline is negative).
3.5.3.2 other MWI Operators. Table 16B points to some
additional cases in which control costs may not be
sustainable if they cannot be recovered through a price
increase. These include nursing homes with 100+ employees
under Control Options 3 and 4, veterinary facilities with
10-19 employees under Control Options 3 and 4, veterinary
-80-
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facilities with 20+ employees under Control Option 4, and
tax-paying commercial research labs with 20-99 employees
under Control Options 3 and 4. In the other cases in which
the facility price increase may not be achievable —
veterinary facilities with 10-19 employees under Control
Options 1 and 2, and veterinary facilities with 20+
employees under Control Option 3 — control costs are
probably sustainable. The decline in net income is only
3.28-3.63 percent under Control Option 1 and 4.27-4.49
percent under Control Option 2 for veterinary facilities
with 10-19 employees, and 7.05-7.53 percent under Control
Option 3 for veterinary facilities with 20+ employees.
3.5.4 Capital Availability
Tables 17A, 17B, ISA, and 18B capture some of the
impacts of capital control costs on MWI operators. Tables
17A and 17B present the ratio of capital costs to before-tax
net income. Before-tax net income is used as a proxy for
cash flow before taxes, which can be used to service debt.
This assumes a constant asset base (i.e., capital
expenditures are offset by depreciation). The ratio in
Tables 17A and 17B gives an indication of the extent to
which capital costs can be financed from one year's cash
flow. Of course, capital costs do not have to be paid from
cash flow, but the ability to do so in one year suggests
that either external financing is not needed, or it would
not be difficult to obtain. If the ratio exceeds 100
percent, it is possible that debt will have to be issued
(normally for an investment in pollution controls, it is
assumed that equity will not be issued because the
investment does not add to the firm's productive capacity).
In Tables ISA and 18B, the ratio of capital costs to
total (current and long-term) liabilities is calculated
(total liabilities are calculated from Tables 5A, 5B, and 5C
-81-
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TABLE 17A. FEU-FACILITY CAPITAL CONTROL COSTS AS A PERCENT OF NET INCOME : HOSPITALS
—EXISTING Mils—
Intermit tent MUI
Iniist
incustry category
AKA- registered
Federal
Psychiatric
Other special t general
<50 Beds
50-99 Beds
100-299 Beds
300* Beds
Non-federal
Psychiatric
Not-for-profit
For-profit
State govt.
Local govt.
T.B. t other resp. diseases
Long-term other special I gen.
Not-for-profit
For-profit
State govt.
local govt.
Short-term other special t gen.
Not-for-profit
<50 Beds
50-99 Beds
100-299 Beds
300* Beds
For-profit
<50 Beds
50-99 Beds
100-299 Beds
300* Beds
State govt.
<50 Beds
50-99 Beds
100-299 Beds
300* Beds
Local govt.
<50 Beds
50-99 Beds
100-299 Beds
300* Beds
Moo- AHA- registered
Non-feoeral psychiatric
Short-term other special t gen.
Other
Total
<50 Beds
50-99 Beds
100-299 Beds
300* Beds
Subsetrcorrvnity hosp.
Urban
<50 Beds
50-99 Beds
100-299 Beds
300* Beds
Rural
<50 Beds
50-99 Beds
100-299 Beds
300* Beds
6.33X
11.06X
4.32X
3.26X
12.67X
10.9SX
10.53X
9.20X
19.60X
11.34X
9.73X
10.68X
10.62X
20.30X
S.59X
2.14X
N.M.
4.92X
2.04X
22.25X
4.75X
1.77X
27.66X
6.63X
2.20X
22.34X
23.53X
16.03X
5.97X
25.59X
6.25X
2.47X
3.51X
13.99X
10.34X
13.13X
6.09X
5.33X
1S.OSX
13.00X
17.20X
15.03X
27.63X
15.99X
11.S5X
15.05X
17.36X
24.10X
7.88X
3.49X
N.M.
6.93X
3.34X
26.42X
6.70X
2.89X
32.83X
9.35X
3.60X
26.53X
27.94X
22.60X
8.42X
30.38X
8.81X
4.03X
4.94X
16.60X
27.07X
46.79X
18.39X
13.94X
53.61X
46.31X
45.02X
39.35X
83.39X
48.26X
41.16X
45.44X
45. MX
85.86X
23.78X
9.14X
N.M
20.93X
8.73X
94.13X
20.21X
7.56X
116.99X
28.22X
9.42X
94.52X
99.54X
68.20X
25. UX
108.26X
26.58X
10.5SX
K. m
S9.17X
52.91X
117.23X
41.03X
27.2SX
134.30X
116.01X
88.00X
76.90X
186. 10X
107.70X
103. 12X
101.41X
88. SOX
215.09X
53.08X
17.86X
N.M
46.71X
17.07X
235. BOX
45. nx
14.78X
293. 07X
62.97X
18.41X
236. 78X
249.35X
152.22X
56.72X
271 .20X
S9.33X
20.62X
33.28X
148.22X
latch, continuous,
or pathological WWI
4.99X
22.64X
11.38X
2.57X
13.04X
11.26X
8.30X
7.26X
10.01X
8.38X
44.41X
20.88X
1.69X
N.M.
N.M.
1.61X
52.40X
22.89X
1.39X
65. SOX
28.45X
1.74X
22.99X
24.21X
S5.33X
26.33X
1.9SX
14.39X
7.67X
2S.8SX
13.77X
3.9SX
15.77X
13.63X
12.76X
11.15X
12.11X
12.87X
50.71X
25.26X
2.59X
N.M.
N.M.
2.47X
S9.83X
27.70X
2.14X
74.79X
34.42X
2.67X
27.81X
29.29X
63.18X
31.85X
2.99X
17.41X
21. SOX
95.67X
48.17X
10.97X
55.18X
47.66X
35.43X
30.96X
42.37X
35.76X
187.64X
8B.37X
7.19X
N.M.
N.M.
6.B7X
221.40X
96.88X
S.9SX
276.75X
120.41X
7.41X
97.29X
102.45X
233. 78X
111.43X
B.30X
60.90X
*••****«
b
44.21X
244. 98X
119.31X
22.78X
136.69X
118.07X
73.54X
64.26X
104.9SX
74.21X
480.49X
218.92X
14.93X
N.M.
N.M.
14.27X
566.94X
240.00X
12.35X
708.68X
298.29X
15.39X
241. OOX
253. 79X
S98.64X
276.03X
17.24X
150.86X
Divisor is before-tax net income except for T.B. hospitals, hospitals not registered Kith the AHA,
"Total" (and subcatgories), and commity hospitals, for lAleh only after-tax net
-------
TABLE 178. PER-FACILITY CAPITAL CONTROL COSTS AS A PERCENT OF BEFORE-TAX NET INCOME
MUI OPERATORS OTHER THAN HOSPITALS
—EXISTING MUIS--
Batch, continuous.
Intermittent MWI or pathological MUI
Industry
Nursing homes
100+ employees
Tax-paying
Tax-exempt
Veterinary facilities
10-19 Employees
20+ Employees
Commercial research labs
Tax-paying
20-99 Employees
100+ Employees
Tax-exempt
C.O
35.
36.
13.
6.
28.
5.
11.
.1
42%
33%
90%
42%
.94%
.89%
,83%
C.O. 2
42.59%
A3. 69%
16.50%
7.62%
34.35%
9.63%
16.67%
C.O. 3
149.87%
153. 75X
58.81%
27.17%
122.41%
25.21%
50.33%
C.O
372.
382.
147.
68.
306.
49.
112.
.4
57X
22%
31%
06%
,65%
,27%
.32%
•c.o
35.
36.
14.
6.
29.
4.
.1
74%
67X
30%
61%
,77%
.65%
C.O. 2
43.24%
44.36%
17.30%
7.99%
36.02%
7.14%
C.O. 3
151.27%
155.19%
60.53%
27.96%
126.00%
19.84%
C.O. 4
374.73%
384.44%
149.94%
69.27%
312.12%
41.18%
Commercial incineration f.c. N'A N'A N/A
========================================================================s=========================
Table 13 indicates which type of MWI -- batch, continuous, or pathological -- is applicable.
N/A Not available.
-83-
-------
TABLE ISA. PER-FACILITT CAPITAL CONTROL COSTS AS A PERCENT OF TOTAL LIABILITIES t HOSPITALS
"EXISTING MUU—
latch, continuous,
Intermittent MUI
i— i
Incwstry category
AHA- registered
Federal
Psychiatric
Other special t general
«SO Beds
50-99 ledt
100-299 led*
300* Beds
Non-federal
Psychiatric
Not-for-profit
For-profit
State govt.
Loeel |ovt.
T.I. t other resp. disease*
long-term other special i gen.
Not-for-profit
For-profit
Stste govt.
Local govt.
Short-term other special t gen.
Not-for-profit
<50 Beds
50-99 Beds
100-299 Beds
300* Beds
For-profit
<50 Beds
50-99 Beds
100-299 Beds
300* Beds '
State govt.
<50 Beds
50-99 Beds
100-299 Beds
300* Beds
Local govt.
<50 Beds
50-99 Beds
100-299 Beds
300* Beds
Non- AHA- registered
Non-Federal psychiatric
Short-tern other special I gen.
Other
Total
<50 Beds
50-99 Beds
100-299 Beds
300* Beds
Subset :coRRunity hosp.
Urban
-------
TABLE 18B. PER-FACILITY CAPITAL CONTROL COSTS AS A PERCENT OF TOTAL LIABILITIES :
HUI OPERATORS OTHER THAN HOSPITALS
—EXISTING HWIS"
:______====s=============s==========================s=============sss=====s=====S=SS==!
Intermittent HUI
Batch, continuous,
or pathological HUI
Industry
Nursing homes
100+ employees
Tax-paying
Tax-exempt
Veterinary facilities
10-19 Employees
20+ Employees
Commercial research labs
Tax-paying
20-99 Employees
100+ Employees
Tax-exempt
Commercial incineration fac.
C.0.1
3
2
34
15
7
1
2
.36%
.41%
.29%
.84%
.52X
.53X
.15%
:=====
C.0.2
4
2
40
18
8
2
3
====
.04%
.90%
.70%
.81%
.93%
.50%
.03%
;======:
C.0.3
14.22%
10.22%
145.03%
67.01%
31.81%
6.55%
9.15%
C.0.4
35.
25,
.36%
.40%
363.32%
167.86%
79
12
20
.69%
.80%
.43%
C.0.1
3.39%
2.44%
35.27%
16.30%
7.74%
1.21%
N/A
========:
C.0.2
4.10%
2.95%
42.67%
19.72%
9.36%
1.86%
N/A
C.0.3
14.36%
10.31%
149.28%
68.97%
32.74%
5.16%
N/A .
=============1
C.0.4
35.57%
25.54%
369.79%
170.85%
81.11%
10.70%
N/A
a
Table 13 indicates which type of MUI
N/A Not available.
-- batch, continuous, or pathological -- is applicable.
-85-
-------
as the difference between assets and net worth). In the
event debt is issued, this gauges the impact on capital
structure. Creditors are reluctant to lend to firms with a
high degree of financial leverage (i.e., high ratio of debt
to net worth) because there is a high risk that debt cannot
be repaid. If total liabilities increase by, say, 20
percent, it may be difficult to obtain financing. Take a
firm with assets of $100, current liabilities of $20,
long-term debt of $30, and net worth of $50. Total
liabilities (current liabilities plus debt) are $50. If an
increase in debt causes total liabilities to increase by 20
percent, the increase in debt will be from $30 to $40.
Meanwhile, assets increase from $100 to $110. Consequently,
the ratio of debt to assets (which is scrutinized by
lenders) increases from 30 percent to 36.4 percent.
However, as pollution-control equipment, the new assets are
not income-generating. In relation to productive assets,
debt has increased from 30 percent to 40 percent.
An increase in total liabilities of 20 percent is not,
to be sure, a definitive threshold beyond which no
facilities will be able to obtain external financing. There
will always be some facilities that are able to take on debt
and, as a result, expand total liabilities by 20 percent, or
even much more. Conversely, some facilities will be limited
to expanding total liabilities by far less than 20 percent.
However, an average increase in total liabilities of 20
percent is likely to make external capital difficult to
obtain for at least some facilities. Therefore, with but
one exception, a 20 percent increase in total liabilities is
used as a guideline for significant impacts. The exception
is made for cases in which the facility price increase is
achievable (see Section 3.5.2). The facility price increase
recovers all annual costs, including the annualized cost of
capital (interest and depreciation). Achieving the facility
-86-
-------
price increase therefore implies that additional cash flow
will be generated to pay for the cost of debt (i.e.,
interest). In theory, the capital markets should recognize
this and make financing available, regardless of the impact
of additional debt on total liabilities.
The impacts in Tables 17A, 17B, ISA, and 18B are per-
facility. They therefore really only apply to stand-alone
facilities. For facilities that are affiliated with multi-
unit systems, the impacts in these tables are overstated.
This is because multi-unit systems have a greater capacity
to borrow than stand-alone facilities. Approximately 80
percent of all for-profit hospitals and 33 percent of all
not-for-profit hospitals, for example, are affiliated with
multi-hospital systems.50
3.5.4.1 Hospitals. Table 17A indicates that, on
average, hospitals with fewer than 50 beds and with 50-99
beds will require more than one year's cash flow to finance
capital costs under Control Options 3 and 4 (the impacts
exceed 100%). The ratio of capital costs to net income
ranges from 108.26 to 111.43 percent under Control Option 3
and from 271.20 to 276.03 percent under Control Option 4 for
the average hospital with 50-99 beds, and is 233.78 percent
under Control Option 3 and 598.64 percent under Control
Option 4 for the average hospital with fewer than 50 beds.
Under Control Option 4, the ratio exceeds 100 percent for
rural hospitals (148.22 - 150.86%), but not for urban
hospitals (33.28%). The ratio also exceeds 100 percent
under Control Option 4 in several subcategories with more
than 100 beds per facility: t.b. hospitals, long-term other
special and general not-for-profit and state-government
hospitals, and "other" hospitals not registered with the
American Hospital Association.
The ratio of capital costs to total liabilities in
Table ISA exceeds 20 percent only for hospitals with fewer
-87-
-------
than 50 beds under Control Option 4. Therefore, only
hospitals with fewer than 50 beds may in general, under
Control option 4, have difficulty obtaining financing. As
20 percent is not a definitive threshold, this does not
preclude other facilities from having difficulty. Rural
hospitals, which are predominantly small (Table 5A indicates
that 72 percent have fewer than 100 beds), are more likely
to have difficulty than urban hospitals. Under Control
Option 4, the ratio of capital costs to total liabilities
ranges from 11.30 to 11.50 percent for rural hospitals,
compared to only 2.43 percent for urban hospitals.
3.5.4.2 Other MWT Operators. Table 17B reveals a
number of cases for other MWI operators in which the ratio
of capital costs to before-tax net income exceeds 100
percent and therefore external financing may be required.
These include nursing homes with 100+ employees under
Control Options 3 and 4, veterinary facilities with 10-19
employees under Control Option 4, tax-paying commercial
research labs with 20-99 employees under Control Options 3
and 4, and tax-exempt commercial research labs under Control
Option 4. Table 18B shows, in turn, that with the exception
of nursing homes under Control Option 3, in all of these
cases the ratio of capital costs to total liabilities
exceeds 20 percent. Except for tax-exempt commercial
research labs, this suggests that capital may be difficult
to obtain. Despite a ratio of capital costs to total
liabilities under Control Option 4 of 20.43 percent, tax-
exempt commercial research labs should in general be able to
obtain financing because the facility price increase is
achievable (See Section 3.5.2.2).
3.5.5 Substitution
Table 4 indicated that over half of all hospitals and
an even greater majority of nursing homes, veterinary
facilities, and commercial research labs do not operate an
-88-
-------
MWI. This suggests that facilities in these industries
generally have viable alternatives to onsite incineration
for the treatment and disposal of medical waste. The most
common alternatives to onsite incineration are onsite
autoclaving and offsite contract disposal (most commonly
commercial incineration).
The cost to operate an autoclave system including a
shredder can vary widely. For example, operated at
capacity, a large (1,176 tons/yr) unit is estimated to cost
$134 per ton while a small (27 tons/yr) unit is estimated to
cost $2,080 per ton. Onsite autoclaving has some
limitations. For one, autoclaving is not "suitable" for
some components of the medical waste stream, particularly
pathological waste. Suitability is determined by both
technical and nontechnical factors.51 The U.S. Congress
Office of Technology Assessment (OTA) estimates that
approximately 90 percent of all medical waste can be
autoclaved.52 Another limitation is that some landfills (and
waste haulers) are not willing to accept autoclaved waste
because it cannot easily be identified as having been
treated and disinfected. This "recognizability" problem can
often be solved, however, by shredding or compacting the
waste (either before or after it is autoclaved). Still,
some landfills will not accept such waste. Nevertheless,
"informal discussions" with a number of hospital officials
across the country indicated to OTA that "few refusals (of
autoclaved medical waste) occur if a hospital works closely
with landfill operators to explain their waste procedures."53
To the extent that it has limitations, autoclaving is
perhaps better considered as a supplement to incineration
than as a substitute for it. Regardless, autoclaving can
still be used to treat the great majority of medical waste
that is currently incinerated onsite.
-89-
-------
The other major alternative to onsite incineration for
treating medical waste is offsite contract disposal (most
commonly commercial incineration). The average cost of
offsite contract disposal is estimated to be $600 per ton.
This cost can vary substantially. It can depend, for
example, on the hauling distance from the generator to the
treatment facility. Also, volume discounts may result in
lower fees for large generators than for small generators.
Offsite contract disposal depends highly on the
availability of commercial incineration capacity. In some
regions of the country (e.g., the Northeast, Illinois,
Texas) , commercial incineration capacity is tight.54 In
other regions, there may be excess capacity. Building new
commercial incineration capacity is persistently hampered by
the difficulty of finding a site and the lengthy process of
obtaining a permit (up to two years or more, according to
OTA) .5S Nevertheless, some regional incinerators (either
generator/non-profit or commercial) are currently being
planned.56 OTA concludes that potential short-term
shortfalls in commercial incineration capacity can be
averted if the "adoption of new regulations is coordinated
with careful planning and expedient permitting."57 Even if
commercial incineration capacity in the short term is
inadequate (due to imperfect "coordination," for example),
the Emission Guidelines should encourage additional capacity
to come on stream in the longer term. This is because the
regulation will increase the demand for commercial
incineration, which will increase the returns that can be
earned by commercial MWI operators. The reason the demand
for commercial incineration will increase is that regional
and dedicated-commercial MWIs are larger and more efficient
on average than onsite MWIs. As a result, they will
experience lower per-ton impacts from the regulation. This
will encourage a shift from onsite MWIs to commercial/
-90-
-------
regional MWIs. The model combustors reflect that
commercial/regional MWIs tend to achieve economies of scale.
While the Continuous 36,000 representing commercial
incineration facilities has a capacity of 3,907 tons per
year and a baseline operating cost of $75 per ton, the other
model combustors range in baseline cost from $92 per ton
(Intermittent 21,000, capacity 1,176 tons/year) to $1,137
per ton (Batch 250, capacity 27 tons/year).
Another possibility for accommodating an increase in
the demand for offsite contract disposal is an increase in
commercial autoclaving capacity. Presently there are
believed to be fewer than 24 commercial autoclaving
facilities in the U.S.58 However, autoclaving can be less
expensive than incineration.59 For instance, one commercial
facility operating both an autoclave and an incinerator
charges less for autoclaving — $600/ton versus $720/ton for
incineration.60 Consequently, the importance of commercial
autoclaving may increase in the future. Already, one large
waste management company reports that it is currently siting
more autoclaves than incinerators.61
Tables 19A, 19B, 19C, and 19D compare the estimated
annual costs — before and after the Emission Guidelines —
of onsite incineration, offsite contract disposal
(represented by commercial incineration), and onsite
autoclaving. The incremental costs of onsite incineration
are derived from the control costs in Table 3. The costs of
onsite incineration and onsite autoclaving assume full-
capacity utilization (per-ton costs can be much higher if
full capacity is not utilized). The cost of onsite
autoclaving does not change with the regulation (this
disregards the potential increase in cost that could come
from an increase in the demand for autoclave systems).
-91-
-------
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-94-
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3MPARATIVE ANNUAL PER-TC
MEDICAL WASTE INCINERA1]
! TREATMENT METHODS: BAS
CONTROL OPTION 4
— EXISTING MWIs —
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-95-
-------
Note, however, that the cost of offsite contract
disposal increases under each control option: by $9/ton
under Control Option 1, $25/ton under Control Option 2,
$86/ton under Control Option 3, and $149/ton under Control
Option 4. This is because the cost of offsite incineration
will increase as a result of the Emission Guidelines (and
the NSPS). The incremental cost of offsite incineration is
estimated by positing •— as for the calculation of the
commercial incineration cost pool in Section 3.4.1 — that
100 percent of capacity at commercial incineration
facilities (by definition) and 10 percent of capacity at
hospitals, veterinary facilities, and commercial research
labs is used for commercial incineration. As a result, it
is estimated that 702,865 tons per year of existing capacity
is used for commercial incineration. It is also recognized
that in addition to the impact of the Emission Guidelines on
existing sources, commercial incineration capacity at new
sources will be impacted by the NSPS. Over the next five
years, it is estimated that new sources will account for
317,270 tons per year of commercial incineration capacity.
The average incremental cost impact of the Emission
Guidelines on the commercial incineration capacity of
existing sources is calculated to be $13/ton under Control
Option 1, $30/ton under Control Option 2, $96/ton under
Control Option 3, and $169/ton under Control Option 4. For
the commercial incineration capacity of new sources, the
average cost impact of the NSPS is $14/ton under Control
Option 2, $63/ton under Control Option 3, and $104/ton under
Control Option 4. It is assumed that the NSPS will have the
same control stringency as the Emission Guidelines. The
incremental cost of offsite incineration — $9/ton under
Control Option 1, $25/ton under Control Option 2, $86/ton
under Control Option 3, and $149/ton under Control Option 4
— is then calculated as a weighted average, by capacity, of
-96-
-------
existing and new sources. It is assumed that this cost will
be fully passed along to offsite generators.
Tables 19 A, 19B, 19C, and 19D show that the average
cost of onsite incineration in the baseline is generally
lower than the average cost of onsite autoclaving
(autoclaving is not an "applicable" substitute for the
Pathological 2,000 because it cannot be used to treat
pathological waste). The exception is the Continuous
24,000, which costs more than an autoclave system of the
same capacity.
Offsite contract disposal, in the baseline, is more
expensive on average than the Intermittent 2,000 and all
larger model combustors, but less expensive on average than
the smaller Batch 250. Offsite contract disposal is also
less expensive on average than an autoclave system of the
same capacity as the Batch 250.
With controls, the cost of onsite incineration relative
to onsite autoclaving becomes less favorable. Under Control
Option 1, the Continuous 24,000 continues to be the only
model MWI that is more expensive than onsite autoclaving.
Under Control Option 2, the Intermittent 21,000, as well as
the Continuous 24,000, is more expensive than onsite
autoclaving. Under Control Options 3 and 4, all model MWIs
are more expensive than onsite autoclaving (again, excluding
the Pathological 2,000, for which autoclaving is not a
suitable substitute). The relative cost of onsite
incineration increases as the control options become more
stringent. For example, the cost advantage of onsite
autoclaving over onsite incineration increases from Control
Option 3 to Control Option 4. The cost advantage of onsite
autoclaving under Control Options 3 and 4 is particularly
high in comparison to the smaller model combusters.
The tables also indicate that offsite contract disposal
is a cost-saving alternative to the Batch 250 under all four
-97-
-------
control options, to the Intermittent 2,000 under Control
Options 3 and 4, and to the Pathological 2,000 under Control
Option 4. The larger model combustors — the Intermittent
21,000, Continuous 24,000, and Intermittent 8,400— remain
less expensive than offsite contract disposal under all four
control options. Offsite contract disposal continues to be
less expensive on average than an autoclave system of the
same capacity as the Batch 250. In all other cases,
autoclaving is less expensive. Like onsite autoclaving, the
cost of offsite contract disposal relative to onsite
incineration becomes more favorable as the control options
become more stringent.
Estimated capital costs of MWI controls and a new
autoclave system are compared in Table 20. Offsite contract
disposal is not included because it has the advantage of
requiring no capital investment. As stated, autoclaving is
not a suitable alternative to the Pathological 2,000.
Otherwise, the table shows that the capital cost of a new
autoclave system is comparable to the capital cost under
Control Option 2, and much lower than capital costs under
Control Options 3 and 4. In Section 3.5.4, it was concluded
that capital costs under Control Option 2 can be financed.
It follows that the capital cost of a new autoclave system
can also be financed.
Because the relative cost of onsite incineration
increases as a result of the Emission Guidelines, and
because capital to invest in an alternative medical waste
treatment system should generally be available, it can be
expected that a major impact of the Emission Guidelines will
be to trigger substitution. The extent of substitution
could be expected to vary with the stringency of the control
options because relative to the costs of alternative medical
waste treatment methods such as onsite autoclaving and
-98-
-------
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-99-
-------
offsite contract disposal, the cost of onsite incineration
increases. As the control options increase in stringency,
more and more MWI operators would be able to save costs by
substituting. Substitution would probably escalate under
Control Options 3 and 4. In the baseline and under Control
Option 1, there is a cost-saving alternative to two model
combustors. Under Control Option 2, there is a cost-saving
alternative to three model combustors. Under Control
Options 3 and 4, the number of model combustors for which
there is a cost-saving alternative escalates to five and
six, respectively. A cost-saving alternative is available
for the Continuous 24,000 and Batch 250 in the baseline and
under all four control options; for the Intermittent 21,000
under Control Options 2, 3, and 4; for the Intermittent
8,400 and Intermittent 2,000 under Control Options 3 and 4;
and for the Pathological 2,000 under Control Option 4.
Moreover, under Control Options 3 and 4, it can be
expected that there would be more substitution for small
MWIs than for larger MWIs (this is not a consideration under
Control Options 1 and 2 because only two and three model
combustors, respectively, have a lower-cost alternative).
This is because small MWIs have comparatively high per-ton
cost impacts from the Emission Guidelines. As a result,
cost savings from substituting for small MWIs are greater.
While onsite autoclaving is the lower-cost alternative
in most cases, offsite contract disposal is the lower-cost
alternative to the smallest model combustor,- the Batch 250
(capacity 27 tons/year). This suggests that offsite
contract disposal would be more cost-effective for small
facilities that generate insufficient medical waste to
achieve low per-ton costs operating an autoclave system.
Offsite contract disposal, which requires no capital
investment, may also be more suitable for facilities with
limited capital (e.g., small facilities). Further, offsite
-100-
-------
contract disposal may be necessary if landfills or waste
haulers are unwilling to accept autoclaved waste. Finally,
offsite contract disposal may be needed as a complement if
autoclaving cannot treat the entire medical waste stream.
Assuming profit-maximizing behavior, the opportunity to
reduce costs is sufficient for an MWI operator to consider
switching to an alternative medical waste treatment method
(though, of course, other factors such as reliability,
safety, regulatory requirements, and liability exposure must
also be considered). However, in addition to being cost-
saving in some cases, substitution will also be necessary in
order to stay in business if control costs are prohibitive.
The operations that would be in jeopardy would be those that
result in, or are dependent on, the generation of medical
waste. In Sections 3.5.2 and 3.5.3, a number of cases in
which annualized control costs may not be fully recoverable
with a price increase and the resulting impact on earnings
may not be sustainable were identified. In Section 3.5.4,
it was seen that capital to finance the investment in
pollution controls may not be readily available in some
cases.
The impacts of control costs can be avoided by
substituting. However, there are also incremental costs
associated with substituting. This is because, with two
exceptions, the costs of onsite autoclaving and offsite
contract disposal are greater on average than the cost of
onsite incineration in the baseline. This was seen in
Tables 19A, 19B, 19C, and 19D. The two exceptions are the
Continuous 24,000, which is more expensive on average in the
O
baseline than onsite autoclaving; and the Batch 250, which
is more expensive on average in the baseline than offsite
contract disposal.
-101-
-------
Table 21 presents incremental annual costs of onsite
autoclaving and offsite contract disposal over operating an
MWI in the baseline. The table includes all industry
categories and subcategories in which, under at least one
control option, annualized and/or capital control costs may
be prohibitive (and therefore substitution may be
necessary). These categories and subcategories were
identified in Sections 3.5.2 through 3.5.4. The incremental
annual costs — which are derived from Tables 19A, 19B, 19C,
and 19D — are equal to the per-ton cost differential
between the medical waste treatment alternative and onsite
incineration in the baseline, multiplied by the number of
tons treated per year. The number of tons treated per year
is based on full-capacity utilization of the model
combustors. The cost of onsite incineration therefore
assumes full-capacity utilization. The cost of onsite
autoclaving also assumes full capacity utilization. As a
result of these assumptions, the incremental annual costs of
both onsite autoclaving and offsite contract disposal in
Table 21 are conservative, i.e., may be overstated. The
incremental annual cost of onsite autoclaving is
conservative because the number of tons treated per year may
be overstated (no doubt, many MWIs and autoclave systems are
not operated at full capacity). The incremental annual cost
of offsite contract disposal is conservative not only
because the number of tons treated per year may be
overstated, but also because the per-ton cost of onsite
incineration in the baseline would be understated if full
capacity is not utilized. This would lead to an
overstatement of the per-ton cost differential between
offsite contract disposal and onsite incineration in the
baseline.
-102-
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TABLE 21. INPUTS FOR PER-FACILITY SUBSTITUTION ANALYSIS
—EXISTING MWIS—
__=_______=-___=.:===================================================================s===s==s==ss==s=s=======s===E»«
Incremental annual cost of switching to:
Net Onsite Offsite contract disposal
25,461 (14,499) (14.256) (13.824) (12.177) (10,476)
16,100
N.A.
29,140
29,140
29,140
29,140
16,100
N.A.
29,140
16,100
N.A.
16,100
N.A.
16,100
N.A.
16,100
N.A.
'19,550 20,585 22,425
49,364 50,912 53,664
203,980 208,210 215,730
203,980 208,210 215,730
203,980 208,210 215,730
203,980 208.210 215,730
19,550 20,585 22,425
49,364 50,912 53,664
203,980 208,210 215,730
19,550 20,585 22,425
49,364 50,912 53,664
19,550 20,585 22,425
49,364 50,912 53,664
19,550 20,585 22,425
49,364 50,912 53,664
19,550 20.585 22,425
49,364 50,912 53,664
29,440
64,156
244,400
29,440
64,156
244,400
29,440
64,156
29,440
64,156
29,440
64,156
36,685
74,992
244,400 274,010
244,400 274,010
244,400 274,010
Revenue a auto
Industry/Model MU1 ($ mil.) income claving Baseline C.0.1 C.0.2 C.0.3 C.0.4
Hospitals
<50 Beds
Batch 250
50-99 Beds
Inter. 2,000
Path. 2,000
100-299 Beds
T.B. & other resp. diseases
Inter. 8,400
Long-term, not-for-profit
Inter. 8,400
Non-AHA-registered, other
Inter. 8,400
Nursing homes
100+ Employees
Tax-paying
Inter. 8,400
Inter. 2,000
Path. 2,000
Tax-exempt
Inter. 8,400
Inter. 2,000
Path. 2,000
Veterinary facilities
10-19 Employees
Inter. 2,000
Path. 2,000
20+ Employees
Inter. 2,000
Path. 2,000
Commercial research labs
Tax-paying
20-99 Employees
Inter. 2,000
Path. 2,000
4.0 £83,250
9.1 $189,981
9.7 $340,933
16.7 $589,126
12.1 $416,819
3.5 $139,944
4.9 $136,410
0.9 $349,750
2.0 $757,011
2.8 $168,018
274,010
36,685
74,992
274,010
36,685
74,992
36,685
74,992
36,685
74,992
29,440
64,156
36,685
74,992
sessssxssssxs
After-tax net income for hospitals(because before-tax net income
before-tax net income for all else.
N.A. Not applicable.
Abbreviations: Inter.=Intermittent, Path.=Pathological.
is not available in all cases).
-103-
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The table shows that the incremental annual cost of
offsite contract disposal increases as the control options
become more stringent. This is because the Emission
Guidelines (and the NSPS) will cause the cost of offsite
incineration to increase. The incremental annual cost of
onsite autoclaving, on the other hand, is independent of the
control level. The negative incremental annual costs of
offsite contract disposal over the Batch 250, which is
assigned to hospitals with fewer than 50 beds, indicate that
compared to a Batch 250 in the baseline, offsite contract
disposal is less expensive in the baseline and under all
four control options. Estimates of revenue and net income
introduced in Tables 5A and 5B are also included in Table
21.
Based on the inputs in Table 21, the price increase
necessary to fully recover incremental substitution costs is
calculated in Table 22, and the impact on net income if no
price increase is achieved (i.e., incremental substitution
costs are fully absorbed) is calculated in Table 23. Only
the cases in which control costs may be prohibitive (and
therefore substitution may be necessary) are examined. As
mentioned, these cases were identified in Sections 3.5.2
through 3.5.4. No cases in which control costs may be
prohibitive were identified under Control Options 1 and 2.
Therefore, only Control Options 3 and 4 are addressed in
Tables 22 and 23. In some cases in Tables 22 and 23, only
the impact of incremental substitution costs under Control
Option 4 is calculated because control costs under Control
Option 3 are not prohibitive.
For all subcategories of hospitals in Table 22, there
is at least one medical waste treatment alternative with
incremental costs that could be recovered with a price
increase of less than one percent. Such a price increase is
-104-
-------
TABLE 22. PER-FAC1LITY ANNUALIZED SUBSTITUTION COSTS AS A PERCENT OF REVENUE
(ONLY FOR CASES IN WHICH SUBSTITUTION IS NECESSARY)
--EXISTING HUIs--
=s========================================E========"="======""=*=S==
Control Option 3 Control Option 4
Industry/Model HUI
Onsite Offsite
auto- contract
claving disposal
Onsite Offsite
auto- contract
claving disposal
Hospitals
-------
TABLE 23. PER-FACILITY ANNUALIZED SUBSTITUTION COSTS AS A PERCENT OF NET INCOME
(ONLY FOR CASES IN WHICH SUBSTITUTION IS NECESSARY)
•-EXISTING MWIS"
Industry/Model MUI
Control Option 3
Control Option 4
Onsite Offsite
auto- contract
claving disposal
Onsite Offsite
auto- contract
claving disposal
Hospitals
<50 Beds
Batch 250
50-99 Beds
Inter. 2,000
Path. 2,000
100-299 Beds
T.B. £ other resp. diseases
Inter. 8,400
Long-term, not-for-profit
Inter. 8,400
Non-AHA-registered, other
Inter. 8,400
Nursing homes
100+ Employees
Tax-paying
Inter. 8,400
Inter. 2,000
Path. 2,000
Tax-exempt
Inter. 8,400
Inter. 2,000
Path. 2,000
Veterinary facilities
10-19 Employees
Inter. 2,000
Path. 2,000
20+ Employees
Inter. 2,000
Path. 2,000
Commercial research labs
Tax-paying
20-99 Employees
Inter. 2,000
Path. 2,000
30.58X -14.63X
20.82X
11.50%
N.A.
21.36%
11.SOX
N.A.
4.60X
N.A.
174.64X
21.04X
45.84X
179.17X
21.58X
47.03X
8.42X
18.34X
30.58X -12.58X
8.47X
N.A.
9.58X
N.A.
17.52X
38.18X
4.60X
N.A.
2.13X
N.A.
9.58X
N.A.
19.31X
39.47X
8.55X 80.37X
4.95X 46.51X
6.99X 65.74X
20.82X 195.SOX
11.SOX 26.21X
N.A. 53.59X
21.36X 200.87X
11.BOX 26.89X
N.A. 54.98X
10.49X
21.44X
4.85X
9.91X
21.83X
44.63X
After-tax net income for hospitalsCbecause before-tax net income is not available
in all cases), before-tax net income for all else.
N.A. Not applicable.
Abbreviations: Inter.^Intermittent, Path.=Pathological.
-106-
-------
considered achievable. It is therefore concluded that, in
general, hospitals can substitute. For the three
subcategories of hospitals with 100-299 beds included in the
table, the price increase necessary to recover incremental
offsite contract disposal costs exceeds one percent.
However, it is possible to switch instead to onsite
autoclaving, which would require at the most a price
increase of only 0.30 percent (t.b. hospitals). The
negative values associated with switching from the Batch 250
to offsite contract disposal reflect that the cost of
offsite contract disposal is lower.
In contrast to hospitals, a number of cases in which
the price increase necessary to recover incremental
substitution costs may not be achievable can be identified
in Table 22 for nursing homes, veterinary facilities, and
commercial research labs. Considering, again, only the low-
cost (and low-impact) alternative, these cases include:
Tax-paying and tax-exempt nursing homes with 100+
employees that switch from the Pathological 2,000
to offsite contract disposal under Control Options
3 and 4
Veterinary facilities with 10-19 employees that
switch from the Intermittent 2,000 to onsite
autoclaving under Control Options 3 and 4
Veterinary facilities with 10-19 employees that
switch from the Pathological 2,000 to offsite
contract disposal under Control Options 3 and 4
Veterinary facilities with 20+ employees that
switch from the Pathological 2,000 to offsite
contract disposal under Control Option 4
Tax-paying commercial research labs with 20-99
employees that switch from the Pathological 2,000
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to offsite contract disposal under Control Options
3 and 4
Table 23, in turn, shows that there could be some
significant impacts on net income if prices cannot be
increased to recover incremental substitution costs. Using
a 10 percent decline in net income (in the extreme event of
no price increase) as the criterion for a significant
impact, the following cases are identified:
- Tax-paying and tax-exempt nursing homes with 100+
employees that switch from the Pathological 2,000
to offsite contract disposal under Control Options
3 and 4
Veterinary facilities with 10-19 employees that
switch from the Pathological 2,000 to offsite
contract disposal under Control Options 3 and 4
- Tax-paying commercial research labs with 20-99
employees that switch from the Pathological 2,000
to offsite contract disposal under Control Options
3 and 4
Note that all significant impacts involve switching
from the Pathological 2,000 to offsite contract disposal
under Control Option 3 and Control Option 4. As a model
combustor, the Pathological 2,000 represents MWI operators
that generate a substantial proportion and/or quantity of
pathological waste ("pathological waste generators"). The
significant impacts in Table 23 therefore apply to nursing
homes with 100+ employees, veterinary facilities with 10-19
employees, and tax-paying commercial research labs with 20-
99 employees that are pathological waste generators. The
impacts are significant largely because there are few
treatment and disposal options for pathological waste (e.g.,
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autoclaving is not suitable). The question is, do these
significant impacts imply closure, or at least the
termination of operations that result in, or are dependent
on, the generation of medical waste?
The answer in most cases is probably, no. This is
based on the realization that 97.1 percent of all nursing
homes, 97.4 percent of all veterinary facilities, and, at a
minimum, 86.9 percent of all commercial research labs
currently survive without operating an MWI dnsite.
Pathological waste generators that are forced to switch from
onsite incineration to offsite contract disposal will simply
be joining the majority of facilities in these industries
that already utilize this method of medical waste treatment
and disposal. It seems paradoxical, then, that net income
could decline by as much as the amounts calculated in Table
23. How could a facility that is forced to substitute
experience a decline in net income of up to 55 percent (tax-
exempt nursing homes with 100+ employees switching from the
Pathological 2,000 to offsite contract disposal under
Control Option 4) and still be competitive with facilities
that do not operate an MWI and do not experience similar
impacts? The answer is that, on average, facilities that
operate an MWI have a per-ton cost advantage over facilities
that do not operate an MWI. This cost advantage, which was
evident in the baseline figures in Tables 19A, 19B, 19C, and
19D, reflects economies of scale that facilities generating
a sufficient amount of medical waste are able to achieve by
operating an MWI. Substituting for onsite incineration
simply means that the cost advantage will be lost.
Substitution may cause net income to decline significantly,
but the decline will be from a level that, in the baseline,
is above the industry norm. (The estimates of net income in
Tables 5A, 5B, and 5C are only averages. There is, of
course, variation around these estimates.) After
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substitution to offsite contract disposal, profitability
will be more in line with the profitabilities of facilities
that already utilize offsite contract disposal.
It roust also be considered that, as discussed, the
incremental costs of offsite contract disposal in Table 21
presume full-capacity utilization of an MWI in the baseline.
Many MWIs are not operated at full capacity. The impacts in
Tables 22 and 23 are overstated for facilities switching to
offsite contract disposal that do not operate an MWI at full
capacity in the baseline. This pertains especially to
veterinary facilities with 10-19 employees and tax-paying
commercial research labs with 20-99 employees. Recall in
Sections 2.4.7 and 2.4.8 that classifying these
subcategories as MWI operators were said to be conservative
measures. It is possible that relatively few facilities in
these subcategories operate an MWI. And those that do are
likely to be larger than the average facility represented by
the model parameters in Table SB. Based on the model
parameters, the average veterinary facility with 10-19
employees was estimated to generate only 3.8 tons per year
of medical waste, and the average tax-paying commercial
research lab with 20-99 employees only 13.7 tons per year.
These rates fall far short of full utilization of a
Pathological 2,000 with a capacity of 172 tons per year,
suggesting that the impacts in Tables 22 and 23 on
veterinary facilities with 10-19 employees and tax-paying
commercial research labs with 20-99 employees are
overstated.
There may, under Control Options 3 and 4, be a few
exceptions in which a nursing home with 100+ employees, a
veterinary facility with 10-19 employees, or a tax-paying
commercial research lab with 20-99 employees that is a
pathological waste generator would have to shut down,
however. This will depend on market segmentation, or,
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specifically, the number and types of medical waste
generators found in individual market segments. Recall that
most, if not all, of the regulated industries are highly
segmented, consisting of regional and local markets
(commercial research labs may be an exception). There is no
reason to believe that an MWI operator, if forced to switch
to offsite contract disposal, would have to shut down if
most of its competitors already utilize this method of
medical waste treatment and disposal. After substitution,
the MWI operator would be on a par with its competitors.
Consider, on the other hand, an MWI operator that competes
substantially with other MWI operators that are not forced
to substitute (because, for example, they are larger and
therefore able to operate a larger and more cost-efficient
MWI than the Pathological 2,000). The competitive position
of this MWI operator, if forced to substitute, could be
compromised. Instead of losing a cost advantage, the MWI
operator would be losing the means necessary to stay
competitive with the other, most likely larger, facilities
in its market segment. This situation could exist in some
market segments, though it should not be common given the
predominance of facilities that do not operate an MWI
onsite.
In addition, under Control Options 3 and 4, some MWI
operators generating a substantial proportion and/or
quantity of pathological waste might have to shut down if
they are located in a market segment in which the cost of
offsite contract disposal is significantly above average
($600/ton in the baseline). To the extent that the cost of
offsite contract disposal is above average, the impacts of
switching to offsite contract disposal in Tables 22 and 23
are understated (though not necessarily net of the
overstatement that results if the MWI is utilized at less
than full capacity in the baseline). This applies to
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pathological waste generators in all industry categories and
subcategories in which control costs are potentially
prohibitive, identified in Table 21, not just nursing homes
with 100+ employees, veterinary facilities with 10-19
employees, and tax-paying commercial research labs with 20-
99 employees. This may even apply to some facilities that
are not pathological waste generators — i.e., to which the
Pathological 2,000 has not been assigned. Such facilities
are said to be able to switch to onsite autoclaving, for
which none of the impacts in Tables 22 and 23 are
significant. However, it must be recalled that, on average,
10 percent of the medical waste stream cannot be autoclaved.
Therefore, even MWI operators that switch to onsite
autoclaving may have to utilize offsite contract disposal
for a small portion of their medical waste stream.
Medical waste generators that are remote from a
treatment facility are likeliest to pay more than average
for offsite contract disposal. Often such medical waste
generators are located in sparsely populated areas. A
mitigating factor is that medical waste generators located
in sparsely populated areas are likely to face little
competition. Such facilities probably have above-average
pricing power and may be able to exceed the market price
increase. This would reduce the portion of incremental
substitution costs that could not be recovered with a price
increase and therefore would have to be absorbed.
Medical waste generators in populous areas may be
remote from a treatment facility with available capacity if
local or regional offsite treatment capacity is tight. A
mitigating factor in this case is that a shortage of medical
waste treatment capacity is probably more likely to elicit
the construction of new capacity for a populous area than
for a relatively unpopulated area because the market in the
populous area is larger.
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3.6 PER-FACILITY IMPACTS FOR OFFSITE GENERATORS
The Emission Guidelines will not only impact facilities
that operate an MWI, but also facilities that generate
medical waste and send it offsite to be incinerated. Such
facilities are likely to pay higher fees for commercial
incineration as a result of the Emission Guidelines (and the
NSPS).
In Section 3.5, per-facility impacts were calculated
for MWI operators. In all of the industries in which MWIs
are operated, with the exception of commercial incineration
facilities, MWI operators and offsite generators coexist.
In fact, offsite generators comprise the majority of
facilities in all of these industries. Average impacts on
offsite generators in industry categories and subcategories
defined to consist of both MWI operators and offsite
generators (specified in Tables 5A and 5B) cannot be
measured because comparative scale parameters (e.g., medical
waste generated) for MWI operators and offsite generators
are not known. For example, it is likely that the average
hospital that is an offsite generator is smaller than the
average hospital that operates an MWI. How much smaller is
not known.
However, some conclusions can be made about the impacts
of the Emission Guidelines on this type of offsite generator
— that is, offsite generators that coexist in industry
categories or subcategories with MWI operators: (1) There
will be no direct impact on offsite generators with no
dependence on offsite incineration (though there may be
indirect impacts if the demand for, and therefore the price
of, alternative medical waste treatment methods increases).
(2) The cost impact will vary with the degree of dependence
on offsite incineration. (3) On average, offsite generators
with 100 percent dependence on offsite incineration will be
impacted less by the Emission Guidelines than MWI operators
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in the same industry. This is because MWIs used for
commercial incineration are larger than average and
therefore have comparatively low control costs per ton. In
Section 3.5.5 it was revealed that the average joint impact
of the Emission Guidelines and NSPS on the cost of
commercial incineration is $9/ton under Control Option 1,
$25/ton under Control Option 2, $86/ton under Control Option
3, and $149/ton under Control Option 4. Of all the model
combustors, only the Continuous 36,000, which is attributed
exclusively to commercial incineration facilities, is
impacted less by the Emission Guidelines: $4/ton under
Control Option 1, $20/ton under Control Option 2, $6I/ton
under Control Option 3, and $89/ton under Control Option 4.
(4) In some situations, an offsite generator could
experience cost impacts similar to an MWI operator of the
same size (e.g., generating the same amount of medical
waste) in the same industry. The offsite generator would
have to be as dependent on offsite incineration as the MWI
operator is dependent on onsite incineration (normally
100%), and would have to rely on incineration by a
commercial MWI that is comparable in size and efficiency to
the MWI used by the onsite operator. That the impacts would
be comparable follows from the premise that commercial
incineration costs are fully passed along to customers. In
Section 3.5.5, it was seen that under Control Options 3 and
4, some nursing homes with 100+ employees, veterinary
facilities with 10-19 employees, and tax-paying commercial
research labs with 20-99 employees that operate an MWI and
generate a substantial proportion and/or quantity of
pathological waste may have to shut down. It follows that
some offsite generators generating a substantial proportion
and/or quantity of pathological waste in these subcategories
may also have to shut down. However, closure should be even
more of an exception for offsite generators than for MWI
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operators. For offsite generators, not only will closure
require, as for MWI operators, the particular conditions in
individual market segments discussed in Section 3.5.5, but
the population of facilities that are potentially affected
will be limited to those that are substantially dependent on
offsite incineration by an MWI that is smaller and less
efficient than the average commercial MWI.
It is possible, on the other hand, to estimate average
impacts for offsite generators in industry categories and
subcategories defined to consist exclusively of offsite
generators. These industry categories and subcategories
were specified in Table 5C. In Table 24, incremental annual
costs due to the Emission Guidelines are estimated for
facilities in these industry categories and subcategories
that send 100 percent of their medical waste offsite to be
incinerated. The costs are estimated by apportioning total
industry medical waste generated to subcategories according
to their share of total industry employment. This uses
employment as a scale factor, and assumes a constant ratio
of medical waste generated to employment. In reality, the
relationship of medical waste generated to employment may
vary somewhat, especially in the two groupings that are of
heterogenous composition: 1) outpatient care, which
consists of physicians' clinics and kidney dialysis
facilities; and 2) "other" laboratories, comprising medical
and dental labs.
In Table 24, after disaggregating total medical waste
generated by employment, average waste per facility is
calculated. Then, based on the estimated average joint
impact of the Emission Guidelines and NSPS on the cost of
offsite incineration, estimated in Section 3.5.5 — $9/ton
under Control Option 1, $25/ton under Control Option 2,
$86/ton under Control Option 3, and $149/ton under Control
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TABLE 24. ESTIMATED INCREMENTAL ANNUAL COSTS FOR FACILITIES THAT SEND
ALL OF THEIR MEDICAL WASTE OFFS1TE TO BE INCINERATED
--EXISTING MWIs--
Medical
waste
generated
annually
(tons)
Nursing homes 198,000
0-19 Employees
Tax-paying
Tax-exempt
20-99 Employees
Tax-paying
Tax-exempt
Physicians' offices 235,000
Dentists' offices & clinics 58,000
Offices
Clinics
Tax-paying
Tax-exempt
Outpatient care (clinics) 175,000
Physicians' clinics (amb. care)
Tax-paying
Tax-exempt
Freestanding kidney dial. fac.
Tax-paying
Tax-exempt
Share
of
industry
employment
1.09%
0.61%
32.42%
7.32%
100.00%
99.88%
0.94%
0.18%
49.77%
41.92%
6.48%
1.84%
Estimated
share of
industry
medical
waste(tons)
2,158
1,208
64,192
14,494
235,000
57,350
545
104
87,098
73,360
11,340
3,220
Medical
waste per
No. of facility
facilities (tons)
2,099
1,017
7,673
1,677
191,278
103,665
486
62
4,224
2,295
711
128
1.03
1.19
8.37
8.64
1.23
0.55
1.12
1.68
20.62
31.97
15.95
25.16
Incremental annual cost
per facility"
C.0.1
$9
$11
$75
$78
$11
$5
$10
$15
$186
$288
$144
$226
C.0.2
$26
$30
$209
$216
$31
$14
$28
$42
$515
$799
$399
$629
C.0.3
$88
$102
$719
$743
$106
$48
$96
$145
$1,773
$2,749
$1,372
$2,163
C.0.4
$153
$177
$1,247
$1,288
$183
$82
$167
$251
$3,072
$4,763
$2,376
$3,748
Freestanding blood banks 33,000 100.00% 33,000
Veterinary facilities 31,000
0-9 employees 51.13% 15,850
Laboratories
Commercial research 55,500
Tax-paying
0-19 Employees 9.29% 5,156
Other 117,500
Medical 69.21% 81,322
Dental 30.79% 36,178
Funeral homes 6,000 100.00% 6,000
Fire t rescue 11,000 100.00% 11,000
Corrections 22,000
Federal govt.
State govt.
Local govt.
218 151.38 $1,362 $3,784 $13,018 $22,555
3.06% 673
62.17% 13,677
34.76% 7,647
18,317
2,777
6,871
7,970
22,000
29,840
47
903
3,338
0.87
1.86
11.84
4.54
0.27
0.37
14.32
15.15
2.29
$8
$17
$107
$41
$2
$3
$22
$46
$74
$160
$129
$277
$296 $1,018 $1,763
$113 $390 $676
$7
$9
$23
S32
$41
$55
$129 $358 $1,232 $2,134
$136 $379 $1,303 $2,257
$21 $57 $197 $341
=============================================
* Based on $9/ton under Control Option
and $149/ton under Control Option 4.
1, $25/ton under Control Option 2, $86/ton under Control Option 3,
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Option 4 ~ the incremental annual cost per facility is
calculated. This cost is the average increase in the cost
of commercial incineration to an offsite generator that
sends 100 percent of its medical waste offsite to be
incinerated. Offsite generators that are less dependent on
offsite incineration will be impacted less by the
regulation.
The facility price increase is calculated in Table 25.
For nursing homes with 0-19 and 20-99 employees, veterinary
facilities with 0-9 employees, and tax-paying commercial
research laboratories with 0-19 employees, the facility
price increase is less than the market price increase (see
Table 9) because of the influence on the market price
increase of MWI operators in other subcategories of the
industry (MWI operators have relatively high control costs
and therefore drive up the market price increase). These
facility price increases are achievable because the market
price increases were deemed achievable (see Section 3.4.4).
All other offsite generators in Table 25 are in
industries in which there are no MWI operators. In these
cases, the facility price increase exceeds the market price
increase because offsite generators with less than 100
percent dependence on offsite incineration are included in
the revenue basis for the market price increase. All of
these facility price increases are considered achievable,
however. All are less than 0.4 percent (the highest is
0.397% for blood banks under Control Option 4) and none
deviate significantly from the market price increase.
The impact on earnings of full absorption of control
costs is measured in Table 26. Since all facility price
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TABLE 25. PER-FACILITY ANNUALIZED CONTROL COSTS AS A PERCENT OF REVENUE/BUDGET:
OFFSITE GENERATORS
—EXISTING HUIs--
Industry
Nursing homes
0-19 Employees
Tax-paying
Tax-exempt
20-99 Employees
Tax-paying
Tax-exempt
C.0.1
0.005X
0.004X
0.006X
0.006X
C.0.2
0.014X
0.012X
0.017X
0.017X
C.0.3
0.047X
0.043X
0.057X
0.057X
C.0.4
0.081X
0.074X
0.099X
0.099X
Physicians' offices
Dentists' offices & clinics
Offices
Clinics
Tax-paying
Tax-exempt
Outpatient care (clinics)
Physicians' clinics(amfa. care)
Tax-paying
Tax-exempt
Freestanding kidney dial. fac.
Tax-paying
Tax-exempt
Freestanding blood banks
Veterinary facilities
0-9 Employees
Laboratories
Commercial research
Tax-paying
0-19 Employees
Other
Medical
Dental
Funeral homes
Fire & rescue
Corrections
Federal govt.
State govt.
Local govt.
0.002X 0.00'6X 0.021X 0.037X
0.002X 0.005X 0.018X 0.032X
0.002X 0.005X 0.018X 0.031X
0.001X 0.003X 0.009X 0.016X
0.010X 0.029X 0.099X 0.172X
0.011X 0.029X 0.100X 0.174X
0.011X 0.030X 0.104X 0.180X
0.013X 0.035X 0.121X 0.210X
0.024X 0.067X 0.229X 0.397X
0.004X 0.010X 0.035X 0.060*
0.005X 0.013X 0.045X 0.077X
0.012X 0.034X 0.118X 0.205X
0.019X 0.053X 0.181X 0.313X
0.001X 0.002X 0.005X 0.009X
0.001X 0.002X 0.008X 0.013X
O.OOOX 0.001X 0.005X 0.008X
0.001X 0.002X 0.008X 0.013X
0.001X 0.002X 0.009X 0.01SX
sssssssssssssssess
=::====s===r:
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TABLE 26. PER-FACILITY ANNUALIZED CONTROL COSTS AS A PERCENT OF BEFORE-TAX
NET INCOME : OFFSITE GENERATORS
—EXISTING MWIs--
_========================================================================="====
Industry c-°-1 c'°'2
C.0.3
C.0.4
Nursing homes
0-19 Employees
Tax-paying
Tax-exempt
20-99 Employees
Tax-paying
Tax-exempt
Physicians' offices
Dentists' offices & clinics
Offices
Clinics
Tax -pay ing
Tax-exempt
Outpatient care (clinics)
Physicians' clinicsCamb. care)
Tax- pay ing
Tax-exempt
Freestanding kidney dial. fac.
Tax -pay ing
Tax-exempt
Freestanding blood banks
Veterinary facilities
0-9 Employees
Laboratories
Commercial research
Tax-paying
0-19 Employees
Other
Medical
Dental
Funeral homes
Fire & rescue
Corrections
Federal govt.
State govt.
Local aovt.
0.122X
0.161X
0.149X
0.213X
0.005X
0.006X
0.006X
N/A
0.259%
0.3T5X
0.102X
0.169%
N/A
0.009%
0.078X
0.140%
0.210%
0.005%
N/A
N/A
N/A
N/A
0.339X
0.446%
0.415%
0.592X
0.014%
0.016X
0.016X
N/A
0.720X
1.043%
0.282%
0.470%
N/A
0.026%
0.216%
0.388%
0.584%
0.013%
N/A
N/A
N/A
N/A
1.165X
1.534X
1.428%
2.038X
0.047%
0.053%
0.056X
N/A
2.477X
3.588%
0.972X
1.616X
N/A
0.091X
0.744X
1 .334X
2.008%
0.046X
N/A
N/A
N/A
N/A
2.019X
2.6S8X
2.473X
3.S30X
0.081X
0.092X
0.097X
N/A
4.291%
6.216X
1.683X
2.799X
N/A
0.157%
1 .289X
2.312X
3.479X
0.079X
N/A
N/A
N/A
N/A
==================================E
N/A Not available.
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increases in Table 25 can be achieved, however, these
impacts will not come into effect.
Offsite generators will have no capital control costs.
Hence no impacts indicating the availability of capital are
calculated.
3.7 IMPACTS ON TAXPAYERS
There are three primary ways in which the Emission
Guidelines will impact taxpayers. First, taxpayers will
indirectly subsidize tax-exempt debt issued by public and
some not-for-profit institutions. This is because tax-
exempt debt results in a tax-revenue shortfall for the
government that must ultimately be made up for by other
taxes. Measuring this impact is beyond the scope of this
analysis. Secondly, taxpayers will underwrite the costs to
government programs that finance health care. This impact
can be grasped from the facility price increases calculated
in Tables ISA, 15B, and 25. In the long run, it can be
expected that, on average, about 35 percent of the price
increases achieved by health care providers will be passed
on to taxpayers (in the form of higher taxes). This is
because government programs pay for about 35 percent of
health care in the U.S. (in 1987, Medicare 16.2%, Medicaid
9.9%, other government programs 8.9%).62 Thirdly, taxpayers
will have to pay for the costs to public institutions.
Medical waste generators that are exclusively government-
owned include correctional facilities and fire departments.
Many hospitals are also public. In addition, it is possible
that some tax-exempt nursing homes, laboratories, outpatient
clinics, and dentists' clinics are government-owned.
Assuming control costs are passed along to taxpayers,
Table 27 estimates per-capita impacts of the Emission
Guidelines for three of the above categories of public
establishments: public hospitals, fire and rescue
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-121-
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operations, and correctional facilities. Necessary
government data were not available to measure impacts for
the other categories* However, public hospitals are certain
to account for most of the costs of the regulation to public
establishments.
In the U.S., six types of government units operate
public hospitals: Federal, state, county, municipal,
township, and special district. Fire departments are
operated by county, municipal, township, and special
district governments. Correctional facilities are operated
by Federal, state, county, and municipal governments. These
government units are all specified as subcategories in Table
27.
Annual control costs for hospitals in Table 27 are
taken from Table 14. State hospitals have on average 387
beds (calculated from Table 5A). In Table 14, hospitals
with 300-s- beds are assigned both the Intermittent 21,000 and
the Continuous 24,000. Only the Intermittent 21,000 is
applied in Table 27. This is sufficient for the purpose of
estimating conservative impacts because its control costs
are higher. Federal and local government hospitals have on
average 296 and 113 beds, respectively, so they are assigned
the annual control costs in Table 14 applying to hospitals
with 100-299 beds (represented by the Intermittent 8,400).
Fire and rescue operations and correctional facilities
are offsite generators. The incremental annual costs of
offsite incineration estimated in Table 24 are used in Table
27. These costs reflect the impacts of both the Emission
Guidelines and the NSPS on offsite incineration. In
addition, the costs assume that the facility sends all of
its medical waste offsite to be incinerated. Per-capita
impacts will be lower for facilities that send less than 100
percent of their medical waste offsite to be incinerated.
-122-
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Dividing per-facility costs (1989 dollars) by the
average population in 1986 of the relevant government unit
in Table 27 yields the per-capita cost of the annual cost
per facility. The number of government units is from the
1986/87 Census of Governments. The total population is used
as a substitute for the total number of taxpayers per
government unit, which is not known. Since not all
residents are taxpayers, per-capita impacts underestimate
impacts per taxpayer.
The per-capita impacts in Table 27 for Federal and
state hospitals are insignificant. However, for local
hospitals, the impacts range up to $6.30 under Control
Option 1, $9.35 under Control Option 2, $29.88 under Control
Option 3, and $55.88 under Control Option 4. In each case,
the highest cost is accounted for by township hospitals.
This is because townships are the government unit with the
lowest average population (3,119). The interpretation of,
for example, the $6.30 per-capita cost for township
hospitals under Control Option 1 is as follows: if a
hospital — or any other type of facility, for that
matter — operating an Intermittent 8,400 is under the
jurisdiction of a township of average size (population
3,119), the average annual per-capita cost is $6.30.
Some of the impacts for local hospitals under Control
Options 3 and 4, particularly those for township hospitals,
can perhaps be considered significant. However, under these
control options, the impacts of switching from an
Intermittent 8,400 to onsite autoclaving — which should
occur if control costs are prohibitive — are substantially
lower (see Tables 19C and 19D). In addition, it is not
clear whether a hospital operating an Intermittent 8,400 —
which is likely to be a hospital of above-average size — is
likely to be under the jurisdiction of a township as small
as the average-sized township (population 3,119).
-123-
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The per-capita costs for fire and rescue operations and
correctional facilities are negligible. At the most they
are only 4 cents.
3.8 IMPACTS ON SMALL ENTITIES
In accordance x*ith the Regulatory Flexibility Act of
1980, it is necessary to determine if the Emission
Guidelines will have a "significant economic impact on a
substantial number of small entities." Small entities
affected by the regulation include small businesses, small
not-for-profit organizationst and small government
jurisdictions.
The Small Business Administration (SBA) standard for a
small business is 500 employees or fewer for SIC 8731,
Commercial Physical and Biological Research (research labs),
and annual sales of $3.5 million or less for all other
industries impacted by the Emission Guidelines. The EPA
"Guidelines for Implementing the Regulatory Flexibility Act"
(Febriaary 9, 1982) suggest that not-for-profit organizations
are small if they are not dominant in their field, and
government jurisdictions are small if they have a population
of 50,000 or less.
According to the EPA "Guidelines," the criterion for a
"substantial number" is 20 percent or more of all small
entities impacted by a regulation.
impacts on government units, some of which have an
average population less than 50,000 and are therefore
"small," were measured in Table 27. The only potentially
significant impacts are represented by local hospitals,
especially township hospitals, operating an Intermittent
8,400, In an average-sized township with 3,119 residents,
the per-capita impacts are $6.30 under Control Option 1,
$9.35 undsr Control Option 2, $29.88 under Control Option 3,
and $55088 under Control Option 4» These impacts apply not
only to hospitals, but to any facility operating an
-124-
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Intermittent 8,400 in an average-sized township. The
impacts under Control Options 3 and 4 can perhaps be
regarded as significant, especially considering that
taxpayers in government units that are larger on average
(e.g., municipalities) are not similarly burdened. The
per-capita impact would be compounded if other public
facilities operating an MWI are located in the same
township.
However, under Control Options 3 and 4, the impacts of
switching from an Intermittent 8,400 to onsite autoclaving
--. which should occur if control costs are prohibitive —
are substantially lower (see Tables 19C and 19D).
Additionally, it is not clear whether a facility operating
an intermittent 8,400 is likely to be under the jurisdiction
of a township as small as the average-sized township
(population 3,119). In any event, if there are significant
impacts, they should not apply to a "substantial number" of
small government units. This would probably be true even if
the only small government units impacted by the Emission
Guidelines were those in which an MWI is operated. However,
small government units in which there are offsite generators
— which will pay more for offsite incineration as a result
of the Emission Guidelines (and the NSPS) — will also be
impacted. Therefore, the number of government units that
are significantly impacted should represent only a small
percentage — far less than 20 percent — of all small
government units impacted by the Emission Guidelines.
Many small businesses and small not-for-profit
organizations are represented in Tables 5A, 5B, and 5C. The
tables confirm that, with the exception of hospitals, all
industries impacted by the Emission Guidelines consist
predominantly of small entities, according to the criteria
above. It should be noted, though, that the data in these
tables represent establishments, not firms or organizations.
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For purposes of defining small businesses, for example, the
firm, or the ultimate company affiliation, is of the
essence. Therefore, Tables 5A, 5B, and 5C overstate the
incidence of small entities in the regulated industries.
The EPA "Guidelines" define a significant impact on a
small entity as any one of the following:
(1) Annual compliance costs increase total costs
of production by more than 5 percent.
(2) Compliance costs (annualized, presumably) as
a percent of sales are at least 10 percent
higher than for large entities.
(3) Capital costs of compliance represent a
significant portion of capital available.
(4) The requirements of the regulation are likely
to result in closures.
Let's examine each of these four criteria.
Criterion l; Since revenue differs from costs only by
accounting profits, a facility price increase greater than
five percent approximately indicates that annual control
costs would cause total production costs to increase by more
than five percent. No such cases can be identified for
hospitals in Table 15A, Table 15B indicates, on the other
hand, that, production costs would likely increase by more
than five percent at MWI-operating veterinary facilities
with 10-19 employees under Control Options 3 and 4,
veterinary facilities with 20+ employees under Control
Option 4, and commercial incineration facilities under
Control Options 2, 3, and 4* In general, veterinary
facilities with 10-19 employees, veterinary facilities with
20-f employees, and commercial incineration facilities are
"small" because they average less than $3.5 million in sales
(See Table 5B)„
-------
However, a 5%+ increase in production costs at
commercial incineration facilities is not taken to be
significant. This is because the demand for commercial
incineration will increase as a result of the Emission
Guidelines (and the NSPS), and, as discussed in Section
3.4.3, it is presumed that the increase in demand will be
sufficient to permit full recovery of control costs.
All veterinary facilities that would experience a 5%+
increase in production costs from controls are expected to
avoid control costs by substituting. In Table 22, the price
increase necessary to fully recover incremental substitution
costs is less than 5 percent for veterinary facilities with
10-19 employees switching from the Intermittent 2,000 and
for veterinary facilities with 20+ employees switching from
both the Intermittent 2,000 and the Pathological 2,000.
This implies that production costs would not increase by 5
percent. On the other hand, under both Control Option 3 and
Control Option 4, the price increase necessary to fully
recover incremental substitution costs is greater than 5
percent for veterinary facilities with 10-19 employees
switching from the Pathological 2,000. This is a
significant impact. However, as explained in Section 3.5.5,
it is believed that this impact is overstated because
veterinary facilities with 10-19 employees that operate an
MWI are likely to be larger than the average facility in
this subcategory represented by the model parameters in
Table 5B. Anyway, a "substantial number" of facilities will
not be impacted. There are a total of 21,496 veterinary
facilities in the U.S. Considering that average sales per
facility in even the largest subcategory, 20+ employees, are
only $2.0 million, it is clear that the vast majority of
veterinary facilities in the U.S. are "small." Meanwhile,
493 Pathological 2,000s were attributed to veterinary
facilities in Table 2 (these MWIs were later assigned both
-127-
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to veterinary facilities with 10-19 employees and to
veterinary facilities with 20+ employees). Considering that
both veterinary facilities that operate an MWI and
veterinary facilities that send their medical waste offsite
to be incinerated will be impacted by the Emission
Guidelines, it is clear that the total number of veterinary
facilities for which production costs increase by 5%+ as a
result of the Emission Guidelines will not be close to 20
percent of the total number of "small" veterinary facilities
impacted by the regulation.
Criterion 2; There are two countervailing differential
impacts of the Emission Guidelines. On the one hand, due to
economies of scale, the relative impact of the regulation is
less for large facilities that operate an MWI than for small
facilities that operate an MWI, For example, under Control
Option 1, the average ratio of annualized control costs to
revenue is 0.34 percent for hospitals with fewer than 50
beds, and, in the high-cost case of the Intermittent 21,000,
0.04 percent for hospitals with 300 or more beds (see Table
ISA). The ratios differ by 850 percent, easily exceeding
the 10 percent criterion. On the other hand, offsite
generators —• especially to the extent that they do not
utilize offsite incineration -- are on average impacted less
by the Emission Guidelines than MWI operators. And MWIs
tend to be located at large facilities as opposed to small
facilities. This results in differential impacts favoring
small offsite generators. The net differential impacts will
depend on the comparative strengths of the two
countervailing trends. Since the majority of facilities in
all industries in which medical waste is generated are
offsite generators, the net differential impacts will most
likely favor small facilities. The exception is commercial
incineration facilities, none of which, by definition, are
offsite generators. Although the relative impact of control
-------
costs is likely to be greater for small commercial
incineration facilities than for large ones, facilities of
all sizes are expected to be able to pass along control
costs to their customers.
criterion 3; For MWI operators, there are a number of
cases in which capital costs might be difficult to finance
under Control Options 3 and 4. These impacts can be
avoided, however, by substituting, for which financing
should generally be available. Offsite generators do not
have any capital control costs.
criterion 4; For the cases in which control costs are
prohibitive, the opportunity to substitute will, for the
most part, allow closure to be prevented. Depending on
particular conditions in individual market segments, there
may, under Control Options 3 and 4, be a few exceptions in
which a facility would have to shut down. Closure would
require that the facility generates a substantial proportion
and/or quantity of pathological waste, for which
substitution options are limited because it cannot be
autoclaved. In addition, the facility would either have to
face substantial competition from other MWI operators that
are not forced to substitute, or have to pay significantly
more than average for offsite contract disposal (because,
for example, it is remote from a treatment facility). In no
industry, however, should the closure exceptions come close
to representing a "substantial" portion — i.e., 20 percent
— of all small entities impacted by the Emission
Guidelines.
In summary, some "small" medical waste generators, as
well as "small" commercial incineration facilities and
government jurisdictions, may be "significantly" impacted by
the Emission Guidelines under Control Options 3 and 4.
However, because the Emission Guidelines (and the NSPS) will
cause the demand for offsite incineration to increase, it is
-129-
-------
expected that commercial incineration facilities will be
able to recoup control costs by passing them along to
customers a Furthermore, the number of small medical waste
generators and government jurisdictions that will be
significantly impacted should not be "substantial." This is
in part due to the opportunity that the great majority of
facilities will have to avoid the impacts of control costs
by substituting. Hence, it is concluded that the Emission
Guidelines will not have a "significant economic impact on a
substantial number of small entities."
4.0 REFERENCES
1. U.S. Environmental Protection Agency. "Medical Waste
Incinerators - Background Information for Proposed
Standards and Guidelines? Model Plant Description and
Cost Report for New and Existing Facilities." EPA-
453/R-94-045a. July 1994.
2. U.S. Environmental Protection Agency. "Medical Waste
Incinerators - Background Information for Proposed
Standards and Guidelines: Analysis of Economic Impacts
for New -Sources." EPA-453/R»94-047a. July 1994.
3. U.S. Environmental Protection Agency. "Medical Waste
Incinerators - Background Information for Proposed
Standards and Guidelines: Industry Profile Report for
New and Existing Facilities." EPA-453/R-94-042a. July
1994.
4. Commerce Clearing House, Inc. Federal Tax Guide 1992.
Chicago, IL, 1991, p. 1633..
5. U.S. Department of Commerce, Bureau of the Census.
1987 Census of Service Industries. Subject Series, pp.
1-96, 1-106.
6. American Hospital Association. Hospital Statistics.
1990-91 Edition, Chicago, IL, 1990.
7. Health Care Investment Analysts, Inc. The Sourcebook.
1990 Edition. Baltimore, MD, 1990. Excerpts provided
courtesy Peter J» Milligan, Sales Representative.
8. Dun and Bradstreet, Inc. Industry Norms and Key
Business Ratios. 1990/91. New York, NY, 1991.
-130-
-------
9. Reference 5, pp. 1-95, 1-106.
10. U.S. Department of Commerce, Bureau of the Census.
Survey of Current Business. July 1990, p. 91.
11. Reference 5, Appendix A, p. A-14.
12. U.S. Department of Commerce, Bureau of the Census.
Statistical Abstract of the "United States. 1989.
Washington, DC, January 1989, p. 98.
13. "Earnings Make a Huge Breakthrough." Medical
Economics, September 3, 1990, p. 90.
14. Jack Faucett Associates. "Regulatory Impact and
Flexibility Analysis of Proposed Standard for
Occupational Exposures to Blood Borne Diseases --
Volume I, Industry Profiles and Technological
Feasibility Final Report." Prepared for the U.S.
Department of Labor, Occupational Safety and Health
Administration. Bethesda, MD, December 22, 1988,
p. 1-28.
15 U.S. Department of Health and Human Services, National
Center for Health Statistics. Health United States,
1988. Hyattsville, MD, 1989, p. 134.
16. U.S. Environmental Protection Agency. "Medical Waste
Incinerators - Market Profile Report." August 10,
1992.
17. Fourteenth Annual "Multi-Unit Providers Survey."
Modern Healthcare. May 21, 1990, p. 98.
18. Reference 14, p. 1-74.
19. Reference 17, p. 90.
20. Telephone conversation, April 30, 1991, between T.
Scherer, JACA Corp., Fort Washington, PA, and a
representative of the American Association of Blood
Banks, Arlington, VA.
21. Reference 14, p. 1-96.
22. Reference 20.
23. Veterinary Medicine Publishing Co. "Selective List of
Veterinary Market by State." Lenexa, KS, 1989.
-131-
-------
24. U.S. Department of Commerce, Bureau of the Census.
1988 County Business Patterns. Washington, DC, 1990.
25. Reference 24.
26. Reference 23.
27. Reference 24.
28. Reference 23.
29. "1990 Financial Survey." Veterinary Economics.
September 1990, p. 49.
30. Reference 29.
31. Reference 5, p. 1-102.
32. Reference 5, Geographic Area Series, p. US-14.
33. Reference 5, p. 1-102; Reference 32.
34. Goepel Shields & Partners Inc. "Special Situation
Research -- The Loewen Group." Vancouver, British
Columbia, Canada, May 1990.
35. PaineWebber Inc. "Rating Change -- Loewen Group." New
York, NY, November 29, 1989.
36, Reference 14, p. 1-51.
37. U.S. Department of Commerce, Bureau of the Census.
1987 Census of Governments.
38. Reference 10, pp. 64, 66.
39, Reference 14, p. 1-92.
40. Reference 10, pp. 64, 66.
41. Wedig, Gerard J. "Health Status and the Demand for
Health." Journal of Health Economics. June 1988, p.
158.
42. U.S. Department of Health and Human Services, Health
Care Financing Administration. "Health Care Financing
Trends", Health Care Financing Review. Winter 1988.
43, Standard & Poor's Investment Services Corporation.
Industry Surveys. New York, NY, August 2, 1990, p.
HIS.
•132-
-------
44. "Panel Says Dialysis Cutbacks May be Increasing Death
Toll." The New York Times. April 18, 199-1, p. BIO.
45. "Red Cross Orders Sweeping Changes at Blood Centers."
The New York Times. May 30, 1991, p. Al.
46. Health Care Investment Analysts, Inc. The Sourcebook,
1989 Edition. Baltimore, MD, 1989, p. 24.
47. Reference 46.
48. American Hospital Association. Hospital Statistics.
1989-1990 Edition. Chicago, IL, 1989.
49. Reference 42.
50. Reference 46, p. 22.
51. U.S. Congress, Office of Technology Assessment.
"Finding the Rx for Managing Medical Wastes." U.S.
Government Printing Office, Washington, DC, September
1990, p. 31.
52. Reference 51.
53. Reference 51, p. 30.
54. Reference 51, p. 46.
55. Reference 51, p. 56.
56. Reference 51, pp. 55-57.
57. Reference 51, p. 47.
58. "Costs for Alternative Methods of Medical Waste
Treatment." Memorandum submitted by S. Shoraka,
Midwest Research Institute, to K. Durkee, U.S.
Environmental Protection Agency, ESD/ISB. November 14,
1991. Page 7.
59. Reference 51, p. 31.
60. Reference 58, p. 9.
61. Reference 51, pp. 29, 30.
62. Reference 42.
-133-
-------
-------
ADDENDUM TO THE ANALYSIS OF
ECONOMIC IMPACTS FOR EXISTING SOURCES
1.0 INTRODUCTION
Four control options were assessed in the Analysis of
Economic Impacts for Existing Sources. The most stringent,
"Control Option 4," consisted of a dry injection/fabric
filter system with carbon injection and two-second
combustion. In this addendum to the Analysis of Economic
Impacts for Existing Sources, a fifth, more-stringent
control option — "Control Option 5" — is evaluated. Control
Option 5 has the same requirements as Control Option 4, but
also requires continuous emissions monitoring (CEM).
This addendum is organized to facilitate comparison
with the Analysis of Economic Impacts for Existing Sources,
and particularly to facilitate analysis of the incremental
impacts of Control Option 5 over Control Option 4. Many of
the tables in the Analysis of Economic Impacts for Existing
Sources are employed. They differ in this addendum only in
that they present Control Options 4 and 5, rather than
Control Options 1 through 4. Otherwise they are the same
(same table numbers, titles, headings, etc.). The tables in
this addendum do not run in consecutive numbers because, for
purposes of evaluating Control Option 5, it is not necessary
to reproduce all of the tables in the Analysis of Economic
Impacts for Existing Sources. One table in this addendum is
new: Table 19E.
2.0 SUMMARY OF ECONOMIC IMPACTS UNDER CONTROL OPTION 5
Nationwide total annualized control costs slightly more
than double from $716.8 million under Control Option 4 to
$1,451.6 million under Control Option 5. The primary impact
of Control Option 5 will be to prompt substitution. Already
under Control Option 4, it is estimated that there is a
cheaper alternative (either onsite autoclaving or offsite
contract disposal) to 100 percent of onsite MWI capacity.
Add-1
-------
While substitution may already be the accepted practice
under Control Option 4, it is even more likely to take place
under Control Option 5.
While substitution will be prompted because it is cost-
saving. it will also be necessary for many MWI operators
because control costs are prohibitive. This applies under
Control Option 5 to the same cases identified under Control
Option 4 — hospitals with fewer than 50 beds, hospitals with
50-99 beds, certain categories of hospitals with 100+ beds,
nursing homes with 100+ employees, veterinary facilities
with 10-19 employees, veterinary facilities with 20+
employees, and tax-paying commercial research labs with 20-
99 employees — as well as to a new case: tax-exempt
commercial research labs. These cases represent all but the
largest medical waste generators.
For the most part, substitution will avoid these
significant impacts. Still., the incremental cost of
substitution is significant for facilities switching from a
pathological MWI (represented by the Pathological 2,000) to
offsite contract disposal in several cases: nursing homes
with 100+ employees (Control Options 3, 4, and 5),
veterinary facilities with 10-19 employees (Control Options
3, 4, and 5), tax-paying commercial research labs with 20-99
employees (Control Options 3, 4, and 5), and veterinary
facilities with 20+ employees (Control Option 5). Though
significant, these impacts are not taken to, in general,
imply closure. Already in these industries, the great
majority of facilities have demonstrated that they can
survive without onsite incineration (97.1% of all nursing
homes, 97.4% of all veterinary facilities, a minimum of
86,9% of all commercial research labs).
However, a few of these facilities, as exceptions, may
find substitution costs prohibitive and therefore would have
to close. Closure would require,, that the facility generates
a substantial proportion and/or quantity of pathological
Add-2
-------
waste, for which substitution options are limited because it
cannot be autoclaved. In addition, the facility would
either have to face substantial competition in its market
segment from other MWI operators that are not forced to
substitute (because, for example, they operate larger, more
cost-effective MWIs), or have to pay significantly more than
average for offsite contract disposal (because, for example,
it is remote from a treatment facility). The number of
exceptions is sure to be higher under Control Option 5 than
under the less-stringent Control Option 4.
Substitution will also avoid some industry-wide impacts
found to be significant under Control Option 5 but not under
Control Option 4. Under Control Option 5, in the case of
maximum demand elasticities, industry-wide output and
employment would decline by 1.8 percent at veterinary
facilities and by 1.5 percent at commercial research labs.
With substitution, the impacts are less than -1 percent.
The vast majority of medical waste generators do not
operate an onsite MWI. Those that send their waste offsite
to be incinerated are estimated to see an increase in cost
of $149/ton under Control Option 4 and $259/ton under
Control Option 5. For all industry categories and
subcategories defined to consist exclusively of medical
waste generators that do not operate an MWI, both cost
increases can be recovered with a price increase under one
percent even if all medical waste generated is incinerated
offsite.
Finally, the Emission Guidelines continue under Control
Option 5 to not have a "significant economic impact on a
substantial number of small entities." A good number of
small entities are significantly impacted by controls, but
most significant impacts can be avoided by substituting.
While some small facilities will continue to have
significant impacts, in no case will the number of
Add-3
-------
significantly impacted facilities be close to "substantial"
(i.e., 20% or more of all small entities impacted).
3.0 CONTROL COSTS
Per-MWI control costs under Control Options 4 and 5 are
presented in Table 3. The increase in capital control costs
from Control Option 4 to Control Option 5 ranges from 19.7
percent for the Continuous 36,000 and Intermittent 21,000,
to 35.5 percent for the Batch 250. The increase in total
annualized control costs is likewise inversely related to
MWI size — while total annualized control costs for the
Continuous 36,000 increase by 38.7 percent, they more than
double for the three smallest MWIs, the Pathological 2,000,
Intermittent 2,000, and Batch 250.
4.0 INDUSTRY-WIDE IMPACTS OF CONTROLS
4.1 INDUSTRY-WIDE ANNUALIZED CONTROL COSTS
The first two columns of Table 7 show that nationwide
total annualized control costs slightly more than double
from $716.8 million under Control Option 4 to 1,451.6
million under Control Option 5.
The commercial incineration cost pool (i.e., total
annualized control costs that will be passed along to
offsite generators) increases from $118.8 million under
Control Option 4 to $210.5 million under Control Option 5.
Considering that an estimated 702,865 tons of capacity at
existing MWIs is used for commercial incineration, this
comes to $169/ton under Control Option 4 and $300/ton under
Control Option 5, These are the per-ton increases in
offsite incineration costs at existing commercial MWIs under
Control Options 4 and 5.
Net (of commercial incineration) industry-wide
annualized control costs are shown in the last two columns
of the table.
Add-
-------
TABLE 3. CONTROL COSTS FOR EXISTING MWIS (1989 DOLLARS)
Capital
Model MWI
Cont.
Inter.
Cont.
Inter.
Path.
Inter.
36
21
24
8
2
2
,000
,000
,000
,400
,000
,000
250
C.O.4
901
901
753
634
524
515
498
,267
,267
,211
,482
,410
,234
,364
C.O
1,078,
1,078,
930,
811,
701,
692,
675,
.5
373
373
317
588
516
340
470
Abbreviations: Cont. = Continuous,
Total annualized
C.O.4
348
270
219
174
122
127
120
Inter. =
,973
,906
,372
,288
,862
,270
,948
C.O. 5
484
424
354
327
275
279
273
,083
,513
,482
,214
,333
,893
,948
Intermittent,
Path. = Pathological,
Add-5
-------
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4.2 MARKET PRICE INCREASE
Market: price increases under Control Options 4 and 5
are calculated in Table 9. In the Analysis of Economic
Impacts for Existing Sources, all market prices under
Control Option 4 were considered achievable because they are
less than one percent„ Under Control Option 5, two
(veterinary facilities, commercial research labs) exceed one
percent. However, at less than two percent, they are also
considered achievable„
4.3 CONSEQUENCES OF THE MARKET PRICE INCREASE
4.3.1 Output Impacts
Table 10 shows the impact of the market price increase
on industry-wide output. While all impacts under Control
Option 4 are less than -1 percent and were (in the Analysis
of Economic Impacts for Existing Sources) considered
insignificant, two impacts under Control Option 5 exceed -1
percent; industry-wide output could fall by up to 1.8
percent at veterinary facilities and 1.5 percent at
commercial research labs (maximum elasticities). While
these impacts are not likely to require industry
restructurings, they could be considered significant.
However, later, in Section 6.2, it will be seen that these
impacts can be avoided by switching to an alternative
medical waste treatment and disposal method.
4,3.2 Employment and Revenue Impacts
Table 11 shows that the estimated employment impacts of
a loss of 1.8 percent of industry-wide output at veterinary
facilities and 1.5 percent of industry-wide output at
commercial research labs are -1,914 and -2,091,
respectively. They represent, by definition, -1.8 percent
and -1.5 percent, respectively, of baseline industry-wide
employment. Again, however, it will be seen in Section 6.2
that these impacts ean be avoided by substituting. All
other employment impacts under Control Option 5 are small in
relation to baseline employment.
Add-8
-------
TABLE 9. NET INDUSTRY-WIDE ANNUALIZED CONTROL COSTS AS A PERCENT OF REVENUE/BUDGET
--Existing MWIs—
e.=_-=--._==========s====s===========================================s=======s=====SB===
Industry c-°-4 .0.5
Hospias 0.216%
Nursing homes 0-211% 0.449%
Veterinary facilities 0.844% 1.877%
Laboratories
Conroercial research 0.564% 1.159%
Medical/dental 0-081% 0.144%
Funeral homes 0.003% 0.006%
Physicians' offices 0.013% 0.023%
Dentists' offices & clinics 0.011% 0.020%
Outpatient care 0.062% 0.109%
Freestanding blood banks 0.141% 0.250%
Fire & rescue operations 0.005% 0.008%
Correctional facilities 0.005% 0.009%
_=___,-=_--=======-===========================================================
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As under Control Option 4, under Control Option 5,
industry-wide revenue decreases only for commercial research
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elasticity (Table 12). The decreases are insignificant in
relation to baseline industry-wide revenue.
5.0 PER-FACILITY IMPACTS OF CONTROLS FOR MWI OPERATORS
5.1 PER-FACILITY CONTROL COSTS
Per-MWI control costs were presented in Table 3. Using
the scheme developed in the Analysis of Economic Impacts for
Existing Sources to link per-MWI control costs to model
facilities, per-facility control costs for MWI operators
under Control Options 4 and 5 are presented in Tables 13 and
14.
5.2 FACILITY PRICE INCREASE
The facility price increase is calculated for hospitals
in Table 15A and for other MWI operators in Table 15B.
Under Control Option 5, it becomes even more likely than
under Control Option 4 that hospitals with fewer than 100
beds will not be able to achieve the facility price
increase. For hospitals with fewer than 50 beds, the
average facility price increase under Control Option 5 is
6.88 percent. For hospitals with 50-99 beds, it ranges from
3.03 to 3.08 percent. In general, hospitals with 100 or
more beds should still be able to achieve the facility price
increase, considering that it averages 1.05 percent, which
is less than one percentage point greater than the market
price increase (0.433% —- see Table 9). As under Control
Option 4, there are some subcategories of hospitals with 100
or more beds that are exceptions, however (e.g., t.b.
hospitals).
Under Control Option §, the facility price increase for
both subcategories of nursing homes with 100+ employees,
veterinary facilities with 10-19 and 20-f employees, and tax-
paying commercial research labs with 20-99 employees
continues to exceed the market price increase by more than
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